State Banking in Australia (1934)

From the July 1934 issue of the Socialist Standard

Another Quack Remedy 

In the Glasgow Forward (October 21st, 1933), Tom Johnston takes G. D. H. Cole to task for omitting to mention the results of State banking in Australia in his recently published work, “What Everybody wants to know about Money."

As Mr. Johnston seems highly incensed at this omission one would expect that he would have supplied the deficiency and would have tried to show what good things State banking has achieved for the workers of Australia. But Tom deserves the carrot for modesty, for he does not even attempt it. For the benefit of those workers who are always being lulled to political sleep by references to Australia's magnificent “socialistic" examples, let us speak for ourselves. First let us give a few facts.

The biggest State-controlled Bank in Australia is the Commonwealth Bank. It was established in 1911 and has been a profitable concern for the Government ever since. Up to the 20th anniversary the aggregate profits were: —

General Bank  . . .        . . . £6,943,942 11 9

Savings Bank  . . .        . . .   2,781,995 19 9

Rural Bank  . . .        . . .      328,078 11 2

    Total                              £10,054,017    2    8

These figures are exclusive of the note issue branch. These profits have been distributed as follows: — 

To Capital Account       . . .  £4,000,000 0 0

Reserve Fund . . .   . . .            1,406,580 13 3

Rural Bank Reserve . . . 164,039 5 7

Savings Bank Reserve . . . 658,382 3 10

National Debt Sinking Fund 2,660,975 14 5

      Total                                 £10,054,017       2    8

These figures are from the Commomuealth Year Book and Labor Daily Year Book. They show that nearly one-third of the profits went into the National Debt Sinking Fund.

A common claim made on behalf of the Bank is that the profits go to lighten the “people’s burden" by helping wipe off the National Debt. But that is the crux of the whole matter, how does wiping off the National Debt help the workers. Reducing the National Debt reduces the amount of interest payable to bondholders, and thus enables the Government to reduce taxation. Reduced taxation, however, does not help the workers, but only the propertied class. What the workers get is their wages. If, owing to reduced taxation, the workers' cost of living is reduced, their pay is reduced likewise. It is on that rock that all the reformist schemes for bettering the workers’ condition under Capitalism are wrecked. As a prominent advocate of debt reduction by means of a capital levy (Mr. Pethick Lawrence) once admitted, it was merely a redistribution of wealth among the wealthy only.

If therefore State banking is a success it is as an adjunct of Capitalism. According to Senator Barnes, Labour Party, “The Commonwealth Bank has made a profit of 31 million pounds since its establishment." (Melbourne Herald, February 5th, 1934.) In the book of the Commonwealth Bank (an official publication by C. C. Fawkner) we are told that “The bank's policy was not to enter into aggressive competition with the existing financial institutions, and this was shown by determining the rates of interest on fixed deposits at ½  per cent. below those quoted by the leading trading banks." (p. 42.) And so that our masters could facilitate their business, “the rate fixed (for overdrafts) by the Commonwealth Bank had a marked effect in keeping down interest rates, to the benefit of the commercial mid business community throughout Australia." (p. 42.)

Some of the chief functions performed by the Commonwealth Bank have been Raising War Loans, Financing Naval Projects, Building Railways, Financing War Expenditure, Financing Pools for wheat, wool, etc.

Bank Loans to House Purchasers

One of the main functions of the State Savings Bank (Victoria) was the financing of home-building under what is known as the Credit Foncier system. Under the_Act of 1920, authority is given to the Commissioners to purchase and build houses for persons who have an income of not more than £400 per annum, and who do not own a house. The limit is, if the house be of wood, £1,000, and of brick, stone, or concrete, £ 1,300.

The interest charged was 6¼ per cent., and the terms of payment allowed for the paying off of the house in 26 years. The funds for this branch of the Bank's operations were raised by the issue of Credit Foncier Debentures, which were guaranteed by the Government of Victoria.

The net profit for the year 1928-29 was £34,032, and for 1929-30, £24,591. These profits are allocated for the purpose of meeting any losses that may occur. Savings Bank debentures pay 5¼ per cent. (1940) and 4½ per cent. (1936). The interest on these debentures comes out of the 6¼ per cent. paid by the workers who are purchasing their homes, and should this source fail, the Government foots the bill.

“Of the 46,100 loans in the Credit Foncier Department 58 securities were in the possession of the Bank at June 30th, 1930, on which the indebtedness was £34,183. To September 11th, 1930, 22 of these had been sold, reducing the number to 36 and the amount to £19,847. During the year, 86 properties were sold for £65,876, and resulted in a small loss (£1,412), but an amount of £1,162 which had been written off in former years, was recovered.” (Victorian Year Book, 1929-30.)

As the depression became worse, the number of houses reverting to the banks owing to the inability of the purchasers to keep up their payment increased rapidly. In 1930-31 the number in possession of the Bank at June, 1931, was 315, about seven out of every 1,000.

So great did the number of reversions to the Bank become that the figures were conveniently concealed from the public by not being published in the annual reports; Some idea of the huge increase can be gained when it is learned that a separate department was set up in the Bank to cope with it. Besides, owing to the inability of the Bank to dispose of many of the re-possessed houses, it was deemed wiser to leave the tenants in charge rather than risk the deterioration which accompanies an untenanted dwelling. Inquiries at the Bank reveal a reticent attitude with regard to particulars pertaining to this side of its activities.

In South Australia a similar position obtained.

Just prior to the depression the Board of Management of the State Bank of South Australia reported "that for the year ended June 30th, 1928, 106 houses reverted to the Bank through tenants being unable to continue payments or through their vacating premises because of inability to pay. The properties are now being sold by the Bank. The number of reverted properties for the previous year was 78.” The position in South Australia is said to be even worse than Victoria! !

In New South Wales, owing to political tactics by both State Labour Government and Federal Nationalist Government, the State Savings Bank had to close its doors altogether, and the business was taken over by the Commonwealth Bank. Pending an agreement being arrived at as to the terms of taking over, many depositors were forced on to the dole.

The foregoing facts could have been easily obtained by Mr. Johnston had he any desire to show some of the “results of the State Banks in Australia.” Mr. Johnston has a lot to learn about State Banking in so far as it affects the working class.

Let us ask Mr. Johnston a few questions. .

In what way do the floating of war loans, the financing of wheat pools, the building of State Railways, and the granting of big overdrafts at low rates of interest, improve the position of the working class ?

How much better off are those workers who began to purchase homes under the Credit Foncier System only to lose them (as they would have, had they bought them off private institutions), when the depression deprived them of their jobs?

Is not the. abolition of the Capitalist system and all its appendages more in keeping with working-class interests, and would not the Johnstons, the Coles, and others of their ilk, be better occupied in helping to establish Socialism? We know that the whole Capitalist system, including the banking system, has got to go before the workers come into their own. And with all due modesty we say to Mr. Johnston, "It's never too late to learn.”

W. J. Clarke

(Socialist Party of Australia.)

The Fruit of Illusion (1955)

From the June 1955 issue of the Socialist Standard

In the American periodical The Nation (April 23rd) an article appears by G. D. H. Cole. It is a very pessimistic article. Cole considers that the Socialist movement has lost its way and is not what it was when he joined it long ago in the days of Jaures, Kautzky, Keir Hardie, and the Webbs. His principal disappointment concerns the International aspect of the movement and the national concentration upon ends that are not Socialist.

 

In the early part of his article Cole writes:

“When I joined the Socialist movement in England, it never occurred to me to doubt that I was accepting an international obligation and a loyalty that transcended national frontiers. My task, as I saw it, was to play my small part in a great crusade for human brotherhood that would make an end of the exploitation of man by man and of country by country, destroying capitalism and imperialism together and putting in their place a world society set free from war and hatred to devote its energies and vast resources to banishing poverty and slavery from every country.”

