Influence of the State on the Level of Prices

a) Taxes and Public Debts

In all capitalist nations state budgets and the city expenses have considerably increased, during the last twenty years. The rise in public expenditure is partly a consequence of the greater requirements for public services caused by the general high cost of living, and accelerated through the concentration of population in the big cities and industrial centres. It is also, partly, the result of formidable increases in budgets for the army and navy.

The expenditure of the six great European powers and the United States of America for the army and navy amounted to, without the extraordinary expenses for the Balkan wars:

In 1891

In 1912

In million marks

Army

Navy

Total

The huge expenses of militarism and navalism are partly covered through tax increases. The increase in indirect taxation leads to an increase in prices of the necessities of life. Capitalists hit by direct taxation can partly unload this cost on the consumers of their goods.

The public debt grows even faster than taxation. From 1891 to 1912 the public debt of the 5 great powers of the continent (excluding the federated states of Germany and the Austrian crown provinces) grew from 57,409 million marks to 76,625. The sale in the financial markets of treasury bonds makes the sale of mortgage-bonds more difficult. The deposits of the savings-banks are thus withdrawn and the supply of the necessary funds for mortgage-credits is obstructed. On account of this building activity is paralysed, the need for lodgings in the big cities grows ever greater, and is followed by a rise in house-rents. At the same time the growth of productivity in agriculture is delayed owing to the difficulty of obtaining loans for improvements.

The increase of public debts contributes also to rises in house-rents and necessities of life. The high prices which the people must pay for the necessities of life and rents are also a hidden tribute to imperialism and militarism.

b) Customs Duties and Prohibitions to Import Goods

Under the pressure of the economic revolution of the last decades, the effect of the customs duties has entirely changed.

When the United States and Russia in the seventies and eighties unloaded their surplus of cheap corn on the European markets, the States of Continental Europe attempted to protect their agriculture against a superior competition through import duties on grain. This competition delivered wheat to the European markets to lower prices than the production cost of the grain grown in Central Europe. The import duties seemed then necessary in order to save the cultivation of grain in Central Europe from ruin and to avoid the too rapid proletarization of small land owners. The effect of import duties on the prices of grain was then not yet noticeable. These import duties, it is true, kept the home prices above the world prices by the amount of the duties. But as the world prices sunk, it followed that the home prices also sunk as long as the import duties were not increased.

Today things are quite different. The ‘American danger’ no longer threatens European agriculture. World prices have risen so much that European agriculture no longer needs import duties to exist. The price of 1,000 kilograms of wheat amounted on the average, in marks:

Chicago

London

Odessa

Paris

Berlin

Vienna

In 1903

In 1904

In 1905

In 1906

In 1907

In 1908

In 1909

In 1910

In 1911

In 1912

At the end of a decade the price is about as high in Chicago, London and Odessa, as it was at the beginning of the decade in Paris, Berlin, Vienna. World prices are today as high as was the price in the tariff countries a few years ago. The agriculture of Central Europe could today exist even without import duties on grain. If the import duties on grain are no longer necessary, their effect on the prices of grain is however more noticeable today than formerly. Our schedule shows that the prices in the countries having import duties on grain are much higher than world prices.

At a time when even the world prices are oppressive the increase of the price of grain above the world price is unbearable. If the import duties have formerly slowed down the fall in the price of grain, today, in countries protected by these tariffs, they quicken the advance in the prices of grain.

More oppressive still than the price of grain, is the prohibition, which certain states have decreed, of the import of cattle or meat. If the prices of meat have advanced everywhere – faster than the price of grain – the increase in meat prices is especially oppressive in the countries where imports have been prohibited.

Hundred kilograms of beef cost:

London Argentine meat Meat weight

London English meat Meat weight

Paris Meat weight

Berlin Carcass weight

Vienna Live weight

Price of 100 kilograms

The rise in prices is noticeable everywhere. They have increased especially in Germany and in Austria because, under the pretext of protecting their cattle against epidemics, the governments of both countries have prohibited the import of foreign cattle.

Tyszka in his already cited work, illustrates the effect of import duties on grain and of the prohibition of importing cattle or meat, in the following manner: He represents by 100 the average household’s expense for bread and meat from 1896 to 1900 and he then calculates how this expense for a same consumption has increased. The calculation gives the following results:

Bread

Beef

Germany

Austria

England

Holland

Germany

Austria

England

Holland

1896 to 1900

1901 to 1905

1906 to 1910

The increase in the price of bread, but especially of meat, in Germany and Austria is much higher than in England and Holland – higher therefore in states with tariffs than in free-trade states.

