An Open Letter to The Chairman of the Bank of England (2012)

Mervyn King

From the August 2012 issue of the Socialist Standard

Dear Sir Mervyn

Having heard on the BBC news channel on the evening of the 29th June your condemnations and exhortations concerning the practices of your fellow-bankers I am taking the liberty of writing to you to register my surprise at your remarks. It is not my purpose to be offensive but I find it difficult to accept that a man of your knowledge and experience can view the current crisis of capitalism in moral terms or, indeed, as aberrational.

I am an eighty-seven year old man and a great-grandfather which gives me a particular concern for the future. I was born four years before the awful world economic slump of 1929 and I have lived through some eight or nine ‘recessions’ –as they are euphemistically referred to today. I have witnessed life under the system of capitalism when it was largely unregulated –capitalists had discovered earlier that they required some sort of Queensbury Rules to protect themselves from one another.

Post-1945, when government adopted the war-time National government’s commitment to the Beveridge Report, I experienced Maynard Keynes’ antidote to the caprice of the system, via ‘demand management’: the exchange of bonds for shares and –in recognition that working-class poverty was an endemic feature of capitalism – the institution of a complex scheme of nationalised poverty.

It would be churlish to deny that there was some improvement in social conditions for the producing class: improvement, it has to be said, greatly assisted by the need to make good the awful destruction of the late world war –while frenetically preparing for yet another possible war against our late ‘glorious Russian allies’ and their Leninist philosophy of trying (vainly, as it turned out) to rationalise commodity production through central state planning.

While knowledge was constrained by the cash nexus, science in all fields of human endeavour has brought about a geometrical increase in our potential to create the material conditions of a full and happy life for every human being on the planet. Unfortunately much of our fantastically expanded wisdom and wealth has been siphoned into military establishments which are today a vital indigenous segment of the world economy; a segment which often manifests an independent and dangerous threat to human freedom.

The world of my lifetime has seen the economic murder of some eight billion people through starvation, lack of clean water and necessary medication. The food and medication to keep these people alive was available but the men, women and children concerned did not represent a viable market that would yield profit. They died because they were poor.

In the same period I have seen World War Two –the awful sequel to World War One –that brought homes onto battlefields. Now, since the end of WW2, there is at least one major conflict occurring every single day. In fact, the industrialised killing of human beings that arises from the endemic conflicts of capitalism has itself created investment opportunities effectively making international concord a serious economic threat.

Rich list
It is surely legitimate, Sir Mervyn, to ask such as your good self how you think people in what we hope will be a more enlightened future will see the current phase of what we are told is civilisation. How, for example, would a future economic historian see the current Sunday Times ‘Rich List’ which shows that the wealth of the one thousand richest people in the UK –a mere 0.003% of the adult population –increased by an incredible £155 billion over the last three years? This in a period when wages and social security benefits were, and are, being slashed and the vision and disagreements of the three political parties, marketing the same political product, is confined to the duration, in years, the working class will have to endure the appalling increase in its miseries.

Moral aphorisms appealing to those who have purloined the means whereby the rest of us live have never restrained the appetites of an owning class. It is said that Jesus got his comeuppance for suggesting the meek –by definition, the poor –should inherit the land. Centuries later, in the dying years of the nineteenth century, when Pope Leo mildly admonished the capitalism of his day, opining that “…the wages of the working man ought not be insufficient to support a frugal and well-conducted wage-earner…” (Encyclical: Rerum Novarum, May 1891) public criticism was raised by Italian businessmen who suggested that the promulgation of the document might cause social unrest.

Poverty and riches are two sides of the same coin –almost literally so, for as Shelley put it, “Paper coin, [is] that forgery of the title deeds which we hold to something of the worth of the inheritance of earth”. You cannot be ignorant of the mechanism by which a small minority class dispossesses the creators of all real wealth of the fruits of their labour and rations their access to their needs through a wages-money system.

Whatever the form of society, real wealth is produced, and can only be produced, by the application of human labour power to nature-given materials. Capitalism adds a third element to this simple equation: investment on foot of the promise of profit. The shareholder, whether s/he is a billionaire or a plumber in a pension scheme, seeks a return on their investment and is rarely persuaded by the needs of ‘the nation’ or their perception of morality. Only the threat in the aforesaid ‘Queensberry Rules’ of the system curbs the pecuniary enthusiasm of the more predatory captains of capital and that, as we are currently learning, is not always the case.

