All in it together? (2010)

From the December 2010 issue of the Socialist Standard

Some are less in it than others.
The gap between those at the top of society, and the rest of us, is actually getting bigger. That applies throughout capitalism, and it is the case even in Britain, after thirteen years of Labour Governments – which promised to run capitalism in the interests of all of us. This inequality has even got Conservatives worried. So much so that sometimes you see an article in The London Times, the house-journal of British capitalism, which make you wonder if some disgruntled sub-editor has put it in as a joke. Michael Portillo, former Tory M.P. and indeed former aspirant for the job of Tory leader, has just made a speech about the way things are going. Anatole Kaletsky, the London Times economics expert (who, clearly, is very far from being a Socialist), complained that the inequality “is putting democracy in danger” (London Times, 10 November). Portillo (wrote Kaletsky) denounced the “greedy, irresponsible behaviour of Britain’s wealthy financial and managerial elite”.

“The chief executives of middle-sized financial companies [who of course are also large shareholders] receive average salaries of £2 million and continue to vote themselves pay increases, at a time when ordinary workers face cuts in their pay and pensions. Such disparities could prove incompatible with democracy, according to Mr Portillo.”

Reports from other countries suggest that this is a general trend in capitalism throughout the world. What about America, self-appointed world’s policeman, raising the banner of freedom and a fair society across the globe?

“Another shocking statistic quoted by Mr Portillo: inequality has now become so extreme that America’s 74 richest citizens receive more income than the bottom 19 million combined.”

David Cameron says “we are all in this together”. As usual, some are more in it than others. And what very many people are in, up to the neck, is the muck and slime at the bottom of society.

Why do Portillo and Kaletsky, both enthusiastic supporters of capitalism, fear this trend in society? It’s simple. In the end, if you take a typical worker, whose head has been filled since he was born with propaganda that the capitalist system is the best system of society ever devised by man, and is indeed the only possible system – if you take him and kick him hard enough, finally even he will turn round and kick you back. If there were a lot of extremely poor people, then a well-to-do person could hardly walk down the street without the fear of a physical attack by someone demanding money.

There is a story that in the days of Charles II a settler in the American colonies returned to London for a visit, and he brought two Native Americans with him, to impress them with the flaunting displays of wealth in the capital city. When the visit ended, he proudly asked them that they thought of the ostentatious spectacle. They were greatly puzzled. “Why”, they asked, “don’t the poor people kill all the rich people?” Clearly there were a lot more poor than rich: and since the majority could easily overcome a small minority, why did they not take such an obvious step to put an end to such manifest unfairness? The answer, of course, is the unremitting barrage of propaganda in all “civilized” societies to persuade everyone that rich people are rich because they are in some way better than the rest of us. (The Native Americans had not been subject to that kind of bombardment.)
Why is this making some supporters of capitalism unhappy? It’s simple. If you refuse benefits to someone who “refuses to take a job”, what will he do? Lie down somewhere out of sight and quietly die? Or try and knock some richer people over the head and grab their money?

If you go to South Africa, you can see what might happen. Because of government policies during the half century after the war, when apartheid regimes kept down the great majority of South Africans who didn’t have a white skin, and refused them any worthwhile education, and any equal chance in the job market with whites, not to mention any reasonable place to live, etc – because of all that there is a great gap between the richest and the poorest. Well-to-do South Africans travel along the well-constructed broad roads in their expensive air-conditioned cars, passing black South Africans who are walking along the hard shoulder, and who live often in shacks without water on tap, or electricity, or mains sewage. The result is a very high crime rate. Poor people see wealth all round them, and not surprisingly want to grab a bit for themselves.

South Africa has one of the highest homicide rates per capita, if not the highest, in the world. So you pass large houses surrounded by high brick walls, with prominent notices outside – “Armed Response”: which means that if you dare to offer any threat to the owners of the house (e.g. if you try and pinch anything), they will use guns to try and kill you. If you are driving a car in Johannesburg, you are very unwise to stop at a red light, because this will be an open invitation to someone holding a gun to step into the car, and order you out. The car is then driven off, and you can walk – carjacking, it’s called. An acquaintance of mine, who was an ambulance driver, actually lost his ambulance in just that way – ambulancejacking. Now, of course, apartheid is overthrown, and everyone can vote, but the main change so far is that the new successful black politicians, and their relatives and friends, are all suddenly (surprise, surprise) much richer; so some thousands of black people are now driving expensive air-conditioned cars, and living in houses protected by “Armed Response”. But there is still an enormous discrepancy in wealth between the richest and the poorest, along with the high crime rates which always accompany such inequality.