Just as the effect of agrarian protective duties has changed, so the effect of industrial tariffs is no longer the same. The states of continental Europe as well as the United States have taken the initiative in raising import duties on industrial goods to protect their industry against the superior competition of older industrial states, especially England. They wanted their industry to grow under the protection of these tariffs. The import duty was not always to raise the price of the goods; it was hoped as industry developed at a faster pace under the protection of tariffs, competition would lower prices that much quicker. The import duty was not to be eternal either. It was believed that when the young industry, protected by the import duty, had become strong enough to sustain the competition of foreign industries it would no longer be necessary.

Since then, however, the development of modern capitalism has brought about the formation of cartels, syndicates and trusts, and the effect of the tariff system is now quite different.

To begin with, tariffs made possible the formation, in most cases, of private capitalist monopolies. A comparison between England and Germany, the United States and Austria shows immediately that the number and strength of private capitalist monopolies in the protected states is greater than in the free-trade countries. The duties determine also the prices that the cartels and trusts can obtain for their goods on the home market. Since the cartels and trusts can always take advantage of the import duties, their prices are as much higher as the import duties are higher. Finally, the duties are no longer used to protect the home market, but also to help attack the competitive world market; the surplus-profit which trusts and cartels make on the home market, thanks to the duties, allows them with the help of export subsidies, to push exports. The import duties on industrial goods are therefore no longer a temporary arrangement, necessary for an industry as long as it is starting, in order to be able to compete with older and better developed foreign industries; no, capital needs them even at its maturity, and even if industry has reached the highest degree of productivity, in order to maintain the existence of the trusts and cartels, in order to keep the prices of the home market high, and, finally, to increase its strength in the struggle for competitive world markets. The import duties on industrial goods, from aids have become trust protective duties for monopolists, and in tariff protected States their operation in determining prices is much more effective today than formerly. While in the protective countries the duties increase the high cost of living, in the free trade states, they have an opposite effect, since they accelerate and force the trusts of productive states to ‘dump’ into free-trade countries, thanks to the high export subsidy.

The goods which the cartels and trusts bring to the market are mostly raw materials and half-finished products. The import duties protecting the cartels have therefore the tendency to raise noticeably the prices on raw materials and half-finished products of the protected countries and, on the contrary, to cheapen them in the free-trade countries. In the industries using these raw-materials and half-finished goods, the relations of competition are, thereby, shifted. As these raw materials and half finished products can be obtained by the free-trade states cheaper than by protected countries, industry of finished articles of the former is superior to that of the latter.

The protected states can only compensate their industry – and that only partly on the home market, – by putting high duties on foreign finished goods. If there already exists an import duty on iron, an import duty on machines will be added. If there already exists an import duty on yarn, there will also be a duty on cloth, on linen, on clothes. Thus, through the protective tariff on raw materials and half-finished goods, controlled by the cartels and trusts, a whole system of industrial protective duties is built, which raise the prices of all products of industry. The general level of prices is thus considerably increased.

a) The Struggle against Protective Duties

The increase in world market prices is a consequence of the exceedingly rapid development of capitalism in the last quarter of a century. Deriving from the essential nature of capitalism, it cannot be eliminated as long as the capitalist society exists.

But the working class can take up in each country the struggle against the rising prices on goods at home, above the prices on the world market.

Insofar as the rise in prices is the result of the increase in taxation and public debt, the struggle of the working class against militarism and navalism must lead the fight against the high cost of living. The working class must also demand the substitution of taxation on the necessities of life and housing by direct taxation on private property.

If the prices rise is a consequence of the tariff system, then the working class must struggle against the protective duties and against import prohibitions. Owing to the development of international trade during the last twenty years, the working class must prevent the introduction of protective tariffs in countries, which until now have remained faithful to free-trade and it must make all efforts to bring about the elimination of the protective tariffs in the countries where they still exist. The working class must lead the struggle against the system of protective tariffs, without however falling into the free trade illusions.

Free trade means the absolute dependence of a country on the world market; endless competition between every nation, having as consequence a struggle to the death, with its crises, bankruptcies, unemployment and starvation wages.

A protective tariff means the cutting off of each country against the other and the monopolies of cartels and trusts which in each country starve the masses with an even worse higher cost of living.

Neither of these two systems of capitalist political economy can cure the evils of the capitalist mode of production. Each of them avoids the evils of the other but substitutes different evils. The protective system cannot abolish unemployment, no more than free-trade can prevent high prices. Unemployment and high prices will only disappear with the advent of socialism.

But in this actual stage of the capitalist development, particularly in the highly advanced industrial countries, the protective tariff is the worst evil of either.

The working class however must not struggle against all protective tariffs without discrimination. Everywhere though, it must struggle against the two kinds of import duties which are today the bases of the protective tariff system: the agrarian import duties and the duties benefiting the trusts.

First the struggle must be against duties on necessities of life, on grain and fodder, on cattle and meat; and against the prohibition of cattle and meat imports. The price rises on the world market have rendered these duties useless and unbearable.