He then goes on to ask “Where are that task and those efforts now?”; and he claims that since 1917 there have been “two sharply antagonistic movements, each claiming to be the torch-bearer of the true Socialism but at bitter conflict about the means of advancing towards their goal and even about the goal itself.” Cole did not go far enough back. The trouble started tong before 1917. It started with the groups he thought so much of in his early days—the German and English Social Democratic Parties, the Fabian Society, the Independent Labour Party, and, finally, the Labour Party. It was their concentration upon “immediate aims,” which included a multitude of reforms, that landed the movement in the morass in which it finds itself to-day. The result is a logical development «of the early policy. But Cole can‘t see this; he wants to go back and start all over again the policies that can only bear its present fruit. His disappointment is the result of his failure to grasp the essential difference between a revolutionary and a reformist policy, and the inevitable result of the latter.

Later on in his article he writes, referring to the cleavage between the Social Democratic and the Communist movement:

"I have never been able to accept as final this sharp cleavage in what I still think of as fundamentally a single world-wide movement against oppression. I am no Communist, for I detest the suppression of all free thinking which Communists not only regard as needful, but seem positively to admire. 1 hate cruelty, rigid discipline, and the vindictive mistrust which the Communist philosophy appears to involve. I cannot, however, for that reason consent to regard the peoples of the Communist countries, or the Communists of my own or other countries, as enemies with whom I have nothing in common. I have much in common with them. I share their wish to help all the subject peoples of the world to emancipate themselves from foreign imperialist rule; I admire their planned economies and their vast achievements in economic construction; and I see them, on one condition, as advancing, however deviously, toward a classless society and an expansion of freedom for the ordinary man and woman in the affairs of everyday living. The one condition is, of course, that they escape from the ever-present peril of utterly destructive world war, fear of which poisons their behaviour and forbids them luxuries of common honesty and decent tolerance."

The above is some measure of Cole’s lack of insight, and how much the fear of war has clouded his vision. To suggest that fear of world war is a determining factor in the behaviour and the dishonesty of the leaders of the Russian Communist Party is just nonsense. Their reformism, their twisting of Marxism, their internal strife and their mutual wiping out of each other, is based on far more than that. And Cole’s admiration of their achievements is in line with his own life-long support of reformism. His description of the present position of the Social Democrats is interesting from two points of view; he recognises the position of futility they have reached but he also accepts that Socialism does include “national endeavours to advance gradually.” Here is his description:

“I am assuredly no Communist. But no more am I a Democratic Socialist if this means renouncing the Socialist revolution and reducing socialism to a set of independent electoral movements designed to gain parliamentary majorities with the support of non-Socialist voters. I do not deny the need for parliamentary action, but I do deny that Socialism means no more than a number of national endeavours to advance gradually and constitutionally toward the welfare state. Even where nominally Socialist parties have gained majority support, they have never attempted to establish Socialism; even their attempts to further welfare have shown signs of petering out after their initial successes, owing to the difficulty of advancing further without disturbing the smooth working of the capitalist structure—to which they are supposed to be hostile—and the fear that by attacking it they will alienate marginal support. This seems to be the position in the Scandinavian countries, as well as in Great Britain."

He adds to the above that in Europe “the Democratic Socialist parties, in their fear of Communist aggression” seem to be prepared to acquiesce in rearmament, including atomic weapons and hydrogen bombs and finishes a paragraph about these measures with the following remarks:—

"They are being forced on the Socialist parties by a reactionary leadership that has come to be more anti-communist than pro-Socialist and sees nothing amiss in turning to capitalist America as its ally against the Communists."

Cole then proceeds to outline his own position, stating at the outset that old Socialists like himself—"Internationalists and non-Communists ”—find themselves in a terribly difficult position, faced with a conflict of loyalties, loyalty to their parties or loyalty to Socialism as an essentially international cause. The Labour Party, he says, has no clear vision of what to do and “its recent programmes have been quite remarkably ineffective and even trivial.” And then he puts the question:—

"What, then, is to be done? The Socialism to which I was converted in my youth was the fruit of long, hard, and passionate thinking, subsequently translated into policies, not for the full establishment of a Socialist way of life, but for the first steps towards it."

Earlier he had claimed something was badly amiss "with the development of Socialist thought in face of the vast change in the problems mankind must face in order to progress, or even to survive.” To meet this and to get out of the mess in which social democracy had landed he makes his proposals. Before doing so he gives voice to the deep-rooted feelings of the intellectual who has cursed the radical movement by his self-appointed function of leading the ignorant. Here is how he puts it:—

“Besides, mass parties cannot think; they can only be influenced by the thinking of individuals or small groups of people who are prepared to think for them." 

and here is the thinking of one of those individuals:—

“With these ideas in mind, I have come to the conclusion that an attempt should be made to establish internationally a small society, or order, of Socialists who would pledge themselves to do their best to restate the essentials of their Socialist faith in terms applicable to the present world situation. . . . The immediate task of this group would be not to act but to think together and to plan— to restate Socialist principles in relation to the most pressing contemporary problems, and to base on these principles a broad programme of action in which the various national movements could be called upon to play their part. Each member of the group, or order, would publicize its ideas in his own country and try to induce the national leaders to take them up."

So there we are, back to where the Labour Party came in, with the Fabian Society producing the ideas and policy that helped to lead them into the present mess. No fundamental change in outlook, just a different bottle to contain the same old illusions. And far from the problems having changed, they are just the same, only in one direction aircraft, mechanisation and the bomb, have replaced horse-drawn cannon and the maxim gun.

These are some of the practical suggestions Cole thinks come from this new group:—

"first, a clearly defined attitude toward the making and potential use of atomic weapons; second, a well-thought-out plan of campaign for a 'war upon want' designed to equalize, as nearly as possible, conditions of living in all countries; third, plans for a world economic structure that will avoid the evils both of capitalism and of bureaucratic centralization and will open up for the workers in every country rapidly increasing opportunities for democratic, responsible self-government in their working lives; and fourth, the complete ending of imperialist domination, both political and economic, and the extension of self-governing independence to all peoples.”

Here they are, the same old windy type of high-faluting propositions, the practical application of which would only land the proposers in the present position of the movement they have supported, and this is the result of a life-time of experience! The intellectual never learns, he only prophesies and proposes; then weeps at the result and lays the blame on others.

When Cole started operations there was a party in existence which kept its course steadfastly to the accomplishment of Socialism and opposed all reformist policies. This Party was the Socialist Party of Great Britain, but Cole would have nothing to do with it because it opposed reformism. There is the World Socialist Party of America, and parties in other countries, which take the same line as we do, but Cole still ignores our existence, preferring to follow the path of reformist illusion.

Gilmac.

Professor Cole rides again (1956)

Letter to the Editors from the March 1956 issue of the Socialist Standard

We received the following letter to which a reply is attached.

S.W.3.

17.1.56.

World Socialist Movement

Dear Sirs,

In the January issue of the Socialist Standard there is a reference on p. 3 to “movements like the one sponsored by G. D. H. Cole”—presumably referring to the World Socialist Movement.  Since your writer gave a quite erroneous impression of the nature of this movement I should be obliged if you would publish the following information in the Socialist Standard.

The World Socialist Movement is not a movement craving for a mass following. Naturally we seek to convince people of the possibility and desirability of world Socialism (as, we understand, does the Socialist Party of Great Britain). Your article refers to “ those who . . . have hedged, compromised, and thrown principles to the winds in order to swell the numerical support,” etc. However applicable these statements may be to the other movements you mention, they most certainly do not apply to the World Socialist Movement, which is quite explicitly an educational and not a mass movement. Your readers can confirm this by reading our introductory leaflet (obtainable from the above address) which contains a summary of our beliefs in six principles—” the minimum, which can on no account be diluted in an attempt to gain popular support.’

Yours,

John H. Roddam.

Secretary W.S.M.

Executive Committee, S.P.G.B.,

52, Clapham High St., S.W.4.

