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Otto Bauer

The High Cost of Living

(August 1914)

International Socialist Bureau, People’s Palace, Brussels.
International Socialist Congress of Vienna (August 23-29, 1914). [1*]
Documents: 2nd Commission: The High Cost of Living (Report by Otto Bauer)
Source: Friedrich-Ebert Stiftung (http://library.fes.de/zweiint/w22.pdf).
Transcribed & minor corrections of translation by Daniel Gaido.
Edited by Ted Crawford.
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

The high cost of living is an international phenomenon. From 1874 to 1895, world market prices fell, but from 1896 onward world-wide increases began and still continue. If we give the prices of the necessaries of life in 1900 with the number 100, we will see that in the following years, this figure grew thus [1]:

These figures are not always comparable to each other, since they have been collected using different methods. But in any case they are enough to give us a very clear idea of the following facts:

1. The high cost of living is an international phenomenon, it can therefore be explained through the general evolution of capitalism.

2. The high cost of living has affected different countries to a different extent. This difference may be explained partly through the diversity in the conditions of production and trade in each country, and partly through government intervention by legislation and administrative supervision.
    

The Capitalist Development of the Last Twenty Years

The speed of the development of capitalism is reflected first in the change in the prices of necessities.

The discovery of gold in California and in Australia, about the middle of the 19th century, as well as the construction of great railway lines and the development of steamships, created that mighty expansion of capitalist economic life, which suddenly ended in the great crisis of 1873. This period of capitalist ‘storm and stress’ was accompanied by a swift rise in prices of the necessities of life. The slowdown in the development of industry – which occurred during the period of capitalist years 1870 to 1880 – coincided with the fall of world market prices. In 1895, the Economist price index reached its lowest point. After 1895 we again experienced ‘storm and stress’, again accompanied by a rise in the prices of necessities.

The swifter development of capitalism during the last two decades has a great many causes.

First of all the development of technology has progressed very rapidly during the last twenty years.

Above all it is an increase in the methods of production of power. The application of superheated steam to the piston steam-engine, the steam turbine, Diesel motors, big gas engines, all these have been made during the last twenty years. Moreover automatic systems of lubrication and heating have lowered working costs.

At the Frankfurt Electricity Exhibition, in 1891, there was for the first time a demonstration of transmission for a considerable distance. Since 1895, the electric motor has begun to be substituted for hydrostatic pressure in elevators and lifts, and in the powering of cranes and elevators for lifting goods it has shown itself superior to steam. In industry the old methods of transmission of power by shafts, steam, hydrostatic pressure and compressed air are being displaced by electricity. Water power finds new uses. Through central generating stations electricity is supplied to wide areas.

Hand in hand with the improvement of the production of power and of its transmission goes too the improvement in the extraction and production of raw materials. In the mining industry the application of natural forces for the transportation of ore and coal has been improved. Analogous improvements have been obtained in the iron-industry. The chemical processes for the extraction of raw iron and ingot-iron are more economical thanks to improvements in technical processes, auxiliary engines, but above all in transport and lifting machines of all kinds, such as cranes, etc. Chemical processes are improved everyday. It is now possible to transform the raw iron coming from the blast furnaces into ingots without new conductors of heat and the ingot-iron thus obtained can be directly laminated. For this reason rolling mills and steel works are now built close to blast furnaces. At the same time, in using the blast furnace gases as motor gas, the production of energy becomes cheaper. The progress of the chemical industry during the last quarter of century has been prodigious, especially the dyestuffs industry and the nitrogen industry.

Still more remarkable is the progress made in metallurgy. The shaping machine, the revolving lathe, the various self-acting machines, the autogenous processes for reheating and cutting, have totally changed. By the use of alloyed quality steels for machine construction, the speed of the latter has been considerably increased, the rapid lathes and borers of great productivity show an enormous increase in the amount produced for the same amount of power.

Transport in general has gone through a total revolution. The electrification of street cars, the building of main line electric railways, the automobile, the revolutionary change in the shipbuilding through the steam turbine, the big Diesel ship engines, the greater size of cargo steamers, the completion of the interurban telephone lines, wireless telegraphy, all these are events in the technological development, which have happened in the last quarter of a century. No less important are the changes which have occurred in the building of houses and in the architecture of cities.

