The real cause of inflation

By WILLIAM KASHTAN

N the last few weeks Finance

Minister Sharp has been lead-
ing a campaign on the “danger
of inflation” and its possible ef-
fects on the economy. He has
further called for voluntary re-
straints by employers and labor
regarding price increases and
wage demands and pledged that
the government is undertaking a
curtailment of expenditures to
ease excessive demand.

What is behind this campaign?
Is there a danger of inflation and
if so, what are its causes?

There is no doubt about the
fact that prices are rising on vir-
tually everything Canadians need
to maintain a decent standard of
living. Canadians feel the effect
of price rises daily. But not every
Canadian understands as yet who
‘and what’is responsible for this
state of affairs. The capitalist
press as usual has blamed wage
increases for price rises and in-
flation. The latest report of the
Economic Council comes closer
to thé truth when it states that
it is rising costs of food and rent
which is a prime factor in labor’s
determination to gain wage in-
creases.

Actually there are two basic
reasons for rising prices and in-
flationary tendencies.

a) The first is the U.S. war in
Vietnam. “Without Vietnam,”
the Financial Post of May 27
declared, “U.S. economists cal-
culated that prices in 1966 would
have risen by only 2 percent in-
stead of 3 percent. House con-
struction wouldn’t have been
knocked into a cocked hat .. .
lower interest rates would have
been possible.”

The Financial Post came back
to the same question on October
14 in an article on the Vietnam
war which stated that “Vietnam
is responsible for one-third of
the 3 percent consumer price in-
crease in the U.S. last year which
certainly carried over into Can-
ada.” Last year according to J.
W. Rapkin, economist for the
Sun Life Assurance, Canada suf-
fered its worst performance since
the Korean experience of the
early 1950's. :

Along similar lines G. W.
Kock, head of the Grocery Ma-
nufacturers of America stated
that, “every time this nation
(USA) is at war, this nation’s
economy is inflated. Rising food
prices are the result.”

To this should be added the
revealing statement of Trade and
Commerce Minister Robert Win-
ters when he spoke in Toronto
October 4. Commenting on the
increase in NHA interest rates
he stated: “Money is available
to those willing to pay the price.
It is not tight monéy we're hav-
ing but interest rates are too
high. This is a world situation.
The Vietnam war undoubtedly is
at the root of it. I don’t think
we can look for any quick
change .. .”

What we have then is a war
induced inflation. If inflation
exists today it is not due to
wage increases but to the war
in Vietnam. When the resources
of a country are devoted to pro-
duction of articles of destruction,
not of consumption, it creates
excessive demand. The fact is
that over 100,000 Canadians are
involved in arms_ production.
Thus Canada has felt the effects
of the U.S. war in Vietnam both

directly and indirectly. The war
has distorted the economy, ag-
gravated the international bal-
ance of payments, brought about
rising prices and eroded living
standards. We will continue to
have inflation as long as the war
of aggression continues.

. The Canadian government
therefore needs to do more than
call for a halt to U.S. bombing.
It must, in the interest of Can-
ada, pursue a policy of ending
this immoral, unjust and illegal
war, dissociate Canada from it
and stop the shipment of war
materials to the U.S. while the
war continues,

e

b) The second reason for in-
flation and rising prices lies in

improving its living standard.
This stop and go policy how-
ever did not result in falling pric-
es because of monopoly control
and domination of the economy.
It is this domination and mono-
poly rigged prices arising from
it which is causing inflationary
tendencies.

Thus Canada has been swing-
ing between government policies
of inflation and of deflation both
expressing the dilemma before
government and monopoly ca-
pitalism — the inability to main-
tain high employment, stable
prices and rising incomes.

Present government policies
express this dilemma. Mr.
Sharp’s anti-inflation campaign
is not so much directed against

COST OF LIVING ZOOMS

Showing Consumer Price Index (cost of living) based on official releases of
the Dominion Bureau of Statistics. Index is on left and dots show figure
for October 1 of each year listed at bottom. (Figure for 1967 is
September 1, the latest available in mid-October 1967 when this chart was

prepared.)