Reply:

In an article that appeared in an American periodical “The Nation” (April 23rd. 1955), G. D. H. Cole outlined the practical suggestions he thought would come from the organisation that he proposed should be established. As a preliminary he stated:

“Besides, mass parties cannot think; they can only be influenced by the thinking of individuals or small groups of people who are prepared to think for them.”

Whit would this group of intellectual snobs do?

“The immediate task of this group would be not to act but to think together and to plan—to restate Socialist principles in relation to the most pressing contemporary problems, and to base on these principles a broad programme of action to which the various national movements would be called upon to play their part. Each member of the group, or order, would publicize its ideas in his own country and try to induce the national leaders to take them up.” 

What is this but an attempt to get a mass following of blind supporters? And what is the nature of the ideas that would be publicized?

“First, a clearly defined attitude towards the making and potential use of atomic weapons; second, a well-thought-out plan of campaign for a ‘war upon want’ designed to equalize, as nearly as possible, conditions of living in all countries; third, plans for a world economic structure that will avoid the evils both of capitalism and of bureaucratic centralization and will open up for the workers in every country rapidly increasing opportunities for democratic, responsible self-government in their working lives; and fourth the complete ending of imperialist domination, both political and economic, and the extension of self-governing independence to all people."

In other words Cole had gone back to the position of the early Fabians whose policy was largely responsible for the present position of the Labour Party.

Now let us turn to the leaflet which our critic encloses. It opens with the following three paragraphs in heavy black type:

"The World Socialist Movement strives to justify through its members its claim to be the nucleus of the coming world socialist society and not of a new party.

“We regard national governments and institutions as outmoded and aggressively competitive and militaristic in conception; and so we appeal to socialists all over the world to combine with us in the struggle to free ourselves and others from that which fetters our thoughts, falsifies our actions and makes a virtue of competition and segregation in place of co-operation and unity.

“We believe that socialists are hampered in their attempt to bring about a socialist world society less by opposition from without than by dissension from within, and our basic principles have been formulated in the belief that they are acceptable to all socialists; but they are the minimum, which can on no account be diluted in an attempt to gain popular support.”

The leaflet concludes with the following paragraph, also in heavy black type:

“We do not ask you to renounce existing loyalties; but there is no alternative to accepting new and greater loyalties if a socialist world is to come about.”

What is all this empty and dubious phraseology but an attempt to form a mass party. As an inducement they even say, in effect, stick to your old wrong-headed parties but also join us and help to swell our ranks. If this is not throwing principles to the winds, what is? To help swell their following they say, in the body of the leaflet:

“We are not concerned with attacking any country or political party. . . . There is no time to be wasted on destructive criticism;”

. . . 

“We do not believe that a socialist world can be achieved merely by persuading national governments to cooperate more closely. Neither do we believe that people will think as world citizens if we merely attack their deep rooted patriotic emotions”

. . .

“The World Socialist Movement has been started to bring together all the answers to the problems but we want everyone who shares the same reasonable belief to join us and work with us in the pursuit of our ideal.”

. . .

“But we shall have no rigid dogma that must be accepted before an individual can become a member. Every man and woman who wants a socialist world can find a place in our Movement and will be expected to give, in work and money, according to his means”

Well! Well! Well! “Never mind whether you support nationalisation, Social Credit, the Co-operative Movement or any other anti-Socialist idea that you wrongly believe is Socialist; join us and help to swell our ranks. We are the re-incarnated Fabians waiting to help you along the road to futility again!" It’s the old old stuff again with a new label on the bottle.

Now let us take a look at the “ ideal ” of this new party that is not a party. Here is their definition of it:

“The first need is to outline the sort of world we are striving for. We want a socialist world and by that we mean one in which there is common citizenship under a single code of law, in which every human being has equal rights. It means that there must be world planning for the production of raw materials and the manufacture of basic commodities, with world ownership of essential industries.”

What Labourite or advocate of state-ownership would disagree with that vague definition? Most Capitalists would find little fault with it; it is just an expansion of the “Welfare State” idea. There is nothing here about the common ownership and democratic control of the means of production and distribution by. and in the interest of, the whole community. Is there not in this country already common citizenship under a single code of law? Is it not true that the heavy hand of the law falls equally on the millionaire and the pauper if either steals a loaf of bread?

The underlying implication of the leaflet is that its authors envisage Socialism as (synonymous with State ownership—with the qualification that it is a world state and not a national one. There is no suggestion of the abolition of buying and selling: no suggestion of a class cleavage in society, nor of the power of the class state. In the main the leaflet consists of vague generalities, inept proposals, and ignorance of the nature of the social problem and of the only steps that can be taken to solve it. It contains a number of contradictory statements. We have mentioned one or two: the claim that they are not a new party—but everyone should join them; that everyone should stay in their old parties—but ought to join them; that they have no dogma—but basic principles to which all must agree.

Now let us examine the six basic principles to which, they say, all prospective members must agree.

“1. To a socialist racial prejudices, religious intolerance, and class distinctions have no justification.”

That does not get anyone farther than polite agreement, though one might argue about the “justification.” Many who are not Socialists would agree to it. as they would agree to 'statements like “Poverty, hunger and oppression have no justification.”

“2. The ultimate aim is total disarmament, renunciation of national sovereignty, and positive co-operation between all peoples.”

Here we have the cloven hoof. The ultimate aim. not the immediate aim. The immediate aim can be the reformers' usual quiverful of projects that lead up blind alleys. What reformer would disagree with that alleged principle?

“3. 'Equality of opportunity' and 'from each according to his ability, to each according to his needs' should be applied on a worldwide as well .as a national scale.”

We note that these principles should be applied, not must or will be applied. And what is the meaning of “a world-wide as well as a national scale?” Is it suggested that they are now applied on a national scale? As there is no explanation of what the authors mean by the two principles, either here or in the body of the leaflet, we are left in the dark about how to interpret them.

"4. The means of production, distribution and exchange should belong to the community, and not to any individual or group.”

As money is the means of exchange the authors apparently envisage it belonging to the community. Consequently they are assuming the continuance of buying and selling. In an earlier part of the leaflet (which we have already quoted) they say that private enterprise has proved inadequate and the profit motive inefficient, but they do not attack state ownership—or nationalisation— so we are justified in assuming that this is what they mean by belonging “to the community” as this has always been the pseudo Socialist outlook.

“ 5. True socialism is true democracy and must be practised in political, economic and social fields.

“ 6. Socialism is a faith, an economic system and a political creed—the only real solution to the problems with which man is faced.”

What these two “principles” mean we do not know. There is nothing in the leaflet to explain them, and we take it that they are just some more wind. But we note that Socialism is “a political creed.” We assume, therefore, in spite of their denial, that they are in fact a new political party.

One thing, however, can be admitted about these “principles ”; they are so vague, windy and diluted that it would be difficult to dilute them any further. Consequently the supporters of multifarious reformist programmes, who falsely call themselves Socialists, should have no difficulty in accepting them and thereby building another road to the wilderness of futility, in the interests conscious or unconscious, of keeping the wheels of Capitalism running along smoothly.

Gilmac.

Notes by the Way: “Financial Sacrifices from Both Sides” (1932)

The Notes by the Way Column from the December 1932 issue of the Socialist Standard

“Financial Sacrifices from Both Sides”

United Dairies, Ltd., is a very prosperous concern. The Directors’ report for the year 1931-32 stated that “the business of the Company continues to expand.” Net profit rose from £518,000 in 1929-30 to £549,000 in 1930-31, and to £592,000 in 1931-32 ; which is not too bad in these hard times. The rate of dividend on ordinary shares rose from 10 per cent. in 1929-30 to 11 per cent. in 1930-31 and to 12½ per cent. in 1931-32. So much for the shareholders. What about the workers ? During the past year, after considering the matter for several years, the firm decided to extend to the milk distributing stall a six-day week, hitherto confined to the bottling stalls. Doubtless it was, as the Chairman said, of benefit to the “health and happiness” of the workers not to have to work seven days a week. He also stated (Times, October 29th, 1932) that. “the efficiency of the service has been maintained and increased,” but the change-over to a six-day week “involved certain financial sacrifices from both sides.”