The use of concrete, the construction of central heating systems and of bath rooms, as well as the great transformations in lighting technique, characterise the latest developments.

These examples suffice to show the rapidity of the technical progress during the last twenty years. There is no branch of industry to which this last quarter of a century did not bring either new methods or new engines.

This progress of technology in general has been accompanied by an improvement in public hygiene. Mortality has sunk. The average life span has increased. Whenever this development has not been hindered through a great decrease of the amount of births, there has been a swift increase in population. Thus, in Germany, for each thousand inhabitants there have been

The population of the German Empire has grown in the thirty years, from 45 to 65 millions. This increase of population has taken place with still greater rapidity in the countries which were able to draw on great masses of immigrants. Thus the population of the United States amounted to:

The countries with the biggest increase of population, above all Germany, the United States and Japan, have had the biggest share of economic development in these last decades.

At the same time the expansion of capitalism has been rapid.

The most important mechanism and a sure sign of this growth is the density of traffic networks. The length of the railways in exploitation amounted to

In two decades the world’s railway system has grown by 71 per capita, and faster than in Europe in the countries overseas.

The expansion of countries overseas through European and American capital always unlocks new territories for investment and markets for the latter. The growth of imports shows how quickly the market for goods in the countries overseas increases.

According to their value, imports amounted to:

The imports of Brazil have grown from 813 million marks in 1895 to 1,302.3 millions in 1912; those of Korea, which amounted to 28.3 millions in 1902, have increased to 83.8 millions in 1910; the imports of Persia, from 94.3 millions in 1901 to 181.7 in 1912. We therefore see in all countries, whether directly or indirectly under the domination of European and American capital, that the imports have prodigiously increased. Moreover the outlet territory of capitalism keeps on extending itself.

Finally, the speed of economic development accelerates through the increase in gold production.

The gold production amounted to:

The tremendous changes in the technique, the rapid increase of population, the accelerated expansion of capitalism and the growth of gold production, these are the main reasons for the faster economic development during the last two decades.

The rapid development of industry has enormously increased its use of raw materials. The following examples show it:

The working class has taken advantage of the favourable situation of the last twenty years. Through the strength of its unions it has obtained higher wages. In the country, the production for the producer’s own needs is being supplanted by the production for the market: the farmers nowadays buy in the market articles which they used to produce. The rise of educational standard among the people creates new needs. The demand for food articles, for lodgings and for all kinds of goods for the use of the masses goes up.

Likewise, the impetuous development of industry during the last decades, has rapidly increased the needs of industry for raw materials, and the demand for goods to be consumed by the masses has grown. But the development of agriculture has been unable to keep pace with the development of industry. Agriculture has often been unable to increase its production and, when it has, it was only through a rise of the price of its products, in order to cope with the needs of the industry and the growth of its productivity. This disproportion is one of the reasons of the high cost of living.
 
 

The Development of Agriculture

a) European agriculture

Agriculture has also had its part in the technical progress of these last twenty years. The improvement of agricultural machinery, the application of fertilizers, the perfection of breeding and the rotation of crops, as well as the closer association between agriculture and industry, have increased the productivity of tillage and livestock.

In spite of this however the agriculture of Central and Western Europe has not been for a long while able to satisfy the demand for food products needed by these countries. Besides, in the industrial states there is an incessant shift of the farming population towards industry. In almost all these countries, the proportion of the population occupied in farming has sunk rapidly. For each 100 workers, there were employed in farming or forest service:

The figures of these different states cannot be compared with each other, because they have been obtained using different methods. However they show that in every country the farming population decreases while the industrial one increases. Only in Italy and in Denmark has the agricultural population increased in relation to the general population. In France, the census of 1906 shows a percentage of 42.7% for the land workers against 41.8% in 1901. But this is because of a more accurate interpretation of the figures, in which members of the family helping during the harvest have also been included.

The population of the cities and of industrial territories grows more quickly than that in the rural centres. The agricultural population, in spite of the increase of its work productivity, can no longer cover the needs of the industrial popular masses for tillage products and livestock. The industrial states of Western and Central Europe must therefore import from abroad an ever-increasing proportion of the necessities of life and raw materials, to satisfy their needs.

