By EMIL BJARNASON.

The key word for the economy
in 1969 is inflation.

The current inflation gives in-
dications of having far’ more
drastic consequences than pre-
vious ones. This is because of
the circumstances in which ‘it
arises, namely that it follows a
very long period of gradually ris-
ing prices, unrelieved by defla-
tion, and an eight-year period of
economic expansion.

Notwithstanding the steady
barrage of propaganda from busi-
ness and government placing the
blame on excessive wage de-
mands, the striking feature of
the present inflation is the ex-
tent to which it has served as an
instrument of exploitation of the
wage earners. This will not be
seen by the usual method of com-
paring the wage index with the

-consumer price index. Such a

comparison would indicate that
with wages rising eight percent
per year and prices four percent,
the wage earners were making
real gains. :

But quite apart from the fact
that the Consumer Price Index is
rigged, such a comparison is in
present circumstances utterly
misleading. For in the present
period, the government budget is

used, as never before, as a means.

of transferring net income from
the poor to the rich. The follow-
ing are some of the ways in
which the tax burden has been
gradually shifted in the direction
of regressive taxation, that is,
taxes which weigh proportionate-
ly more heavily on the poor:

® The old age security tax.
This takes four percent of every-
one’s taxable income up to
$6,000, and nil thereafter.

®@ The Canada Pension Plan
tax. This.takes 1.8 percent of all
earned income (excluding $600)
up to $5,200, and nil thereafter.

It is not paid on interest, divi- |

dends or property income.

® The unemployment insur-
ance tax. This takes approxi-
mately one percent of income up
to $5,000, and nothing thereafter.

© The social security tax. This
takes two percent of income up
to $6,000, and nil thereafter.
- The startling, and little publi-
cized result, is that from 1965 to
1969 payroll taxes have risen 38
percent at the $5,000 level, 20
per cent at the $20,000 level,
and only 9 percent at $40,000.

To determine the effect of in-
flation on wages, therefore, one
must take account of taxes as
well as prices.. When we do this

it turns ‘out that in 1969 any
worker whose nominal or gross
wage has increased by less than
seven percent over 1968 has in
fact suffered a wage cut. Since
this calculation is based on the
mendacious ‘ official: Consumer
Price Index, it is a conservative
one. This means that the effec-
tive increase in purchasing pow-
er from an average wage in-
crease of eight percent is ap-
proximately zero, although the
output per hour of the average
worker has been rising at four
percent a year.
~ The received wisdom of the
Keynesian and post-Keynesian
economists is that both inflation
and crisis can be controlled by
appropriate monetary and fiscal
policy. By their prescriptions, the
policies of the Canadian govern-
ment have been exactly the
right ones to curb inflation. On
the one hand, public purchasing
power is reduced by heavy taxa-
tion and on the other, excessive
investment is discouraged by
high interest rates.

The Canadian government has
applied these two policies with
a vengeance—with the interest-
ing result that the inflation con-
tinues unabated, revealing that
Processes are at work which
Keynes and his fallowers dream-
ed not of.

The main process relevant to
this discussion is the vast expan-
sion of government expenditure
associated with the growth of
state monopoly capitalism. This
is not, as some would have it,
the result of vote-catching ex-
pediency, nor does it reflect gov-
ernment concern for the needs
of the people. Rather it arises
from necessities inherent in the

present phase of state monopoly
capitalism.

® As automation undermines
the economic security. of the
working class, the survival of the
system requires vast and increas-
ing welfare expenditures. There
are far more people, both in total
and as a percentage of popula-
tion, dependent on the govern-
ment for support than there were
in the worst year of the thirties.
In the past three years alone,
government payments for this
purpose increased from $4.7 bil-
lion to $7.3 billion.

® The scientific and technical
revolution has given rise to pro-
duction and. investment costs
that private enterprise refuses to
bear. The Chamber of Commerce
types who are most prone to in-
veigh against “socialism” and
government intervention them-
selves insist that government
must pay the increasingly heavy
costs of scientific: research, tech-
nical education, manpower mo-
bility systems, etc., which the
new technology demands and,
moreover, frequently insist that
government put up a large share
of their basic investment in in-
dustry (e.g., the government-
built Pine Point Railway, built
for the explicit purpose of haul-
ing ore from CPR mines to a
CPR smelter).

