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Minimum Living Standards and the Working-Class Surplus: Higgins, Henderson and Housing
Dick Bryan*
In the light of growing household indebtedness in Australia and the stark experience of the sub-prime mortgage market in the United States of America this article develops a parallel between the lending practices of current financial institutions, and debates around the 1907 Harvester Judgment; in particular, the different perspectives of Mr Justice Higgins and H.V. McKay on the role of minimum standards of living and the potential for wages to contribute to capital accumulation. In different ways and in different contexts, these two processes a century apart offer perspective on the determination of minimum working-class consumption and the capacity of capital to re-convert part of wages into payments to capital (a surplus). The article draws out the parallels, and how each might be used to shed new light on the other.
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| Of the historic benchmarks that have defined working-class living standards in Australia, two stand out. One is the Harvester Judgment of 19071 which led to the development of a basic wage and lasted for most of the twentieth century. The other is the Commonwealth of Australia's Commission of Inquiry into Poverty, Chaired by Professor Ronald Henderson (hereafter Henderson Inquiry), which reported in 1975.2 While Ronald Henderson's analysis never entered directly into policy as did the Harvester Judgment of Mr Justice Higgins, it has remained an enduring benchmark for determining a minimum standard of living, with direct implications for (social) wages. |
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This article addresses what might be seen as a new benchmark, involving a re-evaluation of the first two in the light of their specific historical contexts. It relates to the way in which banks and mortgage originators determine the capacity of households to service debt. The connection here might be thought tenuous; nevertheless the point is to show some recurrent themes in the relationship between living standards, wages and capital accumulation, despite massively different historical circumstances. Specifically, today we have wages determined broadly according to the principles of market forces. Yet through the banking system, and the expectation that working-class people will engage credit, we see a de facto determination by lending institutions of basic living standards according to negotiated credit arrangements. |
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How does this de facto minimum arise? In simple terms, as the 'welfare state' contracts, we are in an era where all adults are now expected to accumulate capital for old age, whether it is in housing, savings, superannuation or some other form of income insurance. Surveys report consistently that people in Australia will face significant declines in living standards in retirement unless their savings rate increases,3 and government policy systematically affirms incentives for self-funded retirement rather than reliance on a state pension.4 In this circumstance, the question of what represents a basic standard of living returns in the determination of what part of the wage is 'required' for consumption and what part is available to accumulate and service debt. In this form, it is neither a matter for an industrial court, nor for a government policy on poverty thresholds and poverty alleviation; it is about risk management strategies in globally-integrated, profit-making financial institutions. |
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We have recently seen this issue play out in the United States, in the sub-prime housing market, where it is apparent that the risk management practices were ineffective in differentiating income needed for essential consumption and income available for debt servicing. It can be expected that vigilance here is tightening, so it is interesting to cast a historical perspective on the determination of the requirement of essential consumption, starting with Australia's 'original' national minimum living standard. |
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