Capital on strike
The labour power that provided the fervid productive activity of, say six years ago, when the system was in relative ‘boom’, is still available as are the natural resources of that period. The missing element is capital; effectively, capital is on strike, holding the nation up to ransom as the pensioned editors of their newspapers proclaim when some group of low-paid workers withdraws their labour. Surely the fact that a small minority of satiated money shufflers can visit such overwhelming hardship on the populace in general (as it does periodically) must bring the entire system into question.

Whatever of the past, when the owner of the local factory lived in the big house on the periphery of the town or village and occasionally visited the local hostelry and even bought the lads a pint, capitalism today is a curse on the lives of the world’s billions. Technology has given it a mobility to seek the cheapest labour, circumvent health and safety standards that might impinge on profits or capital on-costs and to force the hand of allegedly democratic authority.

The implications in the current crop of chastisements against bankers and those of their ilk is that capitalism is an efficient, humane economic system that offers the human family the best of all possible worlds except when, as now, it falls victim to the ineptitude or greed of some of its functionaries. That is a lie told in defence of the system. Of course there has been abuse, and even absurdity, in the administration of banks and businesses but it was the uncontrollable greed that fuels the system that gave rise to the activities of bankers and speculators. Nor should we forget that it was the approbation of millionaire and billionaire shareholders that justified the fabulous salaries and bonuses so lately enjoyed by now-discredited servants of capital.

The widespread clarion for a public enquiry might expose some of the greedy swindlers whose dishonest activities have added misery to capitalism’s cyclic trade crisis as well as the self-interested manoeuvrings of politicians in all the three main parties. For a while these scoundrels might suffer in comfort the embarrassment of being publicly pilloried. But the system itself, the vile, anachronistic system that brings dire poverty or mere want to most of the people on the planet, will be off the hook.

What we will not have is an incisive enquiry into the question of capitalism’s suitability for purpose and whether socialism, in a clearly defined sense, offers a better way of life for the whole of humanity. That would be much too democratic.

Such are my thoughts. I confess, Sir Mervyn, that I am a ridiculous optimist who thinks human concern and human honesty might occasionally rise superior to the exigencies of office. Additionally, of course, in submitting this to the Editors of the Socialist Standard, I would stipulate that publication guarantees your right of reply.

Sincerely

Richard Montague

Answer to a Correspondent: Socialism and the Gold Standard. (1930)

From the January 1930 issue of the Socialist Standard

Socialism and the Gold Standard.
We have received a further letter—too long to print in full—from Mr. Edwin Wright, in which he attempts to substantiate statements made in his last letter (see December "S.S."), and introduces a number of fresh points additional to those already being discussed. We deal below with the issues raised last month.

The first issue was Mr. Wright’s denial of our statement that banks make profit by receiving money on deposit and lending it out at a higher rate of interest than the rate they pay to depositors. Mr. Wright’s "evidence” to support his denial consists of a statement which he attributes to Mr. McKenna. Mr. Wright says :—

  Mr. McKenna denies that banks pay their way by merely borrowing from one person and lending to another. His exact words are: "Every bank loan creates a deposit," which is a denial that banks lend money already deposited, if cheques are used.

In our last issue we invited Mr. Wright to say which part of our statement he considered to be wrong. It will be noticed that he does not attempt to do so, but relies entirely on a mere assertion by Mr. McKenna; an assertion unaccompanied by argument or evidence. Let us therefore repeat the statement :—(a) banks receive money on deposit; (b) they pay interest to depositors; (c) they lend money at interest; (d) the interest they pay is less than the interest they receive. Neither Mr. Wright nor anyone else can deny the accuracy of these four propositions.

And now let us see what another banker has to say about the statement attributed to Mr. McKenna.

The late Mr. Walter Leaf, Chairman of the Westminster Bank, in his book "Banking” (Williams & Norgate. 1926) dealt with this question. He wrote as follows:—

  It has indeed been argued that every loan by the banks creates a deposit; that as long as the banks go on increasing their loans, so long will their deposits grow in the same degree, and that thus the banks can be regarded as creating credit. Unfortunately, this theory will not stand confrontation with the facts . . . the course of events in the first half of the year, 1925, gives a decisive answer to this hypothesis.—(P. 102.)

He then gave figures showing that an increase in the amount of loans and advances made by the "Big Five” Joint Stock Banks, from £746 million in January, 1926, to £776 million in June, was accompanied by a decrease in deposits from £1,515 million in January to £1,490 million in June.