So the theory among some members or supporters of the upper class is that it may be cheaper in the long run, and certainly more pleasant, to keep social benefits at a level which means that rich people have less fear of being robbed in a personal attack, or of having their houses burgled.

Alwyn Edgar

Zero-sum games (2010)

The Cooking the Books column from the December 2010 issue of the Socialist Standard

“Currency trading,” wrote Anatole Kaletsky in the (London) Times (8 September), “is undoubtedly a zero-sum game for the world as a whole, in the sense that every currency trader’s profit represents a cost borne by some other trader, business or consumer. Despite this, however, currency trading can be hugely profitable for Britain, if most of the profits are made in the City of London and most of the losses are borne in some other country”.

This is very true but it doesn’t just apply to currency trading. It applies to all profit-chasing.
The source of all profits is surplus value arising from the unpaid labour of productive wage and salary workers. Although this surplus value is created in production it is only “realised” (i.e. converted into money) on the market, but each capitalist firm does not realise the surplus value produced by its own workers. If this were the case then labour-intensive industries would tend to be the most profitable. In fact, however, they are no more profitable than industries which employ more machinery and less labour.

The tendency under capitalism is for the same amount of capital to realise the same profit. This comes about through an averaging of the rate of profit, the average being the total amount of surplus value produced divided by the total amount of capital invested.

As Marx explained in Volume 3 of Capital:

“Thus although the capitalists in the different spheres of production get back on the sale of their commodities the capital values consumed to produce them, they do not secure the surplus-value and hence profit that is produced in their own sphere in connection with the production of these commodities.” (Chapter 9).

In effect the whole capitalist class exploits the whole working class:

“The basic notion in this connection is that of average profit itself, the idea that capitals of equal size must yield equal profits in the same period of time. This is based in turn on the notion that capital in each sphere of production has to participate according to its size in the total surplus value extorted from the workers by the total social capital; or that each particular capital should be viewed simply as a fragment of the total capital and each capitalist in fact as a shareholder in the whole social enterprise, partaking in the overall profit in proportion to the size of his share of capital.” (chapter 12).

This is why profit-chasing by all capitalist firms is a zero-sum game. The total amount of profits that can be realised by all firms together is limited by the total amount of surplus value that has been produced. Each capitalist firm – more accurately, each block of capital – strives to secure the maximum amount of profit it can. It is in fact through this that the averaging of the rate of profit comes about as capital leaves low-profit fields to flow into fields with higher profits.

The more profit one firm realises the less there is for the others. This means that firms are competing not only against other firms in the same field of activity but against all other firms. It’s a competitive struggle for profits amongst all blocks of capital.

On the world level, as Kaletsky pointed out about currency trading, the more profit the capitalist firms in one country can secure the less there is for the capitalist firms of other countries. Which is why international rivalry and downward pressures to be “competitive” are built-in to capitalism and why world cooperation for the common good is ruled out.

Helicopter Ben and the money supply (2009)

From the March 2009 issue of the Socialist Standard

Governments now call it “quantitative easing”. It used to be simply called inflating the currency. And it’s now official policy.

In the 1930s Keynes suggested burying banknotes and then paying people to dig them up. Ben Bernanke, current chairman of the US Federal Reserve, is said to have come up with a modern version:

“The most radical option is to send the newly-minted money directly to the US Government. It could then be handed out to citizens via tax relief. This form of monetary expansion would be equivalent to printing money and dropping it from helicopters for people to pick up – a graphically extreme proposal that earned the Fed chairman, Ben Bernanke, his nickname of Helicopter Ben” (Times, 18 December).

The present crisis is confirming some of the truths of Marxian economics. First, that banks cannot “create credit” out of nothing. Second, that the rise in the general price level, popularly but inaccurately called “inflation”, is caused by the government’s bank, the central bank, issuing more currency than the economy requires for its various transactions such as buying things, settling debts and paying taxes.

Inflation, which up to now politicians have been telling us is the main economic problem to avoid, is now being seen as one supposed way out of the deepening depression. After years of propaganda blaming inflation on wage increases, they now want the general price level to rise, and know how to bring this about – not by raising wages of course but by the government over-issuing the currency by printing more and more of it.