Now we are able to see what is meant by “sacrifices on both sides.” The workers make financial sacrifices and get a six-day week, while the shareholders get increased efficiency, plus the “sacrifice” of seeing their dividend raised from 11 per cent. to 12½ per cent.

Death from the Air

Mr. Baldwin, in a speech on war, in the House of Commons on November 10th, reminded us of the way in which we shall be bombed to pieces in any future war. He said: —

“I think it is well, also, for the man in the street to realise that there is no power on earth that can protect him from being bombed, whatever people may tell him. The bomber will always get through. …. The only defence is in offence, which means that you have got to kill more women and children more quickly than the enemy if you want to save yourselves….. How have the nations tried to deal with this terror of the air ? I confess that the more I have studied this question the more depressed I have been at the perfectly futile attempts that have been made to deal with this problem. The amount of time that has been wasted at Geneva in discussing questions such as the reductions of the size of aeroplanes, the prohibition of bombardment of the civil population, the prohibition of bombing, has really reduced me lo despair.” (Times, November 11th, 1932.)

In the meantime, attention was drawn by the Daily Express to the fact that British armament manufacturers advertise in German and other newspapers their willingness to supply tanks, bombing ‘planes, etc., to foreign Governments. Mr. T. O. M. Sopwith, the aircraft designer and manufacturer of the Hawker “bomber,” defended this. He said (Daily Express, November 12th, 1932) that aeroplanes of recent design are not allowed to leave the country, but that he sells Hawker bombers both to the Air Ministry and to foreign Governments because “no foreign Government will buy British machines unless they are identical with those sold to the Air Ministry.”

If another war comes, and, in Mr. Baldwin’s words, “European civilisation is wiped out,” it will be cheering to know that the bombers on both sides are of identical make and the product of a home industry !

Lenin and Trade Unionism: A Correction

In the November Socialist Standard, under the heading “Tall Stories from Russia,” the statement was made that Lenin advocated “lying and subterfuge” as a means of gaining control of the trade unions.

Although the words used by Lenin in this connection make it quite clear that he recommended using all kinds of deception, he did not actually use the word “lying.” His words (reproduced in the Australian Communist, (April 22nd, 1921) were:

“It is necessary to be able to withstand all this (i.e., expulsion) and to go the whole length of sacrifice if need be, to resort to strategy and adroitness, illegal proceedings, reticence and subterfuge, to anything in order to penetrate into Trade Unions, remain in them and carry out communist work within them at any cost.”

The utter failure of the Communists to gain tangible results by this policy shows how unsound it is.

The Inequalities of Pay in Russia

Nowadays the Soviet Government and the Communists pretend that their policy of increasing inequality of pay as between one individual and. another according to output at the same work, or according to the grading of the work, is in line with Marxian teaching and is compatible with Socialism. Socialists recognise that these inequalities are features of capitalism and can have no place under Socialism, which involves the abolition of the wages system altogether. It is interesting to recall that Lenin shared our view and did not put forward the arguments now used by the Communists. In “The Soviets at Work,” an address delivered in April, 1918, Lenin admitted that the need to attract specialists at high rate’s of pay was a sign of Russia’s backwardness and was accepted only under necessity. He said:—

“Furthermore, it is clear that such a measure is not merely a halt in a certain part and to a certain degree of the offensive against Capitalism …. but also a step backward by our Socialist Soviet State, which has from the very beginning proclaimed and carried on a policy of reducing high salaries to the standard of wages of the average worker. . . . Of course there is another side to this question. The corrupting influence of high salaries is beyond dispute–both on the Soviets . . . and on the mass of the workers.”

He also said: –

“We were forced now to make use of the old bourgeois method and agreed to a very high remuneration for the services of the biggest of the bourgeois specialists. All those who are acquainted with the facts understand this, but not all give sufficient thought to the significance of such a measure on the part of the proletarian state. It is clear that such a measure is a compromise, that it is a deflection from the principles of the Paris Commune and of any proletarian rule, which demand the reduction of salaries to the standard of remuneration of the average worker—principles which demand that career-hunting; be fought by deeds not by words.”

(The quotations above are from pages 17, 18 and 19 of the edition published in 1919 by the Socialist Information and Research Bureau, Glasgow.)

Now, when the inequality is rapidly increasing, the Russian rulers pretend that it is a feature of Socialism. Lenin, however, said, “To pay unequal salaries is really a step backward; we will not cheat the people by pretending otherwise.”

Viscount Snowden on the Labour Programme

Rather late in the day, Viscount Snowden tells his former Labour Party associates something which the S.P.G.B. told them (and Snowden) many years ago. In an article in the Sunday Express (October 16th) he wrote as follows of the Labour Party:-—

“It gained its former political strength neither from its Socialist idealism nor its election programme. It was an electoral refuge for a vague discontent.

The old political parties had failed. Here was a new party which made the social condition of the people its claim to popular support.

. . . . . .

Millions of men and women who know nothing about Socialism, and who have never read the Labour programme, vote for Labour candidates because they believe that this is a party which is going to do something—they don’t know what-—to improve their condition.

. . . . . .

I have been in this programme-making business for forty years. I have always realised its futility. Every programme in which I have had a hand I have seen discarded and another put in its place, later to share the fate of its predecessor.”

He finished the article with a very cruel blow, he told the Labour Party, which has always rejected Socialism in favour of “something now,” that it ought, to drop its silly promises to establish the millennium by Acts of Parliament immediately, and find “a practical policy.”

Mr. Cole Scores 30

The following is from the Star (October 18th, 1932) and refers to Mr. G. D. H. Cole:–

“A leading Socialist who has been busily counting up the number of organisations Mr. G. D. H. Cole has had a hand in starting tells me he has checked off thirty !

‘The latest he is connected with is the Socialist League,’ he said ‘and some of us are wondering how long it will hold Mr. Cole’s affection before another body is created’.”

Mr. Cole’s past loves have included the Fabian Society, the I.L.P., the National Guilds League, and, of course, the Labour Party. Recently he shared in the formation of the Society for Socialist Inquiry and Propaganda, which, after only 18 months, has been wound up alter a conference had failed to give a sufficient majority for merging with the Socialist League.

Mr. Cole is an example of the so-called “intellectuals” who have invaded the working-class movement in recent years, much to their own pecuniary benefit and to the detriment of the working-class movement. Surrounded by worshipping students and trade unionists, Mr. Cole reaps the double reward of adulation and large sales for his books, a new one appearing at frequent intervals each time he changes his mind and takes up another unsound theory.

Mr. Cole is a bad judge of political parties. It is interesting to recall what he wrote about the S.P.G.B. and about his own organisation, the National Guilds League, in the “Encyclopaedia Britanmca” (Twelfth Edition, 1922, Vol. XXXI, page 324, and Vol. XXXII, page 507).

Of the S.P.G.B. he wrote: —

“The Socialist Party of Great Britain is a very small and unimportant body of rigid Marxians of the extreme left wing.” (Vol. XXXII., p. 507.)

At that time he was full of the idea of Guild Capitalism (miscalled Guild Socialism), and recorded with gusto the growth of the Guild Movement and the formation of Guilds like the Building Guild.

Within a year or so, the Building Guild was hopelessly bankrupt, and the mushroom crop of Guilds which had sprung up in many other industries had completely disappeared. The National Guilds League, like many other of Mr. Cole’s enthusiasms, is now as dead as the Dodo, and even when it was alive its organ (The Guild Socialist) had a much smaller circulation than the organ of the S.P.G.B.