Countries which till a little while ago were exporting these necessities of life, have now themselves become dependent on foreign imports. Thus, for instance, Austria-Hungary. The following figures will show how these States evolve from exporting to importing grain.

The agricultural states of Eastern Europe are first called upon to cover the needs for imports of the industrial states of Western and Central Europe. Nature has favoured these states with a fertile soil, the produce of which could feed the whole of Europe. But the strength of the social relations there prevent them taking advantage of the natural riches hidden in the earth. The cultivation of the soil is entrusted to poor and ignorant people, whose holdings are too small, their education too lacking, their way of thinking too conservative to be able to follow rational cultivation and pastoralism. To show how backward the agriculture of the East European countries is, it will suffice to give a comparison of their yield per hectare with the yield per hectare in West and Central European countries.

A hectare of wheat yielded in 1911-1912:

The development of Russian agriculture has the greatest importance for the supply to Europe of the necessities of life. The surface of exploitable lands for agriculture in the European Russia is greater than that of all the rest of Europe combined.

The foundation of the Russian agriculture was obtained through a monstrous spoliation of the Russian peasants, the so-called tsarist ‘peasants’ emancipation’ of 1861. The ‘emancipated’ Russian peasants received, on average, no more than 3.2 dessiatines (1 dessiatine equals 1.09 hectare). It is true that the peasants’ lands during the next forty years, either through purchases, or through lease-holding, increased by 20%. But it is also true that the population grew from 45 to 85 millions. The restriction of peasants’ lands has caused an enormous waste of the forces of nature and of production.

Since the peasants received a small area of land, they were compelled, in order to supply the growing population with grain, to plough as much as possible of this land. Fallow land decreased. The nutritious substances which are thus taken away from the soil, are not given back to it, and the ground is soon exhausted. This exhaustion is increased through the insufficiency of fertilizers. At the time of their ‘emancipation’ the peasants received too little pasture ground. Since then cattle breeding has been declining. On a thousand dessiatines of land, there were in 1880: 655 heads of work animals; in 1890: 631; in 1900: 602. The diminution of fallow land, and of the use of fertilizers caused the irrational working of the farms. In the nineties, the produces of communal grounds (Mir) remained on average 17% behind the needs of the peasants’ food, if we accept to represent this need by 19 puds per head (a pud equals to 16.38 kilogram). [2]

But not only were the resources of the soil squandered, the labour force was also wasted. In the countryside the increasing rural population has been unable to find employment. According to an official statement, a labour force of only 11 million was needed for the crop of 1900 but 44 million were available!

The intensity of agriculture was checked through the dependence of each peasant on the Mir, through the parcelling out of the soil into a quantity of small intermixed grounds, through the joint-security for the payment of heavy taxation on the communal ground, through the tsarist legislation of 1893 which forbids the farmer to mortgage his land and thus prevents him undertaking any improvement and throws him into the hands of usurers; but it was above all checked through the misery of the farmers and through the limited technical knowledge of these peasants kept in ignorance and far from civilization by the tsarist government.

Will this hurtful state of things be mitigated through the agrarian reform which the Russian government, under pressure of the revolution, has begun? One must wait and see. Until now the Russian agriculture has not been able, in any way, to cover the needs of the industry of Western and Central Europe. The system of tsarist government prevents it taking advantage of the natural riches of Eastern Europe. And that is why Europe is compelled to depend on the countries across the seas, especially on America, for the importation of the necessities of life.
 

b) American Agriculture

During these last years, the American population has increased by 16 millions. A small part of this increase is agricultural; the greater part however poured into industry, mines, commerce and transport. From 1900 to 1910 the population of the cities has had an increase of 11.8 millions whereas that of the rural districts only one of 4.1 millions. While the whole of the population has experienced a growth of 21%, the number of farms has only increased by 10.9%; the totality of farm lands by 4.8% and the improved surface within these farms by 15.4%. Until 1900 the number of farms and the expansion of farm lands grew more quickly than the population, but now the growth in the number of farms and the expansion of their area is less than the increase of population. The mighty and swelling American industry has overwhelmed agriculture in its struggle to capture the labour force. [3]

