BANK of England chairman Mervyn King’s speech in Winchester on Tuesday night was governed by a central axiom for the survival of British capitalism.
He stated that however great the massive rise of prices in oil and metals, all produced abroad and having to be purchased and imported, ‘inflation is made at home’.
In other words wages have to be kept down, and with them the amount of credit both paper money and bank loans in circulation that has led to £1.3 trillion of household debt, and to too much credit chasing too few use values, such as houses and other goods, further stoking up the fires of inflation.
King pays tribute to the role of the very large numbers of migrant workers, new to Britain, whose cheaper labour power has put a valuable downward pressure on wages.
He looks forward to more of the same, while acknowledging that the massive increases in gas, electricity and petrol, and in charges such as council taxes, and bus and rail fares has led to a fall in living standards.
He enthuses: ‘globalisation is everywhere. . . Globalisation has magnified world supplies of manufactured goods and capital as well as the labour force. Prices of all three have changed, and we have not been immune to those changes.’
He adds: ‘And in a buoyant British labour market over the past two years, around half a million migrant workers (or possibly considerably more, we simply do not know) have arrived from the new member countries of the European Union and elsewhere in the world. It is unlikely that migration on that scale has had no effect on wages, or, indeed, on rents and house prices.’
Then ‘Some of you may be tempted to think that because the growth of the Chinese economy has affected key prices in our own economy, inflation in Britain is now largely determined overseas. Low inflation in industrialised countries, it is argued, is made in China. . .
‘Inflation arises when the total amount of money spending (or nominal demand) in the economy is greater than the value today of the available goods and services. . .
‘In short, inflation is made at home.’
He adds: ‘After a prolonged period during which consumer price inflation was below its 2 per cent target, inflation has been above target for nine out of the past thirteen months.
‘So what are the challenges facing the Monetary Policy Committee as it tries to bring inflation back to the 2 per cent target?’ He acknowledges the fall in oil prices – but warns ‘the anticipated fall in inflation for September, may not persist for long.’ He is hinting that in a world in crisis oil and other prices, including the price of labour power, may leap even higher!
He adds: ‘A change in oil prices does not in itself tell us where overall inflation is headed in the medium term. For that, we need to look at the balance between money spending and potential supply . . .
‘There is, however, great uncertainty about potential supply. The possibility of continuing migration from the new member countries of the European Union and elsewhere is likely to increase the potential labour force available to UK employers. And it appears that more people of pensionable age are choosing to continue to work.
‘The difficult judgment facing the Monetary Policy Committee is to what extent that increase in labour supply, and hence potential output, will allow a faster expansion of total money demand without upward pressure on inflation.
‘Given the uncertainties about the supply potential of the economy, we will need to keep our eye on the ball and monitor closely the evolution of wage and cost pressures. . .
‘The new factor is that, although 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.’
The future of British capitalism rests on imposing savage wage cuts! King and the bankers are crystal clear that their survival rests on wage cutting and privatising the Welfare State.