The Labour Leaders and the “Intellectuals”

Just at the moment, Mr. Cole, in his foreword to the new edition of his “British Working Class Movement,” is telling the trade unions that their policy and methods of organisation should be changed. We agree; but Mr. Cole is one of the least likely persons to have any sound ideas on the subject. Although never constant for long to any idea, he shows no sign of having learned from his past mistakes.

It is popularly believed that the workers gain through having the so-called intellectuals available to advise the Labour Leaders how to lead. What actually happens is rather like this. The trade union official, who is generally far better able to form sound opinions on trade union policy than are the academic Coles and Laskis, observes a stirring among his members in the form of interest in some new or resuscitated theory. Mistrusting his own judgment, he dashes off to seek the guidance of the “intellectuals.” The “intellectuals,” who are equally hesitant about putting forward definite suggestions, lest they should clash with the prevailing sentiment among the workers (and thus spoil their popularity and book sales), promptly set about discovering which way the wind is blowing and how strong it is likely to be. Having made up their minds on this, they then offer their advice, suitably tricked out in university jargon, the advice consisting of whatever theory they believe the workers are beginning to take up. The trade union official and the “intellectual” then feel mutually reinforced and comforted in their beliefs, and jointly offer their new wisdom to their members, the members being under the two-fold illusion that they are being given a lead and that the lead is the outcome of some solid thought by a reliable guide.

A Confusion of Parties

A few years ago the final argument of the Labour Party supporter who could not make headway against the case of the S.P.G.B. was a complaint that our separate existence confused the seeker after Socialist knowledge. “Why could we not all get together inside one big party?” The answer is that it would be fatal and absurd for a Socialist Party to lose its identity inside a conglomeration of reformists like the Labour Party. And it is curious to notice how loath are even the reformist groups to give up their separate existence in the great family party. In addition to the I.L.P. (Maxton), which left the Labour Party over the matter of Standing Orders, and the Communist Party, which wanted to get in the Labour Party but was rejected, there are now the following competing bodies all under the Labour umbrella: The Social Democratic Federation, the Fabian Society, the Socialist League (formerly the affiliationist wing of the I.L.P.), the Society for Socialist Inquiry and Propaganda (now dissolved after a short life), the Scottish Socialist Party (the Scottish wing of the League), the Clarion Fellowship, and the Co-operative Party.

And in face of this medley the reformists still have the impudence to tell us that the way to unite the workers is on reform programmes !

Incidentally, how William Morris, of the old Socialist League, with its fierce opposition to reforms and to Parliamentary action, would snort if he could hear the new Leaguers claiming that they have inherited the spirit of Morris.

Edgar Hardcastle

On Behalf of Capitalist Industry (1995)

Book Review from the August 1995 issue of the Socialist Standard

Reform & Reconstruction: Britain after the War, 1945-51 by Stephen Brooke
 (Manchester University Press. 
£12.99.)

Last month, being the 50th anniversary of the election of the post-war Labour government, was bound to see a spate of articles, books, and TV programmes on this. This book is one of them. Aimed primarily at history students, it is a collection of contemporary documents with an accompanying commentary.

At that time the Labour Party still used to proclaim that its ultimate aim was Socialism. Its manifesto for the 1945 election Let Us Face the Future declared: "the Labour Party is a Socialist Party, and proud of it. Its ultimate purpose at home is the establishment of the Socialist Commonwealth of Great Britain".

Of course this “socialism" was in reality a species of state capitalism under which, unlike in Russia, democratic political forms were to be retained. Nevertheless, Labour politicians, intellectuals and activists did see the nationalisation and welfare measures of the new government as “building up the Socialist economic system" (G.D.H. Cole) and "progress towards the Socialist Commonwealth" (Michael Young).

A more realistic interpretation of what was going on was that certain basic industries, essential to the economic property of capitalist industry as a whole, were taken over and run by the state on behalf of the rest of capitalist industry. Naturally these state industries were run on purely capitalist lines, as was soon recognised by the workers in them. According to one study that appeared in 1948:

"when the hoardings were put up in the colliery yards, declaring, 'This colliery belongs to the National Coal Board and is managed on behalf of the People’, the men responded fiercely, but only for a fortnight. The miners worked harder, were more co-operative and the attendance was better, but this only lasted a fortnight, and this spirit never came back".

As to the welfare measures, these too made sense in purely capitalist terms. There was an acute labour shortage after the war, so some concessions had to be made to the working class but these could be expected to pay for themselves in that a more healthy workforce that didn’t have to worry so much as to what would happen to them if they fell ill or were injured or became unemployed or old would be a more productive, and so a more profitable, workforce.

In short, far from representing progress towards some socialist goal, the measures passed by the post-war Labour government were measures that stabilised and consolidated capitalism. In any even, they only proved to be temporary in historical terms and have now been almost completely undone in the different capitalist economic conditions of the 80s and 90s.

Adam Buick

Marx Among the Classics. (1930)

From the April 1930 issue of the Socialist Standard

An “expert” writes an introduction. 

At last the first volume of Marx’s great work on Capitalist Production has been brought within easy reach of the workers’ pockets.

Forty-three years ago the first English translation appeared in two volumes, but the price put it beyond the average worker’s means.

Few workers, unfortunately, were interested in studying Marx in those days, and when later on the publishers, Swan, Sonnerschein & Co., became a limited company they sold the copyright of Marx’s “Capital” to a firm, who issued it as a publishers remainder. The same type was continually used to print from until it became impossible to print again, unless the work was reset in new type.

The translation, however, was a good one. Samuel Moore and Edward Aveling had performed a creditable task, and Frederick Engels, the co-worker of Marx, revised the work on completion.

When the sheets printed from the old type had been used up, the copyright holders would not go to the expense of setting-up the book again, and so “Capital” was no longer published in this country.

Last year, Swan Sonnerschein’s successors, Allen and Unwin, Ltd., went to the expense of having “Capital” translated afresh, and published in a well-printed volume at 12s. 6d. Eden and Cedar Paul made a very readable translation, and a copy was sent by the translators to our late comrade, J. Fitzgerald, for review. This appeared in the Socialist Standard last year. The price, however, was still too high for the worker.

This, we are pleased to say, has now been remedied. “Capital” has been included in the Everyman Library (translated by E. and C. Paul), among the great classics of literature, science, philosophy. The great volume on Capitalist Production is now to be had in two volumes at 2s. each. The size is a handy one, and will easily fit into the pocket. The print is good, and the general get-up makes it a credit to those responsible.

For years Marx’s work was treated with a “conspiracy of silence.” Economic development, with its effects on the workers, was, however, on Marx’s side, and so more and more workers became interested in reading and studying “Capital,” in order to understand the inner workings of the system and the nature of its Economics. The “conspiracy of silence” has gone to a large extent, and now practically every bookstall and bookshop will have “Marx” on sale.

The “expert” introduces Marx.

The reader of this new edition will be astounded to find that it contains an introduction by G. D. H. Cole, which is not an introduction to Marx’s work at all.

Mr. Cole, who was a Fabian, Guild Socialist, and Labour Party propagandist, is now a member of the Government’s Economic Advisory Council. He has never been a supporter of Marx’s economic ideas, and his introduction shows he has not understood them. Why did the publishers get Mr. Cole to write the foreword, seeing that he holds that the Marxian theory of value is “not worth preserving to-day “? No evidence whatever is brought against the correctness of the labour theory of value as explained by Marx.

A new “materialism”

On page xviii, Mr. Cole “explains” the materialist conception of history as follows : “Marx’s materialism is not materialistic in the sense that it excludes the action of mind, but only that it seeks its reality in this world of men and things, and not in any universe of ideas transcending this world and its limitations.” Any student of Marx will see that Mr. Coles’ “wide” definition is not a definition of Marx’s historical materialism at all. In fact, any idealist, positivist, or other believer in ideal forces can agree with Cole, and be entirely opposed to the view that material conditions are the real foundations of social change.