According to a statement of the Department of Agriculture, the totality of land susceptible of being cultivated is already occupied: there is no longer a piece of land, susceptible of exploitation, which has not found its owner. Doubtless a great many of these lands, are still unimproved. But their cultivation demands ever higher expenditure. Even on the old, already cultivated grounds, cultivation becomes increasingly more expensive. Wages, owing to the scarcity of rural hands, increase. The rural proprietors owing to a greater intensity of capital (improved machines, greater use of fertilizers, etc.) must try to get a greater yield from the land. Moreover, the exhaustion of the lands in the Eastern States, forces a continuous improved rotation of crops. While, on one hand, the area of cultivable lands grows very slowly, on the other hand, the intensity of production on the old lands, causes an increasingly higher cost of production.

At the same time the relations between agriculture and livestock are shifting. Till now in the extensive prairies of the West pasture prevailed. The cattle were kept there till two or three years of age and then brought to the East where they were fattened. Now however agriculture is extending to the West. Irrigation and dry farming make cultivation possible on the arid ground of the prairie. Wherever the land is enclosed and the water sources are seized by settlers, extensive pastoralism must cease. The limitation of pasture grounds causes either the diminution of animal husbandry in general, or the substitution of the extensive exploitation of pasture through an intensive livestock rearing with barns and winter forage. This, of course, causes high costs.

The decline of the prairie cattle breeding has had for consequence that the cattle-fatteners who live in the territories where the maize is grown, have been unable to obtain the necessary quantity of cattle at cheap prices. And that is why the Eastern States themselves are compelled to breed the cattle which are to be fattened. In order to get pasture, they are compelled to limit cereal tillage.

The results of these agricultural changes are as follows:

1. The area of cereal cultivation does not increase very much. If it is true that agriculture is extending to the West, it is also true that on many lands cereal cultivation is limited in favour of forage. But, as at the same time, the demand for grain in the United States increases rapidly owing to the enormous increase of population, there is always less grain for export. This is shown by the following figures:

While in 1901 41% of the crops could be exported and in 1902 31%; in 1909 it was only 17% and in 1910 it remained but 7% of the crop available. The United States, formerly the world’s grain granary has now become an industrial state, which needs an increasingly larger portion of is crops to feed its own people. If the great grain surplus of the United States of America was in the seventies a cause for the fall in world prices for the necessities of life, today, the gradual disappearance of this surplus is one of the causes of the high cost of living.

2. The United States can only deliver to the world market a proportion of their crops – the latter increasingly becomes smaller – and it is now provided at higher prices. The prices of the grain is determined by the cost of production on the worst lands under cultivation; the low cost of production on the best land does not lower prices, but simply guarantees to the proprietors of the land a differential rent. Now, the best kind of land is long since cultivated and the expansion of the American agriculture is above all directed to the arid Western areas. These need extensive irrigation works, the use of dry farming, that is to say a high cost of production as well as expensive transport prices, and that produces the rise of grain prices. The average price of a bushel of American wheat, which in 1895 was $0.58, reached $1.02 in 1909 and 1910, and in 1911 $1.93!

3. As agriculture has expanded into arid territories, the growth of livestock does not keep pace with the increase of population. To each 100 inhabitants there were in 1880: 79 oxen and 98 pigs; in 1912: 60 oxen and 60 pigs. As a consequence we see a constant decrease in livestock exports. In 1905, 567,000 oxen were exported, in 1910 but 139,000. The exportation of meat and milk produces reached:

If therefore, in general, there is a decrease in livestock, the breeding and fattening through the transformation of the prairie pasture breeding into intensive breeding comes much too high. Thence an increase of price on all breeding produces.

