Studies in Economic Fallacy
Mr. Robert McLaurin has been writing in the Labour press, advocating that money should be turned into productive fields. The way to do it, he says, is to stop the banks paying interest on deposit accounts, and so compel the depositors to invest their “savings” in industry. The fact that we are suffering from over-production of goods is ignored by this finance reformer. If more goods were produced by more concerns being started, the situation would simply grow worse. Goods are produced for sale to-day, and as the market is already glutted in almost every trade, the suggested reform would not touch the situation. This writer savs “the system worked with comparative smoothness” until 1914 ! Poverty, insecurity, and unemployment of wage-slaves is apparently a post-war condition to this reformer !
Proudhon and his modern followers who advocate “Free Banking,” the currency cranks like Arthur Kitson, and the Labour crowd who want money reform, are all Utopians who seek a commercial competitive system without the laws of commerce or of competition. Most of them imagine that goods should be money and that banks should allow every owner of goods credit for the amount of his wealth. If the goods cannot find a market in exchange for the universal means of circulation—money—how can they find a market any easier by being put in pawn—if such a childish notion ever was adopted?
Another “short cut to more jobs” is being advocated by some employers in the press. The simple scheme suggests that the money paid to “out of works” by the Government should be handed to employers instead, to enable them to capture orders from abroad. Every unemployed man engaged by the employers will get the difference between the so-called “dole” and his usual wage, made up by the employer. Present wages prevent contracts being obtained against foreign competition—so runs the cry ! The profits, of course, are quite in order ! Such a pass has capitalism come to, that the competition employers adorp prevents them being” able to pay a subsistence wage ! Does it? They don’t suggest that capitalism should be abolished, but that the ruling-class as a whole should subsidise those employers who cannot pay wages and profits out of their business.
Seeing that these same people complain that foreign countries subsidise industries and pay “low” wages, where will the process of cutting wages end ? The miners and many other workers in recent years have had such low wages that poor law relief has had lo make them up to subsistence level. Did that prevent unemployment growing amongst them? And when the rationalisation and electrification of foreign industries is copied here more and more, the unemployed will increase. The countries of “low wages” abroad have a growing unemployed army. “Low wages” hasn’t saved them.
The general adoption of the policy of supplementing part wages with so-called “doles” simplv means that wages will be pushed down throughout the country. The employers who have not the capital to modernise their plants cry out for more wage reductions, and in the meantime the larger concern crushes or absorbs them.
It is a plausible catch-cry to shout “wages determine prices,” but economic facts dispel that moonshine. Ford’s Motors in their last annual report showed that where they paid the highest wage in Europe (in Denmark) output was greatest, and where they paid the lowest (Belgium) the output was least. The real basis of world competitive prices is the amount of labour that it takes on the average to produce articles with modern methods. Where manufacturers, like Ford, have the capital to buy the latest and biggest quantity of machinery, they can reduce the time taken to produce goods, and so sell for less.
The manufacturers who cry out for subsidies to help them pay wages, won’t face the issue that production for the world market is wiping out many competitors and producing the combine or trust in every field. The successful firms have won by reducing costs, which means reducing the numbers of workers required to produce a given quantity of articles. Therefore, the chronic unemployment of to-day becomes a fixed feature of capitalism. Every country and every manufacturer is out for trade, and therefore profit, and in the wild scramble the workers do not count. They just produce the wealth and under the best conditions get just about enough of it back to keep them alive.
Labourites and “short-cut Socialists” are demanding clieaper goods. Consumers’ Bills and anti-profiteering campaigns are on the road to cut prices. These people are chasing a will-of-the-wisp. “reduce the cost of living” may be a good battle-cry for those who are consumers only, but the working class is a producing class. It does all the producing, but only a part of the consuming. How much the workers consume is determined by their wages. And what determines their wages? The basis of wages is the money needed on the average to keep a worker and his family. The number demanding work and the number of jobs available decides the daily fluctuations in wages, but the average level of wages is the cost of living of the worker. When the official index figures of the cost of living show a reduction, wages are reduced accordingly. In the daily Press of July 23rd we read that the Civil Servants have just been notified that their salaries are to be reduced, as the cost of living has fallen. Therefore, the campaign for cheaper goods will simply result, if successful, in reducing the worker’s wage. The money wages are only nominal—the buying power is the real wage. If the necessaries of life are “high,” wages may be raised to cover the increase, but the purchasing power of wages is always related to the cost of living of the workers. However cheap goods are, wages will always represent but a fraction of the wealth made by the workers.