Seven years ago, when he was still only a governor of the New York Federal Reserve Bank, Bernanke explained how, by overissuing a paper currency that was not convertible on demand into a pre-fixed amount of gold, governments could create “positive inflation”:

“[U]nder a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero. ( . . .) US dollars have value only to the extent that they are strictly limited in supply. But the US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of US dollars in circulation, or even by credibly threatening to do so, the US government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." (Talk “Deflation : Making Sure It Doesn’t Happen Here”, 21 November 2002 at (http://www.federalreserve.gov/boarddocs/speeches/)

What Bernanke describes here is simply inflating the currency, even though it’s now being called “quantitative easing”. Marx had already explained this 150 years ago in his A Critique of Political Economy, where he discussed what would happen if a government overissued what Bernanke calls “fiat money”:

“Let us assume that £14 million is the amount of gold required for the circulation of commodities and that the State throws 210 million notes each called £1 into circulation: these 210 million would then stand for total of gold worth £14 million. The effect would be the same as if the notes issued by the State were to represent a metal whose value was one-fifteenth that of gold or that each note was intended to represent one-fifteenth of the previous weight of gold. This would have changed nothing but the nomenclature of the standard of prices, which is of course purely conventional, quite irrespective of whether it is brought about directly by a change in the monetary standard or indirectly by an increase in the number of paper notes issued in accordance with a new lower standard. As the name pound-sterling would now indicate one-fifteenth of the previous quantity of gold, all commodity-prices would be fifteen times higher and 210 million pound notes would now be indeed just as necessary as 14 million had previously been. The decrease in the quantity of gold which each individual token of value represented would be proportional to the increased aggregate value of these tokens. The rise in prices would be merely a reaction of the process of circulation, which forcibly placed the token of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation.”

This artificial bloating of monetary demand is what inflation, strictly speaking, means. Governments now want to consciously use this process to exert an upward pressure on the general price level to try to stop it falling as it would otherwise tend to in a deep recession. It might be thought, in view of all the publicity put out by supermarkets and chain stores about how they have all slashed prices more than their rivals, that falling prices would be a good thing. But this is not how the government sees it. They think that this would make the current depression worse, as they want to encourage people to spend whereas, with falling prices, people might postpone spending in the hope of prices falling even further.

Inflating the currency to try to stop money prices from falling is now the official policy of both the government and the Bank of England. That this is what is happening is being openly admitted. For instance, the financial journalist, Anatole Kaletsky, wrote in the Times (18 December) that “today the threat is deflation, not inflation” so that “central banks are right to flood the world economy with newly printed money – so long as they know when to stop”, conceding that “a central bank that prints money to finance large-scale government spending is, in theory, moving into territory occupied by Zimbabwe and Weimar Germany”.

In a previous article (15 December) he had attempted a more sophisticated analysis, introducing the concepts of “monetary base” and “money multiplier”. He gave the definition of the first as:

“banknotes issued by the Bank of England plus coins from the Royal Mint plus private bankers’ deposits at the Bank of England and therefore available at any time for conversion into banknotes with literally zero risk”.

This is rather more than the currency as it includes deposits from banks at the Bank of England, which do not circulate and so do not have an effect on the general price level. Nevertheless, the currency makes up over half of this “base money”.

According to Kaletsky, this figure is currently around £100 billion. He then introduces what he calls “broad money” defined as “all private sector bank and building society deposits, money market funds and so on”. Reverting to the language of before the credit crunch when it was thought that banks would never have any problem to lend money, Kaletsky refers to this “broad money” as being “created by private banks”. This is highly misleading in that what the banks lend out has not been “created” by them but is the result of them acquiring other people’s money in one way or another. It reflects what banks do, which is to recycle the purchasing power of those who don’t want to use it immediately. He does, however, admit that “the moment there is an iota of doubt, bank deposits cease to be true money, as demonstrated by the queues outside Northern Rock last year”.

Whether it is “true” money or not (and Marxists would say that it is not) the figure for “broad money” is some £1,900 billion. So, in Britain, the “money multiplier” is 19. Kaletsky notes that in other countries it is much less. In Japan it is 11, in the Eurozone 7.5 and in the US 5.3. He says that this means that Britain can safely afford to issue more “base money” and suggests a doubling to a further £100 billion, so reducing the “money multiplier” to about 10.