In its struggle against the agrarian tariffs the working class must not be misled by the fictitious argument that protective tariffs are necessary to prevent the ruin of the mass of small land owners. To this, the working class will answer with the following facts:

With the existing world prices the Agriculture of Central and Western Europe could exist even without a tariff. Even if some reduction in agricultural production would follow the elimination of duties, the development of industry would be accelerated, since the urban population could buy more industrial products, as its needs for the necessaries of life could be covered with less money. The decrease, in the demand for agricultural labour hands would be compensated by an increase in the demand for hands in industry.

It is precisely these land owners, which as a class are closer to the proletariat, i.e. the small ones, who should have no interest in protective tariffs, since they grow grain not for the market, but for their own use. If, on the contrary, they are obliged to buy grain, they must, like anybody else, suffer loss caused by buying at the prices of the protective tariff.

In territories with leased farms, the rise in prices caused by the duties leads to the increase in farm rents. It is not the working farmer that profits by the protective tariff, but the idle landowner. In the agricultural centres where the land owner works his own farm, the rise of price caused by the protective system brings about an increase on the price of land, and also, therefore, a rise in mortgage charges. It is not the land owner who takes advantage of the protective tariff, but loan capital. Thus, in Austria for each piece of real-estate (with the exception of aristocratic (landtäflichen), mining and urban property) which passed either through sale or through succession from one hand to another, a new mortgage charge of corresponded, on average.

In Crowns

Through loans to buyers

Through succession

The rise of real estate prices makes it more difficult for the land workers and small farmers to acquire land. It facilitates the concentration of land property in possession of the big land owners. No socio-political reason therefore prevents the working class from calling for the abolition of the agrarian protective tariff system.

Working class struggle must then be concentrated against tariffs which prevent foreign countries from competing with trusts, syndicates and cartels, thus giving these a private monopoly, so they can keep prices high at home and export at ‘dumping’ prices.

The working class struggle against import duties protecting cartels, must not be misled by the argument, based on false appearances, ‘of the harmony of interests of capital and labour’ which is put forward by capitalists. To this capitalist’s argument the workers should oppose the following facts:

Many large industries, which today enjoy a protective tariff, would also be able to subsist without any decrease in their welfare if the tariff were eliminated. The abolition of import duties would not hinder the growth of an already fully developed, competitive industry. It would only re-establish competition though certain trusts and cartels would be destroyed, others would be compelled to lower their prices.

Doubtless, some industries which have prospered under the protective system would be hampered in their development through the elimination of the tariff. On the other hand the finishing industries would gain; today the home industries of finished articles are hampered by the high prices on raw materials and means of production imposed upon them by cartels and trusts, which at the same time deliver those raw materials and means of production to foreign competitors at cutthroat prices. The contraction of industries elaborating raw materials and half finished products would be more than compensated by the more rapid development by the industries of finished articles. Thus, for instance, in Germany and in Austria, the elimination of the protective tariff on iron would slow the growth of the iron industry, but speed up the development of the engineering industry, shipbuilding, and so on. This change would be advantageous to the working class, for industries producing finished articles employ, with similar amounts of capital, many more workers and in general the working conditions in these industries are better than those in the industries producing raw materials.

The elimination of the agrarian tariffs and of the tariffs protecting the trusts would render possible the gradual elimination of other duties. This would not of course prevent high prices, but the price level come down to what it is today in free-trade countries.

In fact, we see already that the proletariat has begun to fight against agrarian and industrial protective tariffs – for instance, in Germany, in Austria, in Italy and in Switzerland. In the United States the ruling classes have already been compelled to lower the import duties to assuage a little the exasperation of the masses caused by the high cost of living. In England, the unionists have been compelled to abandon Joseph Chamberlain’s fiscal policy, for the labour unrest these last years has shown that the workers would not allow a new rise in the price of necessities.

The cooperation of socialist parties everywhere to fight against protective tariffs is possible and necessary. In 1917 the treaties of commerce between the states of Central and Eastern Europe will expire. There will then be an opportunity for the socialist party to begin a general attack against the system of protective tariffs. The cooperation of the parties in every country, will, then, increase the strength of their attack. If the socialist parties of all countries have already learned to unite to fight against armaments, they must also learn to lead a systematic battle, with a joint plan, against protective tariffs.

b) The Cooperatives

The development of capitalism thrusts between the producer and the consumer a huge number of intermediaries, dominated by the commercial capital. But as this develops further, there is a tendency to eliminate commercial capital and put production in direct contact with the consumer again.

That is the main aim of producers’ organisations. We have described above the efforts of the agricultural cooperatives. The trusts and syndicates, also try either to by-pass the merchants, or to turn them into mere agents, through which they try to deliver as directly as possible their goods to the consumers.

