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;

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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®

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

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and they will advance t gle to a higher level.

_——-

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