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The truth behind wage rises, inflation and prices

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Gordon Brown's claim that he must hold down wages to beat inflation is based on a series of myths
Issue 2084

“We are going to keep inflation under control. The whole purpose of this is keeping inflation under control.” That is how Gordon Brown justified his pay limits for public sector workers at a Downing Street press conference on Monday of last week.

In saying this Brown reflected the prevailing assumption of mainstream economists that inflation is caused by high wage settlements.

If workers were more “disciplined” and less “greedy”, the argument runs, then employers would not be “forced” to raise prices.

But even mainstream economists are sceptical over whether Brown’s clampdown on public sector pay will have much impact on inflation figures. They note that public sector workers do not, by and large, produce the goods whose prices determine the inflation rate.

Moreover the public sector only accounts for one fifth of Britain’s total workforce. So Brown’s public sector pay limit is designed to act as a political signal to private sector bosses, telling them that they too can and should crack down on their workers’ pay.

Workers should not accept the assumption that their pay rises are the cause of inflation. If anyone is being “greedy” it is the richest in society – yet we don’t see Brown cracking down on their fat cat salaries or huge bonus payments.

By far the largest factor driving inflation today is the spiralling cost of raw materials such as oil and grain. Capitalists recoup these higher costs by increasing the prices of their goods – passing on price rises across the economy.

So it is the ruling classes’ insatiable desire for profits that leads to higher prices – and that is something built into the very fabric of capitalism.

That is why workers should not accept Brown’s arguments about “discipline” – but rather fight for what is rightfully theirs and against a system that is set up to defraud them.

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