Marx's contribution.

Mr. Cole says : “There is nothing specifically Marxian about Marx’s theory of value; what is novel is the use to which he puts the theory, and not the theory itself.”

In actual fact, Marx took the labour theory of Adam Smith, Ricardo, etc., (the implications of which had not been seen by them), clarified it, applied it to the commodity labour-power, and related it to an exhaustive analysis of the actual labour process under Capitalism.

Wherever a previous Economist had made a similar point to Marx credit was always given, but Marx’s work teems with criticism of the fathers of political economy. In the “Histories of Surplus Value,” by Marx, edited by Karl Kautsky, there is a storehouse of information, showing the limitations of Adam Smith and his school of thought.

On page 22 Mr. Cole writes as though Marx accepted the “Iron Law of Wages,” of Ricardo, etc., which was a mixture of Malthus’ overpopulation theory with economics. Marx specifically rejected this so-called law of wages, together with the false laws of population of Malthus.

The cream of Mr. Cole’s pedantic introduction is his statement that “it is fully possible to hold the theory of Surplus Value without holding the Labour theory of Value, on which superficially it appears to depend ” (page xxiii).

Marx’s theory of Surplus Value is simply the logical result of the theory of value. Without the value theory there is no basis in Economics for surplus value.

Unless socially necessary labour time is the measure of value, there is no evidence of surplus value. The difference between the value of labour power, bought by the capitalist, and the value produced by that same labour power—that is surplus value.

What is the new theory of value?

Among the many statements of Mr. Cole’s to prejudice, mystify or confuse the reader of “Capital” is this : “By all economists, save the Marxists, the Labour theory has long been discarded.” This would imply that another theory has taken its place. What is the new theory which has replaced Marx?

The entire information we get from Mr. Cole is this. “All modern theories—if we may still leave the Marxists aside for the moment—are very far removed from the ‘amount of labour’ theory which Marx took over from Ricardo and McCulloch.

“How, then, does it happen that the Marxists have gone on for quite half a century re-affirming Marx’s views, and wholly unshaken by all the criticism that orthodox economists have been able to bring against them?”

What have these criticisms been? One economist, the father of the entire modern capitalist school, Bohm Bawerk, said that Marx ignored scarcity as a factor in value. Actually Marx had dealt with the scarcity factor in the first few pages of “Capital.” The other capitalist “economists” of note, Jevons, Marshall, Seligman, etc., took refuge in supply and demand, as their answer to Marx, but as supply and demand only accounted for fluctuations, the central point around which variations took place was still left unexplained.

“Final Utility” and “Marginal Utility” were the modern theories of supply and demand which evaded the determinant of value.

Did Marx give up his theory of value?

Mr. Cole does not tell us where Marx’s theory of Value is wrong. He resorts to an old device of stating that in the third volume (Capitalist Production as a whole), Marx admitted that values of articles do not coincide with prices.

Readers of Engels’ Preface to the second volume of “Capital” will be familiar with this argument. Engels challenged the critics of Marx to do something neither Ricardo or his followers could accomplish— to explain how the rates of profits in the various industries are equalised on the basis of the law of value.

Engels told the economic writers that the answer would be given in the third volume of “Capital.” It was. And the problem which proved insoluble to Ricardo was solved.

Mr. Cole may claim that the Labour theory of value has been given up by Marx because he agreed that market prices did not agree with the value of articles sold. Mr. Cole has not dealt with Marx’s explanation and, therefore, in spite of all the critics who have come and gone, Marx’s theory of value still remains to be answered.

On the question of value and prices we will quote from one who studied Marx’s economics, and wrote the best popular guide to Marxian Economics which has been published—Karl Kautsky’s “The Economic Doctrines of Karl Marx.”

“The opponents of the Marxian theory of value are fond of asserting that Marx himself threw overboard his own theory, which he developed in the first volume of “Capital,” in the third volume, in which he demonstrates that, in consequence of the tendency towards an equalisation of profits under developed capitalise commodity production, the prices of most commodities permanently deviate from their values, inasmuch as the prices of one half of these commodities are permanently as much below their values as those of the other half are above them. But Marx would have thrown overboard his theory of value only if he had contended that prices are independent of their values. Far from doing this, the third volume of “Capital” proves rather that production prices, about which market prices oscillate, remain in complete dependence upon the law of value, without which they cannot be explained. It is precisely the factor of the average profit, which causes the deviations of production prices from values, that can only be explained by the laws of surplus-value, which in their turn arise from those of value.”

Adolph Kohn

Editorial: Trade Unions on the Rocks (1946)

Editorial from the October 1946 issue of the Socialist Standard

In a confused welter of argument about unofficial strikes, big and little unions and the "Closed Shop,” what is by far the most fateful aspect of the trade union situation is being disregarded, though it is the underlying trouble of which the others are largely symptoms. What has happened during the war, and still more since the Labour Government came into power, is that the trade unions have increasingly ceased to be independent organisations of the workers in the struggle against the employers over wages and conditions of work, and have become instead organisations for disciplining the workers in the interest of the Government’s wages and production policies. The present Government, having taken over from Churchill the responsibility of administering capitalism, puts at the forefront of its programme an intense drive to find markets abroad for British exporters in competition with the capitalists of other countries. The plan has several features that are related to each other. One is the continuation of “ austerity ” at home so that more goods can be sold abroad. Another is the effort to lower costs of production to a competitive level in the markets of the world, partly by modernising the technical equipment of various backward industries and partly by seeking the co-operation of the workers, through the trade unions, in the campaign to increase production. The third part of the plan was the Government’s belief that by retaining the control of prices for essential goods, clothing, etc., wages would remain more or less unchanged at the level reached at the end of the war. Not wanting to take the very unpopular step of preventing wage increases by making them illegal—as some governments have done—the Government here hoped to keep wage increases in check by appealing to the workers, and particularly by appealing to the Trade Union executives, to moderate their demands. In short, it was regarded by the Government as essential, if British capitalism was to regain its overseas markets, that the trade unions should largely abdicate their proper function of struggling to raise wages in the present favourable situation, and should instead act as a brake on the demands of the workers. That this is a correct reading of the minds of the Ministers is shown by Mr. Dalton’s speech ill the House of Commons on October 23rd, 1945, when introducing his budget. He pointed out that the Government was spending some hundreds of millions of pounds a year subsidising food and other articles in order to keep prices down, then he went on to talk about the effect on wages : —

“It has also helped to restrain any disproportionate increase in wage rates, which, if it had occurred, might have disturbed the whole balance of our economic life, and might have sucked us into the fatal whirlpool of inflation. Here I wish to pay tribute to the steadiness and good sense which the trade unions and their leaders have shown during the war in this regard. . . . Wage rates . . . have climbed steadily all the time, and that has been right; yet there has been no break-away rise, no uncontrolled rise such as we might easily have seen had it not. been for this continuing cooperation between the Government—in this case the Coalition Government—and the trade unions, both recognising that the common interest was best served by this joint effort of the two parties to keep prices and wages on an even keel.”

Mr. Dalton calls it “co-operation” between the Government and the trade unions, but in fact it has been co-operation between the Government and the trade union executives to hold back the natural and correct desire of the workers to struggle for higher wages before unemployment and eventual slump make it impossible to do so.

Mr. G. D. H. Cole, himself a Labour Party supporter and one who approves of this damping-down policy, described it in very appropriate terms in the Observer (8/9/46). He sees that the workers are restive because they feel they no longer control their officials, and feel that the unions are “merely a bureaucratic machine run by the officials for the purpose of keeping them in order.”

Mr. Cole seeks a remedy, but adds:—

"This is not too easy, now that most wage bargains are national in scale, and wage demands have to be squared with the requirements of a national wages policy—as they have in fact, even if the existence of such a policy is disclaimed. The Trade Unions have become, perforce, instruments for disciplining their more unruly members, as well as for representing them; and this sets up a tension that will be cured only by time, as people settle down to the changed conditions.”