The second issue raised by Mr. Wright was his statement (see December "S.S.”) that Marx and Marxians "approve of a gold standard.” We denied this and asked for evidence. Mr. Wright now offers his evidence. He writes:—

  In “Value, Price & Profit,” Marx says, “ Even in England the mechanism (of banking) is less perfect than in Scotland.”—(P. 28.)

   Now Marx unfortunately helps the banker and the rich rather than us. On page 110/111 of 1 Vol. Edition of “ Capital,” he states: “ It is necessary that the quantity of gold be greater than that required as coin. This condition is fulfilled by hoards,” and (P. 110) "this mass of gold must be capable of expansion and contraction.” On page 90 he writes, “The erroneous opinion that it is prices that are determined by the quantity of money . . . this opinion is based on the absurd hypothesis that money is without value when it first circulates.” On page 102, Marx states, “ Money based on credit implies conditions totally unknown to us.”.

These quotations, according to Mr. Wright, show that Marx “approved the gold standard,” and that he “admired our money system,” and that he “defends bankers.”

We would first point out that the last “quotation” is not as Marx wrote it but as it appears after being “doctored” by Mr. Wright.

The correct quotation is "Money based upon credit implies on the other hand conditions, which from our standpoint of the simple circulation of commodities are as yet totally unknown to us.” (Capital, Volume 1. Kerr Edition. P. 143.)

Taken in its context this passage is clear enough and has a meaning totally different from the one assumed by Mr. Wright. Marx is developing an argument stage by stage and in this passage he reminds his reader that he was not “as yet” considering “money based upon credit.”

He did consider it later in Volume I and in Volumes II and III, the existence of which appears to be unknown to our critic.

Mr. Wright fails to realise the whole purpose of the work “Capital.” Mr. Wright imagines that the passages he quotes are intended to be statements of the policy which Marx advocated. This is a childish misunderstanding. “Capital” in general and the passages quoted are statements of the way in which Capitalism was in fact working when Marx studied it.

They are offered as statements of fact, not as tributes to or attacks on bankers.

Mr. Wright’s further contention is that his schemes for money reform "will enable Socialism and Communism to be established far more easily than you hope for.” He himself provides the answer to his illusory hopes. Having quoted Mr. McKenna as his authority for what he erroneously believes to be a fact about banking, he then admits that Mr. McKenna “thinks that Capitalism can be saved by money reform.” So that Mr. Wright’s short cut to Socialism is believed by Mr. McKenna to be a way to the salvation of Capitalism.

Next Mr. Wright bases the operation of his scheme on the existence of “a Socialist Government.”

In other words, Mr. Wright’s schemes cannot be operated until after the working-class have become Socialist and have obtained power. When that condition exists the working-class will use their power for the purpose of establishing Socialism not for the purpose of introducing some trivial alteration in the method by which Capitalism manages its currency. Socialism involves production for use, not for sale and will therefore require no currency system. We, therefore, in agreement with Marx, do not advocate a gold standard or any other currency system. We advocate Socialism.

Editorial Committee

Singing the Praises of the Beautiful Banks (2017)

From the June 2017 issue of the Socialist Standard

The Co-operative bank has had various scandals in recent years, financial and otherwise. The Co-op 'brand' has decided it needs to clean up its image. The result is a current television advertising campaign which is as preposterous as it is insulting to our intelligence. The television ads are voiced by Russell Brand’s former radio show on-air commentator, George The Poet, who utters ponderous platitudes as if these capitalist high-street banks and supermarkets were some kind of socialist utopia. In fact, of course, today’s Co-op bears hardly even a trace of the idealism of the Rochdale Pioneers of 1844. Like the John Lewis Partnership, it has long succumbed to the pressure to act just like any other profit-hungry, hierarchical corporation within a capitalist world.

In 2016 a total of £16 million was allocated nationally by the Co-op to community projects and 'good causes', out of a group turnover of £7.1 billion. Just three of their bank directors (Niall Booker, Liam Coleman and John Baines) that year shared an income of £4 million, a quarter of the entire national community causes budget. So when George The Poet intones 'let’s work together and strive for unity' as 'great things happen when we work together', it is an utter sham. Likewise, when he asks, 'What if communities got a share of the profits? What if everyone could win from this?' he neglects to mention that last year the share handed to 'the community' (in lieu of tax) was only 2p out of every £10.