THREE YEAR TRENDS

October ‘58-October ‘61

' October ‘61-October ‘64

October “64-October “67

state monopoly policy. For some
years now government policy
has been directed to “achieving
high employment, stable prices
and rising incomes.” However
state monopoly intervention and
regulation of the economy has
not been able to achieve all these
objectives. Whenever the econo-
my expanded to conditions. of
high employment, prices rose,
precisely because of the infla-
tionary policies of the govern-
ment. Workers correctly fought
to get the maximum improve-
ments in their living standards
of life, impelled at the same time

“to do so by rising prices. To

change this situation the govern-
ment slowed down the growth
rate, that is, pursued a deflation-
ary policy, with the aim of build-
ing up unemployment and there-
by weakening labor’s effort at

November.17,1967--PACIFIC TRIBUNE —Page. 4 -

inflation which after all is em-
bedded in, the monetary and
fiscal policies of the government;
its real aims are to use the bogey
of inflation to crack the whip
against labor and try to impose
some kind of wage and price
guidelines which in the end will

be directed at wages, not at .

prices and profits. It’s first vic-
tims may well be government
employees, who are presently
entering negotiations while its
second victim will be the Cana-
dian people who are confronted
with the prospect of a tax in-
crease somewhat along the lines
of the U.S. administration’s 10
percent surcharge tax.
8

c) The labor movement has
correctly opposed the proposal
for wage and price guidelines. It
should equally oppose the pro-

posal for an indiscriminate tax
increase. If there is to be a tax
increase it should be on corpor-
ate wealth, not on the living
standards of ‘the Canadian peo-
ple. As it is wage increases are
being rapidly eroded by rising
prices, higher rents, medical and
transportation costs over which
the working class have no con-
trol. An indiscriminate tax in-
crease would further accentuate
that process and lead to a re-
striction of the home market in
conditions of increased produc-
tivity and production.

In light of these attacks on
their living standard, the labor
movement should step up its
fight against the proposed wage
guidelines and an indiscriminate
tax increase and press more vi-
gorously than ever for increased
wages for the establishment of
Price Review Boards on a federal
and provincial scale which
would compel monopoly to show
cause before any price or rent
rise could be permitted.

. The labor movement should
equally oppose proposals for
curtailment of government ex-
penditures for social welfare
measures. These proposals seem
directed to again delay the im-
plementation of medicare, deter
improvements to unemployment
insurance and other socially use-
ful measures. Government ex-
penditures should certainly be
cut down in the place where it
needs to bé—the arms program
which this year will involve an
expenditure of $1,700,000,000,
and part of it used to help re-
solve the acute housing crisis.

e

There is another side to the
problem which requires our at-
tention. Over the past period
state monopoly capitalism has
passed through two phases in its
efforts at influencing economic
development. The first phase
was directed to modifying the
economic cycle, by anti-cyclical
measures which could either
slow down economic crisis or
modify its effects.

The second phase was direct-
ed to pursuing policies of more
or less sustained economic
growth inevitably led to rising
prices, to inflation and continu-
ing instability with its danger-
ous consequences.

The third phase which is now
being given increasing attention
is directed to achieving growth
with a minimum of inflation,
what Mr. Sharp calls “stabilizing

IGHER RENTS, FARES,
POSTAL RATES, NEWSPAPER
PRICES SOAP AND BEER

TAX UP.

the economy” based
cognition that “the
tools of fiscal and mone?
cies are no longer a
guide the economy. Son
tional mechanism 1S
But to achieve this”
requires, from the stam
state monopoly rule,
price guidelines and
regulation of the
movement, that is,
intervention, and
programming. This #8 !
Sharp presumably ™
he appealed to labor.
ployers to help him fin?

i]

o-@
One of the purpose
“planning” howevel
plete the rationaliz@
dustry in face of sha
petition envisaged as 4
the Kennedy Round a
sible entry of Great © ag
the European Comme
Such capitalist “plant”
directed to satisfy a
needs of the people. It
directed to be
poly, to try an
iiiecent instability
and enhance
wealth and monopoly ®
pense of the peop:
course is not the
ning the labor movelm®
should support.
What it should PY
democratic planning
modifying the very “4
capitalism, that is, the
public control over
tor of the economy:
investment _ poli¢
labor, farmers a”
cratic bodies directly ’
programming.
It is along thes¢ li
purchasing power ©
can be protecte@
stability achieved.
The real alte
stands before the
ple today therefot
ning” in the inte fe
poly and its profi vi
pense of the jivit
jobs of the people
Dosco, CNR and van
ine democratic P il
on democratic
which only 2 t#U
government could aly
the final analys!® oan
based on public © t
assure proporti
anced economic 4,
rising living St@M 4 |
lar which is Te4