The period when the great surplus of North American tillage and pasture was available in the world market at low prices has vanished. Other countries are about to take the position formerly occupied by the United States. These are young colonies with immense areas of virgin soil at their disposal. Above all Canada and Argentina. But the development of these countries is not taking place quickly enough to compensate Europe for the decrease of the export of the necessities of life from America. Sure enough, a powerful stream of emigration from Eastern and Southern Europe empties itself into America, but only a portion of this stream discharges itself into the agriculture of Canada and Argentina to clear lands and extend cultivation. The mass of emigrants is attracted by the industry and mines of the United States. The process of industrialisation has also taken hold of the European emigrant. The ‘flight from the fields’ or the ‘lack of hands’ in European agriculture also find their counterpart here, since the agricultural colonies do not attract enough people for the rapid expansion of agriculture, the European emigrants being pulled towards North American industry. The expansion of agriculture becomes still more difficult if the attraction of emigrants to agriculture is hindered through property relations, as for instance in Argentina, where latifundia prevent agricultural development.
 

c) Industry and Agriculture

Industry has experienced in the last twenty years a very fast development. The demand for raw materials and for the necessities of life has considerably increased. Yet, the development of agriculture and livestock has been slower than this development. This disproportion is one of the causes of the high cost of living. Since agricultural production does not satisfy the demand of the industrial countries, the prices of grain, forage, cotton, livestock, skins, hides and wool have increased.

It is not nature’s parsimony that causes agriculture in the industrial states to be unable to deliver the quantity of raw material and necessities of life which their people could consume at unchanged prices. The world’s agricultural production could be considerably increased, even with the extent of production and transport reached today.

According to Ballod, one could, for instance, double the surface of the world’s lands capable of growing wheat. [4] Moreover the production per hectare could be, as the comparison between different countries has shown us, greatly increased. The expansion of agricultural production is not prevented through unchangeable natural obstacles but through social obstacles, which can be removed.

The mode of capitalist production is based on the private property of land. Society lets man produce the necessities of life, without giving him the knowledge or the necessary means to draw everything possible from the soil. On the greater part of the inhabited earth the agricultural technique which is used is total contrast with possible agricultural technique, the result of modern science.

The private property of the means of production causes the anarchy of the capitalist mode of production.

Society abandons to the capitalists the task of investing their capitals into the branch of industry which they choose, and it lets the workers use their labour power in the branch of production which they desire. The anarchy of the mode of production brings always with it the disproportion in the production. For instance, the international trade of these last decades has collected capital and labour forces into the cities and industrial areas of Europe and America, without bothering whether, at the same time, the production of the necessities of life or of raw materials for the needs of these increasingly numerous masses, was increasing to the same extent.

Through the rise of the world’s prices, society sees that it cannot increase the number of cotton spindles with impunity, without increasing at the same time and in the same proportion the cultivation of cotton. It cannot either gather together proletarian masses into industrial centres with impunity without letting the cultivation of grain and stock grow to the same extent.

The high cost of living places international socialism therefore before its real task, that is to say supplying the populace with everything needed, freed from dependence on the economic power of private individuals as well as from their desire for profit, raising production and distribution to the rank of social functions, incorporating all workers into the service of organised society and then distributing them into all branches of production, in proportion in which society needs their labour power.
 

The Urbanisation of Population

The rapid growth of industry in the last two decades has accelerated the concentration of population in the big cities and industrial centres.

Germany had in 1895, 28 cities with more than 100,000 inhabitants and with a total population of 7,261,000 people; in 1910 it already had 48 big cities with 13,823,348 inhabitants. Still more rapid has been the growth of the American cities. The United States has already 50 cities with more than 100,000 inhabitants. The ‘urbanisation’ of the masses of people in these last twenty years, has taken place very rapidly. Never were the complaints about the lack of labour forces in the country or of flats in the cities, louder than during the last two decades.

The concentrations of population and the rapid growth of cities, cause an increase in house, store and workshop rents and growth in the price of real-estate.

The increase of rents for accommodation is part of cost of living, which affects the workers most deeply. The increase in the rent of retail sites and workshops increases also the cost to craftsman and retailers in the cities. This cost increase causes a further increase in the price of goods. So private property in city land is not only the main reason for the high cost of house rents but also of goods in general.

Every city receives a certain quantity of perishable goods, such as milk, vegetables, etc., arriving in first place from its immediate neighbourhood. However, the more the population of a city grows, the larger also must be the territory which supplies the city with such products. In small towns the needs of the people are easily supplied by a small circle of producers living in the immediate neighbourhood. These rural producers can in this case deliver their goods directly to the consumers, or at the most, through small retailers. But if this circle grows, then the trader slips himself between the rural producer and the urban consumer. The middleman buys the produces in the country and sells them on the municipal markets to the retailers. With the growth of the cities a middleman is no longer enough, and products go through the hands of a whole row of intermediaries, before the farm’s output reaches the consumer. With the enlargement of the area round the city, which supplies it with its perishable goods, the increase in both transport and distribution costs increases the prices of good. Moreover, commercial capital becomes lord of the city’s supply of necessities of life.

