The reality, however, is very different. A modern capitalist economy is not a competitive economy but an economy dominated by giant monopolies in Britain today, a mere 100 companies account for over half of all manufacturing output. Monopolies do not nave to cur orces when aemand aus oi supply increases. They are in a clear position to manipulate the market, and monopoly prices are undoubtedly a first driving force of price increases.
A classic case of monopoly pricing was the Hoffman La Roche scandal. This vast drugs company was shown to be charging the health service £922 a kilo for a drug which could be sold outside its patents for E20 a kilo. Thus its monopoly enabled 1ю шаке a pront or several thousand per cent Hoffman La Roche, however, is only an outstanding case in a classic pattern. For example, in the United States a tremendous overproduction of beef developed in the summer of 1974. According to cassical cap laust economy mneory meatsonices should have fallen in these conditions - and indeed on the wholesale markets, reflecting the price paid to the farmer, meat prices did fall by 30-50 per cent. But the price in the shops did not fall at all.
MONOPOLIES The reason is clear. The various monopolies in the food processing and retailing industry used the fall in farm prices not to cut prices in the shops but to put up profits. While prices in the shops remained the same, and prices to the farmer plummeted, the largest food retailers increased their profits by 59 per cent on a sales increase of only 14 per cent. The result was inevitable farmers stopped producing because or te low prices, nuge quanunes or meat remained unsold and wasted because of the high prices, and meanwhile the monopolies cried all the way to the bank.
A similar type of development is taking place with chemical prices at the moment. Chemical sales have plummeted during the international capitalist recessone necorums to classical capitalst cconomic theory, we should be seeing a huge fall in prices. But the chemical industry is dominated by huge monopolies such as ICI. Therefore instead of a fall a rapid increase in chemical prices is taking place.
Last autumn the giant American chemical monopoly Dow was already announcing price increases of 10-15 per cent. Furthermore, this was only the bethe Financial Times (6 October 1975) said that the chemical companies must tink in terms of generating much higher prices - up to A CuRes In some caws under these nantons it Is no surprise tnat a massive chemical monopoly such as Du Pont could register a 600 per cent increase in profits this year (Newsweek, 26 The general effects of such monopolies on prices is clear. For example, 27 out of 28 studies made by the Anti-Trust Division of the United States Government found that monopoly was linked together with price increases (cited in Holland, The Socialist Challenge, p62); and the American economist G.C. Means showed that over a nine year period so per cent of price increases could be traced back to products of branches of industry which are "cavy monopoused (cucu in Mander, Late captral ism, p429). In Britain the situation is no different.
INDEXATION The Hoffman La Roche and Ferranti Bloodhound missiles scandals are only the tip of the iceberg.
While monopoly prices are a chief driving force of inflation - although, as we shall discuss next week, it is only government control of the money supply wmen actuary allows inese nuge pronts to be realised - the capitalist class is by no means content with simply this source of increased profits. Once inflation is underway, the capitalists also use inflation to carry through further attacks on the working class and increases in profits. Some of these capitalist mechanisms for profiting from inflation are caucme congex ane nocen ov mer code of business secrets. Nevertheless, we can throw some ugat on tne means they use.
The first and most obvious way for the capitalists to use inflation in their interests is simply to hold down the rate of increase in wages below the rate of increase in prices. Under these conditions real wages and working class living standards fall. Bv these means the wage cuts which the capitalists had to carry out directly before the war can now be carried out more indirectly by inflation. It is by these means, for example, that the real income of the working class has been reduced by 6 per cent in the last seven months.
But if holding down wages below prices is a fairly oovious example or now mragon is maniouated tr favour of the capitalist class, it is by no means the only one, There are also the whole range of techniques which come under the general title of 'inflation accounting, or 'indexation' as it is sometimes known.
The technical details of all the methods involved in this are too complex to go into here chiefly embodied in a huge document known as the sandlands keport — our te basic meenanism is very simple. The essential thing is to manipulate the difference between money income and money prices Duces, wares and prors calculacu mn sounes and - and real income and prices - what can actuany be bousnt with any sum or money In non-inflationary conditions, this difference between money and real prices and income does not matter very much. In highly inflationary conditions, however, manipulation of the difference between the two - the fact that if prices rise more rapidly than money income then real income talls, and that it prices rise less rapidly than money income then real income Increases - can yicia nuge pronts for une capitalist class and produce massive attacks on the working Class The most widely used area where the capitalist class applies 'indexation' measures to its own benefit is in the field of taxes. Inflation has the effect of automatically putting up taxation as people pay more tax on nigner money wages. pass for the tirst time to a money wage where income tax is paid, or pass up into higher income tax brackets, It is this mechanism which chiefly explains why, for example, in 1968 a worker on we average maus har wase Wu We children paid only around 10 per cent of wages in taxes, while by 1976 he or she is paying over 20 per cent.