If all of this additional “base money” were to be in the form of notes and coin this would amount to a massive inflation of the currency, bringing it way above what the economy needs for its transactions (especially as, in a depression, the number of these will fall). Kaletsky envisages this to a certain extent as he mentions the Bank of England buying government bonds or even providing money directly to the government to spend, both of which would involve printing more currency .

In fact. facilitating the buying of government bonds with new money has been the way that successive governments have, intentionally or not, inflated the currency in Britain since 1940 and why the general price level has risen continuously since then. Kaletsky explained in his 18 December article how this worked in the US. The Federal Reserve Bank, as the central bank, will buy government bonds and

“will pay for them simply by making electronic transfers into the bank accounts of the people or institutions selling. For every $1 million worth of assets bought, the Fed will transfer $1 million of new money into private bank accounts. This ‘money’ will come literally out of nowhere. It will simply be an electronic blip on the Fed's computer. Because electronic deposits at the Fed are the ultimate form of legal tender in the US system, the result will be that the US economy has $1 million more money.”

When these banks draw on the extra amount in their accounts extra currency is brought into circulation which, if it more than is required by the economy (as it has been), leads to the rise in general price level popularly called inflation.

Kaletsky had already explained in a previous article (11 December) where the money to try to spend a way out of the depression was likely to come from:

“For the next year or two, the money for the British fiscal stimulus will come from the Bank of England's printing works in Dedham. In the case of the far bigger job-creation schemes and industry bailouts planned by Barack Obama, the money will come from the Washington and Fort Worth facilities of the US Bureau of Engraving and Printing, an institution rejoicing in the most succinctly descriptive internet address I have encountered: www.moneyfactory.gov.”

Burying bank notes and digging them up again. Dropping them from helicopters for people to pick up. In fact even using printed coloured pieces of paper to have access to what you need. These are crackpot ideas compared with the simple socialist proposition to produce things for use not for sale at a profit, so ending the need to use money at all.

Adam Buick

Is it the Big One? (2008)

Editorial from the August 2008 issue of the Socialist Standard

There’s a joke amongst stock exchange gamblers about the analyst who predicted nine of the last three bear markets. The same could be said about some critics of capitalism who have been predicting the next Great Depression since 1945.

Capitalism is an uncontrollable system and another 1930s slump cannot be ruled out. But history never repeats itself exactly, not even as a farce (not that a repeat of the horrendous 1930s could be viewed as a farce). Every slump or recession is different because capitalism is anarchic and unpredictable. In fact, if it wasn’t then capitalist governments might have a better chance of developing some policies to avoid them.

The socialist case against capitalism is not dependent on capitalism being in a slump. Even in times of “prosperity” capitalism does not, and cannot serve the interests of the majority who are obliged to sell themselves for a wage or a salary to get a living. Unemployment may be lower and real wages may be rising slowly, but the basic fact of profits being derived from the unpaid labour of those who work remains. And profit-seeking dominates decisions about what, where and how to produce. Priorities are distorted as profits always come before meeting needs.

Obviously more people are discontented in a slump than at other times but history does not provide any evidence that slump conditions are consistently better for getting across the socialist message. The priority for an unemployed person is a job or rather the money needed to buy things that goes with a job. Socialism could indeed immediately solve this problem by ensuring that everyone’s material needs were met, but socialism cannot be established until and unless a majority want it and are prepared to take the necessary political action to get it. Socialists, however, cannot produce this immediately by waving a wand. In the meantime unemployed people want a job and have been known to follow all sorts of demagogues who promise them this.

Socialists do not subscribe to the view “the worse, the better”. Even so, slump conditions do expose the irrationality of capitalism. Closed factories alongside unemployment queues. People in bad housing alongside stockpiles of bricks. People in need of food alongside food mountains and, worse, food bonfires. In short, poverty amidst potential plenty.

But are we heading for another big slump? Nobody knows. Capitalist opinion is divided. Anatole Kaletsky, writing in the (London) Times (17 July), reported that “according to the overwhelming majority of financial analysts in the City of London and Wall Street, the world is now in the worst economic crisis since the 1930s”. He disagrees. He regards this merely as a panic reaction amongst bankers who are seeing their expected profits disappear.

Socialists don’t know either but the very fact that another big slump cannot be ruled out confirms in itself that capitalism is an irrational and uncontrollable economic system. The sooner it is got rid of and replaced by a system under human control and geared to serving human needs the better.