Sometimes a small group of capitalists succeeds in becoming dominant and monopolising the livestock market and the supply of milk of a whole city. Nor is it a rare to see commercial capital achieving a predominant position in providing credit to the producer on the one hand, the middleman who buys the produces from the farmer, and lastly the small city retailer, thus making all of them dependent.

Such things are especially noticeable in the city markets for livestock. In such cases agricultural products as well as cattle are resold in the city by the commercial capital at prices well above those the producers get.

In the meantime the rapid development of agricultural cooperatives has brought about the elimination of middlemen. The retail associations of landowners replace commercial capital. The direct relation between agricultural producer and city consumer is reestablished through cooperatives. But the elimination of commercial capital through the cooperative of rural producers seldom brings a reduction in existing prices. As a rule the change resulting from the creation of agricultural cooperatives has the same aim as the industrial trusts: as soon as the agricultural cooperatives have conquered a monopolistic position in the city market, they impose their monopoly prices on the consumers.

Such associations of agricultural producers have often increased the price of milk particularly in the big cities in the last twenty years.

This crude differentiation between the city and the country is a result of capitalist development. The capitalist mode of production leaves it to the capitalists to locate production where they please, and to determine where workers shall gather. In this way it causes crowding in cities and depopulation of the land. The rapid growth of cities and of industrial areas causes the increases of price which appear to be inherent in development, and which in last instance originate from the same roots as the disproportion between industrial and agricultural production, that is to say, from the anarchy of the capitalist mode of production, the consequence of private property of the means of production.
 

The Capitalists’ Organisation

Hand in hand with the enormous growth of industry a transformation in its interior structure has taken place during the last twenty years.

In all branches of industry, the aspiration of the capitalists is to suppress competition between them, and to free themselves from the determination of good prices by the market by founding monopolistic associations which determine prices. The results of these efforts are cartels, syndicates and trusts.

As soon as such a monopoly is created in a branch of industry and competition is suppressed, the price of goods diverges from the cost price. Instead of price competition there is now a monopoly price.

A fall in costs no longer lowers prices; it only increases the profits of the capitalists.

Doubtless, the rise in dividends in all branches of industry which have been trustified may bring new capital to this branch and therefore either through the entry of new firms, or through an increase in the capacity of the trust’s factories, force a price reduction on them.

But such reversals are increasingly prevented. Partly through the might of the big banks, which deny credit, preventing the foundation of new factories and, besides, compel all enterprises under their control, even against the will of their proprietors, to join the trusts; and partly through the different methods of compulsion, used by the trusts and cartels in the struggle against independent owners in the industry. [5]

Where capital’s freedom and the freedom of competition can be checked in this way the prices of the cartel or trust’s goods are independent of the cost price.

Cartels and trusts succeed first there where the monopolisation of the market finds a support through the monopolisation of natural resources. The Standard Oil Co. and the U.S. Steel Company in America, the Rhenish-Westphalian Coal Syndicate, the German Steel Works Association, the Longwy Comptoir, the Austrian Iron Cartel, all of them are based on the monopolisation by capital of the natural resources. The price rise of raw materials caused by these private monopolies lowers the dividends in the branch of industries using these materials. This compels the owners of these industries to raise their prices too by founding cartels or trusts.

This trend has till now, generally been limited to industries which produce either raw materials or semi-finished goods. The formation of monopolies in finished goods industries has seldom been successful. In spite of that the prices of these goods have also been raised, in order to impose, at least partly, raw material price increases on consumers.

The technical development of the last two decades has increased the productivity of labour and has lowered industry’s costs.

In spite of that the price of goods has generally risen. This is caused by the fact that lowering production prices in industries which use raw materials is more than compensated by the high prices of the raw materials themselves, due partly to the disproportion between industrial and agricultural industry, and partly through the move from competitive prices to monopoly ones. The high cost of living is therefore on the hand, the consequence of competition between various spheres of production – more especially between industry and agriculture – for capital and labour, and on the other hand is caused by the suppression of competition within some branches of industry. [6] It is also a consequence of the anarchy of the capitalist mode of production, and of the effect of the organisation of capitalist corporations.