The recruitment of artistic talent to sell such messages has become the holy grail of companies, and it was a great coup that they had this film directed by one of our greatest living film makers, Shane Meadows (This Is England, Dead Man’s Shoes, SomersTown, A Room for Romeo Brass), well known for his working-class realism and affinity. Rather than carp from the sidelines, however, we can rely on the self-description from the horse’s mouth, as it were. The director of the Co-op brand, Helen Carroll, has praised the style of this new campaign, as it 'doesn’t feel like advertising at all. It shows the power of community'.

In using that power to sell products and make millions for people like Niall Booker and Liam Coleman, the Co-op has shamelessly copied a series of adverts run shortly before by a rival bank, also with false pretensions to being less bank-like than other banks, the Nationwide. Those ads featured a whole range of 'cool' and popular young performance poets, telling us through their rhyming sermons that Nationwide is another bank devoted to sharing, caring, community, responsibility and fairness. But try going to either of these banks if you have just been made redundant and can no longer pay your mortgage or rent. Ask them to show a bit of community spirit by covering it for you for a couple of years. Let us know their response.

All of those poets were either incredibly stupid and gullible, or ambitious and easily bought. The Nationwide, like the Co-op Bank, is a capitalist institution, committed to invest in order to accumulate surpluses. It stands right at the heart of the most exploitative system ever to curse the human species. Is this what music and lyrics are for, to praise banks? If only these artists had possessed one tenth of the decency and principle of Ricky Gervais, who once turned down a million pounds rather than advertise something he found tacky and undesirable – and that was at a time when he was not yet wealthy himself. What those cheap, venal sell-outs bought into was the modern trend in which capitalist corporations do not advertise the products they are selling, but rather their proclaimed decency and high moral values. Of course, they protest too much. The people and organisations who really devote themselves to caring about people and working for the community do not need to spend millions of advertising dollars insisting how nice they really are.

Clifford Slapper

“We are the 99 percent” (2011)

The Cooking the Books Column from the December 2011 issue of the Socialist Standard

So proclaim some of those who called for the occupation of Wall Street, explaining: “We are getting kicked out of our homes. We are forced to choose between groceries and rent. We are denied quality medical care. We are suffering from environmental pollution. We are working long hours for little pay and no rights, if we’re working at all. We are getting nothing while the other 1 percent is getting everything. We are the 99 percent” (wearethe-99percent.tumblr.com).

A powerful appeal - the sort of thing we might say ourselves. But who are “the other 1 percent” that are getting the best of everything? According to WeAreThe99percent, “they are the banks, the mortgage  industry, the insurance industry”, by which they presumably mean the rich people who own and control these financial corporations. But is that all of them? Apparently. But if so, this is wrong.

In 2010 CoreData research calculated that the number of millionaires (defined as those having a £1 million in addition to their principal residence) in Britain was 284,317 or 1.1 percent of households. So, the figure of 1 percent of those who benefit from the present system is more or less correct. However: “The study found that the majority of millionaires’ assets are held in shares at 34.2 per cent, while 32.2 per cent is invested in property and 13.2 per cent is held in cash. Just over 5 per cent of their money is invested in physical items, such as antiques, collectibles and art” (Daily Telegraph, 30 September 2010).

So they are not just bankers. In fact, at least in Britain, the biggest group seems to be property speculators and landowners. And the shares will be held in all sorts of capitalist corporations, not just banks and insurance companies. In other words, the 1 percent are capitalists in general. In suggesting that they are just the bankers WeAreThe99percent have got it wrong. It’s a mistake insofar as it suggests that if the bankers are dealt with (whether through banking reform or nationalisation) then the problems facing the 99 percent will go away, which of course they won’t as they are not caused by greedy bankers and the like but by the whole capitalist system.

It’s obviously not the intention, but to say that the 1 percent who exploit the rest of the population are just the bankers is to imply that non-financial capitalists are part of us, the 99 percent, when clearly they are not as they don’t face problems over housing, healthcare, inadequate pay or finding a job. “We Are The 99 percent” is an appealing slogan, but misleading if it means “everyone except bankers”. It should  mean something more like “everyone except the capitalist class”.

A wit once accused us of defining the working class as “everyone apart from the fat controller”. This is because we define the working class as everyone who, owning no means or instruments of production, is obliged by economic necessity to sell their mental and physical energies for a wage or salary to live or, otherwise, to depend on state handouts. In a developed part of the world such as Britain this amounts to about 90 percent of households and this is the group we look to end capitalism because they have a material interest in doing so. The other 10 percent is made up of the 1 percent of capitalists and 7-9 percent of “self-employed” (not that we’ve anything against most of them as they don’t exploit the working class). The trouble is “We Are The 93 percent” is not quite so snappy a slogan.