® To underwrite the profitabil-
ity of capitalist industry, the
military-industrial complex de-
mands that an increasing frac-
tion of the nation’s business be

transacted in the form of gov-

ernment contracts which use the
taxpayers’ money to provide
profitable business for the mono-
polies.

All told, government expen-

the wage/price treadmill
a seven percent increase is less than nothing

Wage $5,000.00
Less,
Income Tax 738.50
Unemp. Ins. 48.48
Canada Pension “81.00 867.98
$4,132.02

5,350.00

Wage 1959 (7% raise)
Less, Income Tax 899.59
Unemp. Ins. 72.72
Canada pension 82.80 1,055.02
4,294.98
Correct for 4% rise in
Consumer Price Index: $4,129.70

Thus, puchasing power of $5,350 is $2.32 less in 1969 than of $5,000

in 1968.

_ PACIFIC TRIBUNE—MAY 30, 1969—Page 6

ditures have risen much faster
than the gross national product
—from $17.6 billion in 1965 to
$26.0 billion in 1968.

There is nothing inherently in-
flationary about government ex-
penditure. In socialist countries,
practically the whole national in-
come is government expenditure
and it does not cause inflation.
In the capitalist economy, how-
ever, the government must bal-
ance its expenditures either by
taxes or by printing money (gov-
ernment borrowing amounts to
the same thing as_ printing
money, since under our present
monetary system, government
bonds invariably end up in bank
reserves where they become the
basis for expansion of the money
supply). Since the monopolies
will not permit the government
to raise their taxes, and there
are political limits to the tax-
ability of working people, the
government in practice resorts
to the printing press. Thus, since
1965, the supply of money in
Canada has been expanded by 41
percent. This and not wage de-
mands is the source of inflation.

From the point of view of the
bourgeoisie, the terrifying as-
pect of the present situation is
the fact that the controls no lon-
ger work.

Raise the rate of interest?
Who cares? If we go in debt to-
day, tomorrow inflation will have

‘depreciated the debt and enhanc-

ed the value of whatever we
bought with it.

Raise taxes and cut down pur-
chasing power? Then we'll buy
on credit and pay it off with
higher earnings later.

Government today is faced
with some apparently irreconcil-
able contradictions. It seeks, or
so it says, to achieve three basic
economic aims: economic growth
(implying full employment);
price stability; balanced interna-
tional accounts.

But whenever it attains the
first objective, of economic
growth, the second, price stabil-
ity, gives way to inflation. And
if inflation goes beyond interna-

tional norms, the third objective,

the balance of payments, is lost.

In this situation, one govern-
ment after another has followed
its class bias and sought a solu-
tion in wage freezing (“incomes
policy,” ‘“‘guidelines”) . Canada is
now toying with this expedient,

notwithstanding the melancholy

experiences of Harold Wilson.

That expedient will not work .

either.

For the workers and for Com-
munists an important lesson of
the present situation is that the
class struggle becomes increas-
ingly political. Traditionally, ex-
ploitation at the point of pro-
duction has been fought by di-

rect collective bargait
when the monopolies é
collective exploitation,
their control of gov®

redistribute income ee fai

regressive taxation an!

and using legislative ee work ie

hold down’ wages;

and their unions are iti

to fight them on
plane. ae
Is there a solution ¥!
present political framew
There is, of course, NO
lution short of socialism.

can be met an
solved, at least in th
averting crisis and Pf©
immediate needs.
Basic to a health eco®

day is the immediat

ing.
ngaee,

thin
ork?

e imp of

of

Shtanaeh ..Mictearmmpteeneen enn

od |

‘ nadians ;
problems facing G easton

e sen
vi

dink fo

tation of the Carter ot wou!

Taxation. This in it
correct a number

pres

sf
difficulties: first by tM, th
a part of the tax burde™ gt)

rich, where it belongs: 5°

increasing government

nue and thereby ©
need for printing-pres®
third by reducing the @
ness of speculative 2!”
count of the propose
gains tax).

Second is the impl
of the principle that £0Y

b
funds will be used for PY A
(a 7
th at

dizing of private invest™® capi ©

vestment, and not for

implies that where puv
tal will not do the job,
ment will nationalize t
try.

Third is that the pre

i iving stand@
prices, on living a

on the supply of cap!
relieved by cutting bac?
expenditures from thelt
absurd levels.

Such measures will
the contradiction nor 5°
the difficulties of the
economy today. But

1

and they will advance t
gle to a higher level.

_——-

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July-August

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—A CRITIQUE
by A. Rumyantsev

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