In the last weeks one of the most gigantic press campaigns in history has been aimed at convincing the working class that it is 'excessive wages which are responsible for inflation. Indeed the hysteria has been so tremendous on this that even some socialists have begun to claim that perhaps wage increases are responsible for inflation. Yet looking through the mass of propaganda even figures from capitalist sources show that this claim is rubbish. Two facts alone are sufficient to blow this myth sky high.
Although wage increases are supposed to be the cause of inflation throughout the whole post war period, in which inflation has been increasing, the share of wages and salaries in the economy has actually been falling. Detailed figures, calculated after tax and other deductions, show this clearly: Take home pay after tax etc. as percentage of national income (1):
58.0 1970 56.4 1971 55.9 In short, far from increasing wages causing the increase in prices, wages as a proportion of the economy have actually been falling as the inflation speeds up. So much for the claim that wages are the cause of inflation!
The reasons for the huge budget deficits and expansion of credit created by the capitalist state lie in attempts to counter the inherent tendency of capitalism towards slump-a tendency shown in its most vivid form in the 1930s. The economic policies which are supposed to counter this tendency to slump, named 'Keynesian' after the ruling class theorist, argue. for the state pumping funds into the economy through tax cuts or increased public spending whenever the economy starts to go into a downturn. Such an influx of money, so the argument goes, creates extra spending power, extra demand for goods, and therefore an increase in production to meet this demand. More production in turn means an increase in employment, which creates yet more demand for goods as the workers spend their wages, and an increase in investments as firms lay down plant to increase their production. Thus the short term increase in demand brought about by the state brings the long term beneficial effect of increased employment, increased investment and increased production. This has been more or less the policy pursued by all capitalist governments since 1945 and has been one of the factors which produced the 25 year long 'boom' after the Second World War.