In his article ‘The Trap of an Incomes Policy’ in New Left Review 34 Bob Rowthorn makes a number of criticisms both of the Government’s Incomes Policy and also of our support for an advance towards socialism through pressure for an incomes policy. Our support was, of course, for an incomes policy, not as it is now, but as the Government might be forced to make it. Since, however, it is not always clear when Rowthorn is attacking us and when he is attacking the Government, it will be best if we first sort out what we do not believe, and cannot therefore be accused of, and then go on to show what we do believe and are advocating as a policy for the Unions.

1. We do not accept George Brown’s prices and incomes policy as it stands and particularly the assumption that prices and incomes require parallel and equal treatment; Royden Harrison—the Hallam delegate—made that clear at the 1965 Party Conference.
2. We do not accept Aubrey Jones’ fantastic view that supreme power in our society now lies at the bottom nor the theory that inflation is caused primarily by workers in trade unions with strong bargaining positions.
3. The objective of our policy is not merely therefore that better placed workers should restrain their demands, so as to raise the position of the less well-paid.
4. We do not advocate an incomes policy as an alternative to devaluation in solving the British balance of payments problem.
5. We do not advance proposals for an incomes policy unrelated to other demands for more planning and a larger public sector in the economy.

Three of the four main arguments of Rowthorn, therefore, fail to touch us in that we agree that George Brown’s policy, and the National Plan itself, would perpetuate the present unequal distribution of incomes, that trade union demands are not the prime cause of inflation and that devaluation is the better answer to the balance of payments crisis. The fourth, that any incomes policy would in the present circumstances lead to the emasculation of the whole Labour movement, we shall deal with as we develop our case.

The argument about devaluation should be got out of the way at once, since it is almost entirely a red herring, just as is the argument about cutting the arms bill. They are both admirable policies for helping to solve the balance of payments crisis; they would, however, do virtually nothing to solve the long run problem of inflation and the growing inequality of income distribution. Indeed, devaluation without effective planning of incomes, taxes and subsidies would certainly lead to sharp price increases at home and greater inequalities between incomes. The fact that inflation in the past now requires devaluation does not mean that such a devaluation of sterling would be a way of stopping future inflation. Rowthorn can’t mean that we should go on devaluing sterling as our prices continue to rise ahead of those in other countries? Our anxiety about inflation, however, is much more concerned with its effects on incomes at home than with the competitiveness of British exports abroad, important though this is. In any case in our first Tribune article of January 8th we supported the devaluation alternative and one of us has in fact with John Hughes for long been the main advocate on the Left of devaluation as part of a new foreign economic policy for Labour.

Rowthorn’s economic analysis, which he claims to be shared by all supporters of incomes policy—socialist as well as others—is a travesty of economic argument. It consists first in limiting the effects of inflation to the balance of payments; secondly, in asserting that inflation is caused by the trade unions who in conditions of full employment can ‘force up the level of wages more rapidly than productivity rises’. If they had been able to do this for wages as a whole, then the share of profits in the National Income relatively to the share of wages would have fallen. In fact since 1958 it has been steadily rising. It might be argued that this is because the number of wage-earners has been falling and the salariat has been increasing, but this argument fails because company profits have been rising faster since 1958 than all employment income per head.

It is precisely this increasing inequality that concerns us. The unequal distribution of incomes, even more than slow growth and unbalanced foreign payments, are a symptom of the fundamental contradiction of capitalism: that between the further growth of the forces of production and the character of the existing property and market relations. It is not by chance that lower income groups suffer worst from inflation and the gap between them and the better paid wage and salary earners widens. To survive, capital must expand but it must also exploit.

Our analysis started from consideration of the fact that, just as the growth of real wages was held back between the wars by mass unemployment, so growth is held back today by the ability of oligopoly suppliers to pass on higher money wages in price increases. Our concern was, therefore, primarily with the relationship between inflation and the distribution of incomes, and above all as regards property and non-property incomes, and with this as the latest manifestation of the fundamental contradiction between productive forces and relations. We are bound to notice that, after a hundred years of the tuc, 50 years of progressive income tax and 20 years of the welfare state, just 5 per cent of the adult population still enjoy three quarters of all personal property and 92 per cent of all property incomes, and at least a quarter of all pre-tax income from all sources, not to mention their enjoyment of expense accounts and the other forms of tax evasion that are facilitated by the corporate character of wealth in contemporary capitalism. (For the figures see J. E. Meade, Efficiency, Equality and the Ownership of Property, pp. 27–28).