In the already trustified branches of industry production is now socialised. The means of production and labour are methodically directed from one centre. But this socialisation has not been produced by society and for society, but by capital and at the expense of society. This capitalist socialisation is one of the reasons for the high cost of living. What should now happen is the transfer of the means of production – which have been socialised by capital – to society itself, to become its property. ‘The nation instead of the trusts’, is the task imposed on the working class by the high cost of living.
 

The Decrease of the Value of Gold

The opening of new gold fields and the revolution in the process of gold extraction has reduced the cost of gold production.

The value of gold has decreased, since society needs less labour for its extraction. This fact is responsible for the transformation in the exchange relation, which has occurred, between gold and goods. The decrease of the value of gold reflects itself in the increase in the price of goods.

The evidence for this opinion has been contested by certain economists. [7] It must be granted to the opponents of this opinion that the cost of gold extraction is not the only – nor even the main – reason for the high cost of living. Nevertheless, together with other reasons, it must be admitted that the decrease of the value of gold is also a cause for the high cost of living. The possibility of producing gold at a low production price has had the effect of a considerable increase in gold production. We have already pointed out that the increase of gold production is one of the reasons for the acceleration in economic development, leading to changes causing rising prices.

Capitalist production is based on the social division of labour. Each branch of industry manufactures goods for the needs of society and, in exchange, receives from society, equivalent labour products from other branches of production. However, as long as social production is based on private property of the means of production, the allotment of the product of social labour to the different branches of production will not be made by the conscious and regulated action of society itself; but through buying and selling, by the exchange of goods against money and of money against goods. The social character of labour, the relations of the social production embody themselves into things, into gold, into silver. The fate of these things revolutionises therefore the relations of social production. The transformation of the conditions of production of gold, revolutionises social relations between men. If the working class rebels against the high cost of living, it revolts also against the fact that social relations between men mask the relations of prices between things. It thus rebels against the continuation of the existing capitalist mode of production, and against the existing contrast between social production and private property of the means of production.
 

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:

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:

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. [8]

Hundred kilograms of beef cost:

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:

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. [9] 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.
 

The Struggle against the High Cost of Living

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:

1. 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.

2. 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.

3. 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.

4. 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:

1. 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.

2. 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 Effects of 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 [10] 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:

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.

 
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Notes

1. See Tyszka: Tatsachen und Ursachen der internationalen Verteuerung der Lebensmittel, Annalen für soziale Politik und Gesetzgebung, Berlin 1914.

2. See Preyer, Die russische Agrareform, Jena 1914.

3. See Augstin: Die Entwicklung der Landwirtschaft in den Vereinigten Staaten, Schriften des Vereins für Sozialpolitik, vol.141.

4. See Ballod, Grundriss der Statistik, Berlin 1913, page 87 and following.

5. See Hilferding, Das Finanzkapital, Vienna 1913; Kestner, Der Organisationszwang, Berlin 1912.

6. See Marx, Theorien über den Mehrwert, II. I., page 58 and following.

7. See Bauer: Die Teuerung, Vienna 1910; Varga, Goldproduktion und Teuerung; Hilferding, Geld und Ware; Bauer, Goldproduktion und Teuerung, Neue Zeit, XXX, 2; Karski, Teuerung, Warenpreise und Goldproduktion, Dresden 1913; Kautsky, Die Wandlungen in der Goldproduktion, 16, Erg. Heft der Neue Zeit.

8. See Spahn: Theorie der Preisverschiebung, Vienna 1913.

9. See Rudolf Hilferding, Der Funktionswechsel des Schutzzolles, Neue Zeit, XXI. 2, (1903), pp. 274-81.

10. Tyszka, Löhne and Lebenskosten in Westeuropa im 19. Jahrhundert, Schriften des Vereines für Sozialpolitik, vol.145.

Note by MIA

1*. This congress never took place as World War I broke out three weeks before the congress was due to meet.

 
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Last updated on 3.2.2009