Iain Mackay

King stated on 10th October that the current small increases in earnings were not "sufficiently restrained" to compensate for the inflation caused by higher energy costs and unfavourable changes in import and export prices. "Ultimately, both developments must result in lower real incomes," he said (though he said nothing on excessive bosses' pay).

In other words, the working class must pay for capitalism's problems. As a statement of class war, it is hard to be more succinct.

Since the 1970s, capitalist economic policy has been aimed towards `fighting inflation'. This policy is based on the 'Non-Accelerating Inflation Rate of Unemployment' (or NAIRU) - itself rooted in the works of Milton Friedman.

The NAIRU theorises that there is a level unemployment below which inflation starts to rise. The problem is, there is no way of finding that rate beyond looking at what actually happens to inflation. So the economic policy of the UK is based on a group of technocrats trying to guess where an invisible value is and, to make matters worse, the rate changes over time.

This is because the rate is dependent on many factors, the key ones relating to working class power, i.e. their ability to demand and gain better pay and conditions.

As unemployment falls, workers feel more able to demand better pay and conditions. This raises the wage bill, which companies offset by raising prices. This, in turn, gets workers to demand higher wages and inflation starts to accelerate. This was the process at work in the 1970s and was broken by Thatcher's and Reagan's `Monetarism'. With the staggering levels of unemployment this theory produced, workers could no longer offset price increases and so costs required for `recovery' were passed onto the working class.

Edmund Phelps, the economist who formulated the modern version of this theory, was given the Nobel prize for economics in October. Phelps, like Friedman, argued that the state has to keep the unemployment rate at or above the (unknown and unknowable) `natural rate' in order to keep inflation from accelerating.

In other words, you have to make people unemployed or fear being made unemployed (by raising interest rates and slowing the economy) for capitalism to survive.

Neo-liberal capitalism is based on monetary policy which explicitly tries to weaken working class resistance through unemployment, by manipulating what Marx termed "the reserve army of labour". If `inflation' (i.e. labour income) starts to increase, interest rates are raised so causing unemployment.

Of course, according to the eternal and sacred law of `supply and demand', wage rises are to be expected when unemployment falls. The laws of the market are the justification for bosses' massive rises, after all. Yet even in the unreal world of capitalist economics, wage rises need not cause price increases. This is because wage increases can be offset by reductions in profits.

However, this is not an option in reality. As Mervyn King notes, while "wage pressures have so far been subdued, it is still not clear that earnings have been sufficiently restrained to accommodate the past rises in energy prices and the fall over the past year in the prices of our exports relative to our imports without a squeeze on profits. Ultimately, both developments must result in lower real incomes."

Sorry, but no. Why should the majority accept `lower real incomes' so that the few can see their incomes rise? Blair declared that the class war was over - someone should tell King.

--from Freedom, 21 October 2006