In a short reply I cannot deal with all the criticisms of my article.
Barratt Brown and Harrison aver that devaluation and reduction of the arms bill could do nothing to solve our long run problem of inflation. Have we got a long run inflation problem? In recent years unit costs of our major competitors have been rising as fast or faster than here, now that unemployment has virtually gone in Europe and Japan. The exception is the United States, but even there capacity is now strained and unemployment is getting lower. The same rise in unit costs should soon be happening there. Suppose our rate of growth rose by 2 per cent because resources were transferred from arms to investment. This would raise productivity without raising the demand for labour. It is likely (in the present state of knowledge there is some uncertainty about this) that wages would not rise much faster than they are doing now. The result of this would be that the rate of growth of our prices would be cut by nearly 2 per cent—certainly enough to avoid future devaluation. Even if it did not avoid the need for devaluation, so what? A 10 per cent devaluation every five years would not be catastrophic, provided we had done something about the sterling balances; offered for example to guarantee them in dollars or marks, allowed their holders to repatriate them at a rate of say £250m per year, and instituted capital control. The sterling balances are, after all, equal to only about a third of our overseas assets (see Bank of England Quarterly). The objection to repeated devaluation made by John Hughes and Ken Alexander (NLR 36) (that it would cause a wage price spiral which would wipe it out) exaggerates the impact of, say, a 10 per cent devaluation on the home price level—not more than 1–1½ per cent initially and perhaps a little feed back through wages. Most of the studies made of wage-price spirals have ignored the role of profits in stimulating wage rises. In an economy without imports this does not matter much, as profit rises tend to be associated with price rises; but in an economy with imports it may happen that prices rise a bit and yet profits as a share of the national income do not rise, thus moderating the pressure for wage increases. I agree that it is difficult to answer the whole question definitely, but my critics do not ever say why we should not have repeated devaluation. They seem to think that the incorrectness of such a policy is so clear that it needs no argument. I find it quite unclear.
I agree that the problem is the education and organization of workers. I agree that enforcing price control on the basis of workers’ vigilance would be excellent. But why do Barratt Brown and Harrison propose a quid pro quo? Why cannot we have both worker-enforced price control and free-wage bargaining? From time to time there would have to be government intervention to raise the wages of workers unable to keep up. The objection to government intervention does not apply when it intervenes to set minimum wages, only when it tries to set maximum wages. Even enforcement of maximum wages by the trade union movement against the wishes of some militants could have dangerous results.
I agree that it is possible to conceive, in some situations, an incomes policy in which workers voluntarily held back their demands, in which the trade unions did not become monolithic entities, and which helped raise class consciousness. Unfortunately we are so far from such a situation that it is not a very relevant point of agreement. At present the vast majority of our trade union leaders are so hopelessly compromised by or committed to the system that they would certainly make use of an incomes policy to consolidate their power and weed out trouble makers. The Left-wing argument for an incomes policy is always phrased as if the whole trade union movement can just offer to do a deal with the employers and government. Rarely is any mention made of just what they propose doing with workers who disagree with their own leaderships. To me this is the crux of the matter. I do not think an inflation of 5—6 per cent per year matters one way or another provided the government is prepared to raise pensions, the wages of the lower paid workers, and welfare payments in line with this. Instead of campaigning for an incomes policy there should be an unflagging campaign for higher minimum wages, pensions, etc., all tied both to national productivity and the cost of living.