But while inflation clearly increases taxes on # in ther trtt. working class wages, manipulation of the relation between real profits and money profits allows the capitalist class to make huge direct gains. Already in the period of the 1950s and 1960s an informal sort of indexation took place, whereby much greater adjustments were made for inflation in company taxation than in personal taxation. The result was that between 1949/52 and 1965/68 taxation on pro fits fell from 37 per cent to 19 per cent while direct taxation on wages increased from 10 per cent to 16 Der Cent But in the last two years this taxation fiddle has been made more systematic, and is now clearly moving towards an 'indexation' situation. What has occurred is that Healey has exempted companies from paying taxation on the increased value of their stock resulting from inflation i.e. so they pay taxes on real profits and not money profits on this. The value of this is huge. The Guardian was able to write quite correctly on 17 Feb ary this year that Denis Healey had given British incastry what is arguably the biggest government concession ever recorded in recent industrial history - worth £4,000 million over two. ycals.
In the Budget, Healey extended this still further into the future. As Tribune pointed out on 14 May, by the end of 1976 this concession could be wort around £7,000 million.
The next stage, of course, is to make these con cessions permanent - which is just what an inflation accounting system of the kind the CBI is now pressing for will be designed to achieve. No wonder the chariman of British Aluminium declared that Healey's tax move 'was really helpful, and, it must be hoped something which will be perpetuated by the recommendations of the Sandilands system' (Financial Times, 1 October 1975).
liven before any permanent system is introduced however, the combined effects of inflation and Healev's measures on relative taxation of wages and profits can be seen, In the last full year the burden of personal income taxation, which talls mainly on the working class, went up from 11 per cent to 13½ per cent of the economy. But taxation on companies, corporation tax and capital taxes, fell from 3.9 per cent of the economy to per percent.
Not all of this, of course, is accounted for by taxation changes. But there is no doubt that Healey's huge £4.000 hand-out helped enormously. Once "inflation accounting' is formally adopted the effect on axation will be chorous PLUMMETED It is no accident that the country in the world when nas mostruy developen mne munton accounting system, where indeed virtually everything except wages is auromancally adjusted tor inmation - home of the vile dictator Geisel who has just graced our shores. In Brazil the standard of living of the working class has plummeted amid soaring profits, soaring output, and one of the most horrific dictatorships in the world. There is no doubt on whose side of the bread inflation accounting is buttered Another slightly more complex application of an "inflation accounting' manoeuvre concerns the 'price codes which are now operated by virtually any government under highly inflationary conditions.
For example, the present Government "price code means that companies have to fix profits in relation to the best two years profits they achieved in the period 1967-72. At present wages and profits are calcu lated in money terms. Suppose, however, that 'inflation accounting techniques were applied to profits and not to wages, and it was deemed that neither profits nor wages must rise by more than 5 per cent. If infla tion was running at a rate of 10 per cent, then each year profits made could increase by 15 per cent in money terms without in any way infringing the price code while wages would be held back to 5 per cent. While wages would fall by 5 per cent in real terms, profits would not fall at all but would actually increase by 5 per cent. No wonder that individuals such as R.E. Utiger, managing director of British Aluminium and chairman of the CBI Prices Negotiating Team, are given centre page articles in the Financial Times to advocate simultaneously relaxation' of the price code and the introduction of 'inflation accounting.
AUTOMATIC The one area in which the capitalists want no 'inflation accounting', of course, is working class incomes. Automatic increases to compensate for inflation are excellent for profits, but they must be kept well away from wages. As long as this car be ensured, then the capitalists will gain from inflation with both hands - increasing prices with one hand through the monopolies, and with the other manipulating wages, taxation and price controls to take further benefit from the very price increases they have created.
But if it is the monopolies which are a driving force of inflation, even they are not the real giant price increaser. That honour belongs to the crisis of the capitalist profits system itself, and to the relation of the capitalist state to this. We will look at this next week. JOHN MARSHALL
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