Page 14 RAIN . Nov 197S ,QN INFLATl Q N ___ E_F. _.s_c_hu..._m_ac_he_r ___ E. F. Schumacher is the author o·f the small book that is causing upheaval in our concepts of efonomics-Small ls Beautiful: Economics As If People Mattered. Chief economist and head of planning for the British Coal Board for 20 years, Schumacher predicted in 1961 the precise timing of our present energy problems. As an economic advisor to the British Control Commission in postwar Germany, he.was one of the prin<;ipal architects of the postwar German economic recovery. While economic advisor to,Burma in the 1950s, he wrote the pioneering essay, "Buddhist Economi1cs," which bared the value structure beneath our "value~free science" of economics, and·demonstrated the fundamentally different kind of economics that would arise from different values. ' , He is the founder and director of tl)e Intermediate Technology Development Group in Britain, which has developed viable smaH-scale, employment-intensive1 energy and capital conserving industrial and agricultural .tC:chnology. In.addition, he is president of the Soil Association in Britain, which is developing biologically sound agricultural practices; a director of the Scott Bader Company, one of the pioneering firms in employee ownership and <>peration; and a contributing editor of Resurgence magazine. His essays for Resurgence will appear here regularly, through the kind permission of the edito.rs. Everybody wants to know why there is inflation and what should be done about it. We can go and ask people for a defiJ?.ition of.inflation, and we are likely to obtain a variety of answers which will fall into two groups, relating either to the upward movement ofprices or to the downward movement in the value of money. It may seem that there is nothing to choose between these two modes of expression. What does it matter whether I say: "Inflation is when pri'ces rise" or '·'Inflation is when the value of money falls?" Actually, it matters a great deal for our understanding of the phenomenon. The first definition leads straightaway .to real, observable things in the real world-to price labels and changing inscriptions upon them. Prices are not like balloons, capable of rising·on their owri accord. Prices do not rise; somebody puts them up. We can find that "somebody" and ask him why he • does it. In fact, to inquire into this matter of actual people , continuously putting up the prices they charge for goods or services may·well be the most fruitful line to pursue, if we want to understand why there is inflation and what can be done about it. The other definition: '.'Inflation is when the value of money falls" leads us, not to anything as tangible and familiar as price labels, but to a highly compfex mental construct, the value of money. What is money? What is the value of money and how is it d~termined? Does it rise or fall of its own accord? Is it subject to laws of gravitation or levitation? If not, who puts it up or down? Is there somebody'who actually does this thing, and can we go and interview him? Can we ask him how he makes the value of money fall,3:nd why he does so? Obviously ¥le can't. While shopkeepers an·d other suppliers of goods or services have often .been observed in the act of changing prices, no one has ever been caught in the act of changing the value of money- . except (it might be said) when he was actually changing prices! . The first definition leads to actual people and to fruitful lines of questi~ning, the second defini.tion leads not to people , but to mental const~cts, into a dark and mysterious field where even the experts stumble. We shall be wise, therefore, to follow the simple lead provided by the first definition. We can go immediately to the first person caught in the act of raising a pr'ice and ask him: ''Why did you do it? ,, His answer ,will be,disarmingly simple: "The price I charge must cover my costs and also give me an adequate income. As the prices I • have to pay have been raised by my suppliers, I should be left without any income at all or even with losses·if I did not put up the prices I charge." ' Now, of course, this answer does not get us very far. The person we just interviewed merely passes _on rising costs and defends his own income. His suppliers may well say the same, but ultimately we must get to somebody who set the whole process in motion. There are two possibilities: maybe he did more than defend his income,by passing on higher costs; maybe he found himself.in a position of being able to increase his •income. The other possibility would be a situation where a substantial number of suppliers found themselves obliged to turn tq relatively inferior resources-low-grade ore,s, marginal land, and such like-so that their (so-called) pr.oductivity decline4, .the same output requiring more human effort than before and higher costs being incurred without any single person (on average) obtaining a higher income. This second possi-. , b_ility can 9ui~~ly be dismissed as being quantitatively insigni- • ficant-qiute mcapable of accounting for the volume of price increases, the volume of inflation, we are currently experiencing. 1 The underdogs have-discovered their power We are left, therefore, with the first possibility, .the actuality of which can easily be demonstrated. A significant number of ~ople have been able not merely to defend.,and maintain their incomes but actually to increase them relatively to most other peoples' incomes. Who are these people and what has enabled them to do this? The answer is not difficult .to find. An increasing number of groups of essential producers have discovered their power. Garbage collectors; airline pilots, coal miners1 oil exporting ·countries, power station maintenance men, even nurses, railwaymen, postmen, teachers-in various places and at various times have discovered that they can succe,ssfully insist on much higher incomes than society or the so-called market mechanism had hitherto granted them. 1,'hey can insist because by withholding their goods or services they can bring the whole of society, or essential parts of it, to a standstill. Most, although not all, of'these groups of essential producers have had a poor deal in the past. The "Market" does not recognize the essentiality of a service as a criterion for in-
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