The cry for cheapness to-day overlooks the economic tendencies of the system.
On the one side mass production serves to produce cheaply, but alongside of that is the rising power of monopoly, rings, and trusts to corner the supply and exact monopoly prices. Many manufacturers are against the prices of necessaries being raised and so driving them to pay higher wages. The general tendency of modern capitalism, however, is to concentrate the great sources of wealth and the products into fewer and fewer hands. If nature and man are very productive, and the supply grows quicker than the demand, the owners scheme to restrict production and actually to destroy products, in order to keep prices high enough to ensure their growing’ profits.
Centralised production on a large scale certainly works towards reducing costs, but the great combine owners are not interested in usefulness or cheapness as such—they are interested in profits. Once they have cut out the competitors, they plan “to get all the market will bear” by controlling the market. There is, of course, a limit which they cannot go beyond without reducing the amount they can sell.
The Consumers’ Leagues and similar bodies are powerless to effect their wishes, whatever Bills are passed to stem the economic tide. The concentration of wealth and the combine are the natural outgrowth of commercial competition, and can only be dealt with effectively by abolishing private and class ownership.
One other factor in “high” prices is the falling value of gold due to modern improvements in working gold-bearing ore. Thus economic development and economic laws of capitalism cannot be dodged by reform legislation. They must be understood—and then we’ll fight for Socialism.
David Kirkwood, of the Clyde, Labour M.P. and I.L.P. chieftain, has a mental upsurge. He has discovered how to stop the downward march of workers’ conditions. He has brought in a Bill to make it illegal for employers to reduce wages. A Government in charge of the capitalist system of profit and exploitation is asked simply to decide “No more reductions in wages.” Employers must not cut the workers’ pay. Wages will then automatically stay put. Wages will fluctuate no longer downwards—but only upwards. Thus poverty will be grappled with.
A little economic knowledge would be dangerous to a Labour M.P. We will, however, try a small quantity.
Under this system an employer is not compelled to employ the workers seeking work. The number of men and women seeking work being greater than the number of jobs, wages tend downwards. The market—the labour market—is the place where competition for work causes men to accept the master’s terms. Having no wealth, the workers cannot hold out. Does Kirkwood’s Bill abolish that market and its competition? Does it wipe out unemployment? Does it abolish the lack of property—the force that drives men to work for others for a fodder wage? Does it alter the fodder basis of wrages ?
No. Kirkwood, playing with effects, would like to abolish the effects of capitalist system whilst leaving the system running. It is more sensational, vote-catching, and sounds drastic; it is easier than explaining capitalism and advocating Socialism.
A law to stop wages going down ! A war might do it for a time, whilst the demand exceeded the supply of workers, but a law under capitalism cannot stop the employer buying better and more effective machinery whenever wages tend to rise, and thus pushing numbers out. The rationalisation which Kirkwood criticises (New Leader, July 18th) would play havoc with his “law.” Centuries ago, laws were passed making it criminal to pay more or less than the wage fixed by statute. The plague had swept huge numbers of workers away, and wages rose rapidly. Conditions made the statute a dead letter. The cry of employers for labourers and the favourable situation for the men made reductions of wages impossible. Too many employers were willing to pay more than the legal wage.
When hunger drives hard, men and women go back to work even at terms (fixed with Labour Government’s assistance) involving ten per cent. reduction, as in the woollen trade. What has happened to the Minimum Wage Laws “won” by miners from Lloyd George? Where are the miners’ work and wages to-day? David Kirkwood, like his fellow Labour Members, should stick to “Pleasant Sunday Afternoon” meetings at the kirk.
Mr. Geo. Hicks, of the General Council of the Trade Union Congress, has been telling his Building Trade Union of the effects of rationalisation on the building-trade. One hundred and fifty thousand are out of work in this industry, but more machinery and efficiency schemes are being used every week to get the work done “cheaper.” “A shorter working day,” he told them, would absorb some of the unemployed, and those pushed out by machinery should be given alternative employment or fully maintained.