Mr. Cole has correctly diagnosed the cause of the present discontent of trade unionists which shows itself in unofficial strikes and efforts to break away from the discipline imposed by the officials on behalf of the Government, but he and the trade union officials who support that policy are quite wrong in their belief that the workers should, or will, go on accepting it. The trade unions must regain their independence and freedom of action or they will become moribund and useless. The unions are not being endangered by the virile independence shown already by some trade unionists; they are being throttled from above by the fatal tie-up with the Government. Their health will tie restored only when the members can again know that they are able to exercise democratic control over union policy and are free, when they deem it wise, to use the only weapon they have under capitalism, the strike.

It is popular in Labour circles to denounce totalitarian regimes under which trade unions are State organs, and strikes are forbidden. Mr. Morgan Phillips, Secretary of the Labour Party, on his return from Russia, wrote about the Russian unions: - 

"I am not sure that the workers’ organisations can be regarded as ‘trade anions' in the British sense that they are free agents to act and speak as their members demand, irrespective of Government stricture. The very fact that strikes are illegal seems to dispose of any pretence to freedom of action as we know it ” (Daily Herald, 21/8/46).

It would not be a bad idea if Mr. Phillips would now take a look at what used to be independent trade unions in this country and observe that, by a less brutal and less obvious process of deterioration, they are heading towards the state of the Russian organisations. It is plain that the unions here will not be rescued from that fate by the Labour Government or by the trade union executives who have been responsible for the present state of things. Salvation will come from the members themselves when they wake up to the fact that Labour government cannot abolish capitalism or the class struggle inseparable from capitalism, and when they regain control of their own organisations for the purpose of defending their interests on the industrial field.

It should be added, however, that while Socialists support sound trade union action they have to point out, too, that trade unions, though necessary and useful organs of working-class resistance, cannot emancipate the working class from capitalism—that can be done only by a Socialist working class politically organised to take control democratically of the machinery of government, for the purpose of abolishing capitalism and introducing Socialism.

Aspect: Can Banks Create Credit? (1971)

The Aspect column from the July 1971 issue of the Socialist Standard

Confusion about banking operations and the power of bankers has been in evidence for a long time. It was known before 1848, and that year saw the publication of two works putting opposite points of view. One was Lectures on the Nature and Use of Money in which John Gray outlined a scheme which was the forerunner of the Social Credit Movement founded by Major Douglas in the nineteen twenties. The other was John Stuart Mill’s Principles of Political Economy which contained the following:

“Credit has a great but not, as many people seem to suppose, a magical power; it cannot make something out of nothing … It seems strange that there should be any need to point out that credit, being only permission to use the capital of another person, the means of production cannot be increased by it, but only transferred … The same sum cannot be used as capital both by the owner and also by the person to whom it is lent . . .”

Part of the confusion arose out of the loose use of the term “credit creation”; by some writers to mean merely the grant of a loan by a bank, but by others to mean what Mill had in mind as making something out of nothing.

Marx on occasion wrote of the “creation of credit and capital” by the banks but not meaning anything more than the act of lending or investing. Elsewhere he described banks as merely institutions for bringing together and relending sums deposited by depositors. He ridiculed the “illusions concerning the miraculous power of the credit and banking system”, which he said, were held by those who failed to understand the nature of capitalist production and the credit system (Capital, Vol. III p. 713).

Sir Ralph Hawtrey in his Currency and Credit dealt with another confusion of terms:

“It is true that we are accustomed to think of bank credit as money. But this is only because for the practical purposes of every day the distinction between bank credits and money is rarely of any importance. And for all that a bank credit is merely a debt, differing from other debts only in the facilities allowed by the banker for transferring it to another creditor. No one imagines that a trade debt is money, though it may be as good an asset as a bank credit” (2nd Edition, p. 5).

Major Douglas, like John Gray, would have rejected outright the views of Mill, Marx and Hawtrey on credit. He claimed that bank loans are the issue of money just like the issue of notes by the Bank of England and that, by making loans, “a bank acquires securities for nothing”, and that “it is absolutely correct to say that . . . new money has been created by a stroke of the banker’s pen.” (The Monopoly of Credit, 1931 pp. 15 and 17). In the words of one of his supporters, banks can create “untold wealth at the cost of a few drops of ink and the fraction of a clerk’s wages”.

Basically the dispute is between those who hold that banks are merely intermediaries to whom depositors make purchasing power available by depositing with them, and which then make that purchasing power, or most of it, available to others by transferring it to them as loans or using it to purchase securities etc; or whether the banks themselves, by making loans create the largest part of the deposits.

Starting from the production of value by the application of human labour to nature-given materials and its conversion into money, is it that some part is lent to the banks in the form of deposits, for the banks to relend or invest, or is it the banks which create large amounts over and above the amounts deposited?

G. D. H. Cole accepted the “creationist” view. He wrote that bank loans “represent a real creation of additional money — additional purchasing power”. (What Everybody Wants to know about Money, p.39).

Among those who have held the “intermediary” view, along with Mill and Marx were many bankers and, notably Professor Edwin Cannan in his An Economist’s Protest.

Of particular interest were Reginald McKenna, politician turned banker, who was Chairman of the Midland Bank, and J. M. Keynes, both of whom at first supported creationist theory and later changed their attitudes.

One of many anti-creationist statements made by bankers, was that by Walter Leaf, Chairman of the Westminster Bank:

“The banks can lend no more than they can borrow — in fact not nearly so much. If anyone in the deposit banking system can be called a ‘creator of credit’ it is the depositors; for the banks are strictly limited in their lending operations by the amount which the depositors think fit to leave with them” (Banking. Home University Library, 1926, p. 102).

Hartley Withers, sometime editor of the Economist popularised creationist theory in his The Manufacture of Money and used the phrase “every bank loan makes a deposit”, later expanded to “every bank loan or purchase of securities creates a deposit”; and its converse that every withdrawal of a loan or sale of a security destroys a deposit.

McKenna repeated this and provided Major Douglas with weighty support.

The theory was given official endorsement in the Report of the MacMillan Committee 1931, (Committee on Finance and Industry) and found its way into the textbooks. Though McKenna was a member of the Committee he then denied that he agreed with Major Douglas about the creation of credit; which was really rather hard on Douglas who had, after all, only taken McKenna’s words at their face value. Another signatory of the Report was Professor T. E. Gregory who held the Chair of Banking and Currency at the London School of Economics and who in that capacity took Cannan’s line.

The Macmillan Committee’s support for creationist theory is still widely accepted. It turned up recently in Ernest Mandel’s Marxist Economic Theory where Mandel quotes it with approval.

One argument used by creationists to support their case was that, without creationist theory, it was not possible to explain how the deposits of the commercial banks could exceed the total amount of notes and coin in circulation. This is easily disposed of. If a bank receives deposits of £5 million a week and has £4 million a week withdrawn by depositors, deposits will increase by £1 million a week and the eventual total is in no way limited by the amount of currency in circulation. In 1937 the Post Office Savings Bank had no cheque facilities and made no loans to businesses or private borrowers, but its total deposits did in fact exceed the total amount of notes and coin in circulation with the public. The deposits were invested in government securities.

The statement of the “creationist” case in the MacMillan Report started with the following:

“It is not unnatural to think of the deposits of a bank as being created by the public through the deposit of cash representing either savings or amounts which are not for the time being required to meet expenditure. But the bulk of the deposits arise out of the action of the banks themselves, for by granting loans, allowing money to be drawn on an overdraft or purchasing securities, a bank creates a credit in its books which is the equivalent of a deposit. A simple illustration, in which it will be convenient to assume that all banking is concentrated in one bank will make this clear”.

