Incomes Policy Name

Incomes Policy Name

Incomes Policy, name given in Britain to Government persuasion of employers and unions to limit the rise in wages , salaries, profits, rents, etc., in order to prevent or reduce inflation. It rests on the view that inflation is caused by incomes rising faster than output and concludes that their growth most be no faster than output.

Economic analysis suggests that if incomes rise because the flow of money causes or allows incomes to rise faster than output, the solution is to reduce the flow of money (by Bank rate, open market policy or other methods). If incomes rise faster than output because income-receivers can compel employers to pay higher wages , salaries or rents, it must be presumed that increases in costs can be passed on to the consumer in higher prices; this can be done only if there is monopoly among the income-receivers and in the markets for the goods or services they help to produce; the solution is then to restore competition among the factors of production and the products. By stimulating efficiency competition would also expand production and economic growth and thus make increases in income more feasible without the risk of inflation.

A particular difficulty in restraining all incomes is that wages and salaries are arranged by agreement or contract for a period and are a part of the costs of production; profits are a residual that is paid if revenue exceeds costs: it is therefore liable to fluctuate and it needs to be high in risky or new industries if capital is to be attracted to them.

Wages and salaries also need to be flexible in the long run if employees are to be attracted to growing firms. To restrict the rise in employees' pay in every firm to the average increase in national output would prevent wages and salaries from helping to redistribute the labour force from less productive to more productive employment.

Whatever the economic weaknesses, an incomes policy may have political advantages as being less unpopular than restricting demand by preventing inflation or directly outlawing monopoly and restrictive practices in the factors of production or their products.

Inconvertible Note Issue, an issue of bank-notes which a holder has no right to convert on demand into gold or silver held as reserve against the issue. An inconvertible note issue depends for its success on confidence in the monetary system

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