Hours have been continually shortened in the builders’ craft, but has that absorbed the unemployed? The Union that can’t win a strike over some detail of their conditions is not in a position to win full maintenance. Mr. Hicks, like most Labour leaders, is busy supporting the Labour Government, which carries on capitalism and advocates the wholesale rationalisation which he complains about to his members.
Labour leaders do not tell their members the truth that the only way out is to abolish this system by winning political power for Socialism. It’s a much easier and more profitable way for leaders to keep the workers ignorant. Then they can be led.
Whilst the Trade Union leaders are busy as Labour M.P.’s supporting rationalisation, which will add to unemployment, the Unions beg the members not to add to the financial burden of the Unions by temporary stoppages, etc. The Boot and Shoe Union used to boast that by a “no strike” policy of conciliation they had won the best conditions. Now they complain that unemployment of their members in this machine industry is draining all their funds. The Cardroom Amalgamation of Lancashire has issued a circular to its members, warning them that the scales of contributions and benefits will not stand the chronic unemployment to-day.
The eight looms per weaver scheme, however, is being put through in Lancashire, where more than one-third of the operatives are already out of work. The Labour Government’s Committee of Enquiry, headed by J. R. Clynes, the Labour Minister, advised the greater rationalisation of the industry with the latest wages-saving automatic looms.
The workers in the Unions are still supporting the leaders who mislead them. Not by changing leaders, but by completely changing’ their ideas about society, is the only way the members can cure the situation.
Let the working class own the machines, etc., in common. Stop improving the machinery for the masters. Organise politically to end this system of profit-making.
The Railway Unions have benefited so much by brilliant leadership that since they got back their 2½ per cent. reduction in wages, short time or dismissal has been the rule in the railway shops. A greater speeding up of the work is the owners’ reply to the cancelled reduction of wages. Now we learn from the Daily Herald of June 17th that owing to the drop in the official cost of living figures, thousands of railwaymen have lost two shillings a week. Seventy-five per cent. of the railwaymen, according to the same authority, are down to the minimum rates of wages. They give the figures of £2 6s. for porters, and lamp-men and permanent way men £2 8s. In the meantime the railway companies have been buying up their ‘bus competitors, the money for which, I suppose, comes out of their losses. The Transport Unions and the Railway Union are now busy squabbling over which Union the members must join. Mr. Thomas, we expect, will add to the railway workers’ prestige by finding a place in the House of Lords. Such are the fruits of conciliation in industrv.
“The corner-stone of Marx’s theory, as expounded in ‘Das Kapital,’ is that labour is the creator of all wealth, but that under Capitalism labour is not paid by the value it produces, but by the price of labour power as a commodity on the market. This price, according to Karl Marx, is fixed by the economic laws under which we live at a point which just secures an adequate supply of labour for industry. This he called the ‘Iron Law of Wages’.”—(H. H. Tiltman in his Life of Ramsay MacDonald.)
The above is an example of the ignorance of Marx’s economics by the brainy bourgeoisie who write about him.
Marx did not call his law of wages the “Iron Law of Wages.” In fact he exposed the “Iron Law” theory, which was taught, not by Marx, but by Lassalle. In his criticism of the Gotha programme of the German Labour Party of 1875, Marx pointed out that the so-called Iron Law of Wages was a mixture of Malthus’ over-population theory with economic facts. The “iron law of wages” presupposes that wages cannot rise owing to an increase of population taking place if the subsistence level is increased. More workers born would crowd the labour market and bring wages down. Too few workers would raise wages, which, in turn, would induce larger families, and thus, through competition for work, wages would again fall to their former level.
Marx, on the other hand, showed that the cost of subsistence was the basis of wages. The level of wages, however, was not fixed and was not like iron. The union of workers and their struggle played a part in the raising of wages. The standard of living, too, was not fixed, but fluctuated, due to the changing social conditions; the efforts of workers to adapt their way of living to the period they lived in; and the need of employers to adapt the living standards of the workers to enable the speed and efficiency of industry to be maintained or increased.
The really vital factor in overcrowding the labour market was not the birth-rate, but the use of machinery by the employers. The critics of Marx seem to get their knowledge of him from his opponents.
A. K.