On the other hand, the consumers’ organisations have the very same aim. The consumers’ cooperative societies combine into wholesale societies and seek to by-pass the merchant by buying goods direct from the manufacturer. The price fixed is influenced according to which one of these organisations is stronger; on one side being the cartels, trusts and agricultural syndicates, and on the other, the consumers cooperatives. If the bosses’ organisation is the stronger, the profit which until now was collected by commercial capital will fall, after its removal, into the hands of the industrial and agricultural organisations. But if the might of the consumers’ cooperatives is powerful, then some of the profits will be gained by the consumers.

The cooperatives reach a higher level of importance, when instead of being limited to the distribution of goods, they undertake the manufacture of goods. They can thus return these profits to the consumers and, by creating industrial cooperatives, they can free consumers from the dictatorship of capitalist monopoly prices.

At first the workers’ cooperatives experienced many difficulties, because they were poor and the working class had no business experience. But these children’s diseases once overcome, the cooperatives may become a powerful arm in the struggle against high prices. This importance of the cooperatives has already been acknowledged at the Copenhagen International Congress.

c) Tasks of the Cities and States

The cities can also undertake similar tasks to the cooperatives in the struggle against the high cost of living: by municipalizing building plots, and building on them cheap lodgings and covering their cost through a tax on ground-rent; by setting up municipal bakeries, slaughter houses, fattening places and dairies and in organizing the distribution of the necessities of life and municipal markets, the cities can effectively fight against the high cost of living.

The state can do all this on a still larger scale. The state must first of all encourage private initiative, just as for instance, in encouraging the building of cheap popular lodgings, in providing loans for such buildings and in enabling small rural proprietors to improve their land, which improvement will lead to greater productivity in agriculture.

The state can also lessen the oppression of private monopolies by taking over railways, mines and some branches of industry.

Of course, all these measures must only be favoured there where the communal or governmental enterprises under the effective supervision of a democratic parliament and under strong working class influence. Where the working class cannot influence them, the increase in municipal or government enterprises is another way to strengthen the effective power of the ruling classes. It depends therefore of the power relationships of the classes in each country, to know whether the municipalisation or the nationalisation of certain enterprises can be regarded as a way to struggle against the high cost of living.

The great industrial development in these last decades has above all improved the situation of the working class. The demand for workers has increased. Unemployment has been less than previously and the periods of depression have been shorter. Wages have gone up. The degree of human exploitation seemed to have decreased. The existence of international socialism has spread the hope that the working class would be able gradually and peaceably to hollow out capitalist exploitation.

But the same rapid industrial development which has temporary greatly improved the condition of the working class, has had the ulterior effect increasing the cost of living. The increase in wages is more than compensated through the rise of the necessities of life and house-rents. The working class is therefore robbed of the results of raising wages through struggles full of sacrifices. The exploitation of the proletarians increases.

Tyszka has compared the movement of salaries and of the prices of goods, and he has worked out the movement of the real wages on the basis of the household budgets. Setting the real wage in 1900 by the number 100 the following figures are obtained:

Belgium

France

England

Prussia

Spain

From 1890 to 1900 real wages increased rapidly and considerably. After 1900 things change. From this date real wages slowly rise in France and in Spain, while in Belgium, Germany and in Prussia they fall.

The change for the worse in living standards caused agitation and irritation in the masses. In England, ‘labour unrest’ prevailed. In the United States of America, the discontent of the masses threw the Republican Party out of power and split it. It has moreover transformed bourgeois democracy and strengthened socialism. In Germany the high cost of living is the main reason for the great changes in political power which we have experienced at the Reichstag elections of 1912. In 1911 the high cost of living has caused street protests in France and in Austria. In Italy there has been a great ferment which dominated there and at times exploded in general strikes. Even outside of the capitalist industrial states, the high cost of living is the motor of social and national movements. In the general literature on the revolutionary movements in Turkey, Persia, India and China, the high cost of living is always characterized as one of the main reasons for the general discontent.

The high cost of living compels the working class to struggle to obtain higher salaries. The employers’ organisation every day becomes stronger in order to oppose the workers. The conditions of the trade union’ struggle change. Strikes and lock-outs shake all nations.

While these class contrasts become more acute within the capitalist states and the irritation in the colonies threatens European capitalism with new dangers, there arise at the same time the preliminary conditions for the end of capitalist domination. The high cost of living increases both ground-rent and dividends of trustified and cartelised capital. Small numbers of people accumulate swift fortunes. The production of the big trust and cartels is socialised. The necessary conditions for the transfer of the means of production to the common-wealth, in order that the latter might become their owner and manager, rapidly arise from capitalist development itself.

The rising cost of living, the result of a more rapid development of capitalism, itself accelerates this development. It revolutionises labour and concentrates capital. The moment when the organised working class, takes possession of the might of organised capital draws near at tremendous speed, and thus, by destroying all effects of capitalist private property will also abolish the high cost of living.