The illustration assumed that a depositor deposited £1,000 in cash. The bank then lent £900 which was withdrawn by cheque and came back as new deposits. At this stage the deposits in the bank totalled £1,900 made up of the original £1,000 and the later deposits of £900. Against this liability the bank would show, on the assets side of its balance, cash £1,000 and loans to customers £900.

This lending process was repeated with nine more loans of £900, so that the bank’s books would then show £10,000 deposits, balanced by £1,000 cash and £9,000 loans owed to it by borrowers. The bank had thus “created” deposits of £9,000 by making loans, and the creationist case was proved. Or was it?

Certainly the Committee got the answer they wanted but in view of the way the conditions were rigged that was not surprising; little in the example had any resemblance to real banking conditions.

Not only did the Report make the thoroughly artificial assumption of only one bank in existence but it also assumed that none of the borrowers made withdrawals except by cheque, never by cash to hold and not to be returned to the bank. This enabled them to proceed on the basis that all the cheques drawn (or all the cash withdrawn) come back to the one bank — there was no other bank to which they could go. Actually the Report did not allow for any withdrawal in cash at all but treated the £1,000 cash deposit as remaining unchanged throughout the operations; which meant that the Committee was assuming, but without saying so, that a change had occurred in the world outside the bank which led to a permanent increase by £1,000 in the amount of cash left in the bank.

This line of reasoning, which isolates from a continuous in-and-out flow of deposits and withdrawals of cheques and cash, one single deposit of cash, is fallacious. If it were valid it could be applied in reverse; that is the Committee could have isolated a single withdrawal of £1,000 cash and treated it is a permanent reduction by £1,000 of the amount of cash left in the bank. It only needed one of the ten borrowers of £900 to take it out in cash or destroy the whole of the Committee’s case.

It appears to have been a belated recognition of this fallacy that later led J. M. Keynes to put a view contrary to that of the Report he had signed.

In his General Theory of Employment, Interest and Money (1936) he wrote:

“It is supposed . . . that the banking system can make it possible for investment to occur to which no saving corresponds. But no one can save without acquiring an asset, whether it be cash or a debt or capital goods, and no one can acquire an asset which he did not previously possess, unless either an asset of equal value is newly produced or someone else parts with an asset of that value which he previously had . . . The notion that the creation of credit by the banking system allows investment to take place to which ‘no genuine saving’ corresponds can only be the result of isolating one of the consequences of the increased bank-credit to the exclusion of others” (p. 80-1).

Actually, under the conditions assumed in the Report the bank was needlessly modest in making loans of only £9,000. They could have made it £90,000, or any figure they had cared to name, because every cheque had to come back to the one bank and they had in practice, but without saying so, prescribed that nobody was to draw and hold any of the £1,000 cash.

They also claimed that the result would be the same if there were many banks, i.e. that all withdrawals would automatically come back into the banking system, but this, as already mentioned, was based on the fallacy of supposing that the £1,000 deposit of cash was a permanent increase of cash in the banking system but without going into the change of outside conditions which would make it possible.

In practice there is nothing automatic about deposits. Banks have to attract money on deposit account by paying interest of millions of pounds on it and they spend tens of thousands of pounds on advertisements to attract new depositors.

The Committee also overlooked the fact that banking figures vary according to the method of investing. If a depositor with £1,000 in the bank draws a cheque to lend that amount to a business, bank balance sheet figures are completely unaffected since the £1,000 deposit has merely been transferred from the depositor’s account to the account of the business; but if the depositor leaves the £1,000 on deposit and the bank lends £1,000 to the business, bank deposits and loans both increase by £1,000.

The absurdity of creationist theory can be seen in practical terms if we consider what happens if the owner of £1,000 lends it direct to a business firm, and the effect if he deposits it in a bank and the bank then lends to the same firm. The MacMillan Committee’s example would have it that though the original owner had only £1,000 to dispose of the bank can lend £9,000 to the firm if it receives the £1,000 on deposit.

The Committee’s example also took it for granted that banks with money to lend can always find “creditworthy” clients who want to borrow all the banks have available. When trade is slack, as in recent months, they cannot.

If creationist theory had been correct banks would make profit at a rate far above that of industry — “fabulous profits” and “hundreds per cent” were the claims. It does not happen.

There is one company with wide interests in publishing, oil, engineering and other manufacturing activities, S. Pearson and Son Ltd. which also has a controlling interest in a bank, Lazards. Yet only about a sixth of Pearson’s profits come from Lazards. Lazards had a director on the MacMillan Committee who was also on the board of Lloyds Bank. It seems that he failed to convince Lazards — assuming that he even tried — that they really have the creationist powers set out in the Report he signed.

The MacMillan Report worked out its figures on the basis that banks need to keep ten per cent of their deposits in cash “to meet the demands of customers”. This ten per cent ratio enabled them to suppose that banks can lend nine times the amount of the £1,000 deposit. The conventional cash ratio is now down to 8 per cent, which would increase the creationist power to eleven and a half times the deposit. But the cash ratio is largely window dressing. If there were a mass withdrawal by depositors of the London Clearing Banks, £700 million of notes and cash would be quite ineffective if the depositors wanted to withdraw their £11,000 million of deposits. What banks endeavour to do is to anticipate events and match outgoing withdrawals and loans with incoming deposits and repayments of loans. If they could match these outgoing and incomings completely day by day they would need no cash in their tills, without the banks thereby being any less safe. If they could get it down to one per cent the assumed creationist powers would then be 99 times the £1,000 deposit. The cash ratio of the Savings Bank in 1937 was a quarter of one per cent.

Another consequence of creationist theory, accepted by its supporters, is that bank loans by increasing purchasing power have a determining influence on the price level. The facts show this to be baseless. Between the first quarter of 1921 and the first quarter of 1933 prices were falling continuously, by a total of forty four per cent. They fell when the deposits and loans of the London Clearing Banks were falling, when they were stationary and when they were rising. At the beginning of 1931 deposits and loans were at the same level as in 1921 but prices had fallen by forty per cent. Between 1926 and 1933 deposits and loans went up by seventeen per cent while prices went down by nineteen per cent. (Incidentally the MacMillan Committee wanted prices to rise in order to cure the depression). Bank deficits went down slightly between 1968 and 1970 while prices went up by twelve per cent.

Mention has been made of Marx having a view on the specific question of credit creation which was in line with that of some other economists, but he did not share their views on wider aspects. He wrote:

“The superficiality of Political Economy shows itself in the fact that it looks upon the expansion and contraction of credit which is a mere symptom of the periodic changes of the industrial cycle, as their cause” (Capital Vol. I. p. 695)

Against logic and all the weight of evidence, credit creationism still has its believers. Professor Cannan hit the nail on the head when he called them “the mystical school of banking theorists”.

Edgar Hardcastle

The S.L.P. and the Formation of the Communist Party of Great Britain, 1920 (1941)

From the October 1941 issue of the Socialist Standard 

In a long and angry statement headed ‘The ‘Truthful’ S.P.G.B.” the Socialist, organ of the Socialist Labour Party of Great Britain, charges us with downright lying in the following passage which appeared in the Socialist Standard of July, 1941, in the article, “A Comparison” : —

“Mention must be made, also, of one of the most remarkable developments of the post-war world, viz., the formation of the Communist Party, by the fusion of the British Socialist Party, Workers’ Socialist Federation, South Wales Socialist Society, and the Socialist Labour Party.”

The gist of the complaint made by the Socialist is that the above statement is untrue, and that the writer of it could easily have verified the facts if he had wanted to do so. In particular the Socialist says:—

“Never in the whole of its history has the Socialist Labour Party fused, united, federated nor anything of the sort with any other Party whatsoever. It has never had the slightest association with the C.P.G.B. except that of antagonist. It has never even had under consideration any question of fusion with the Communist Party.”

The writer adds that the statement published in the Socialist Standard is also false as regards the other organisations mentioned. He states that there were three bodies formed calling themselves the Communist Party: —

“The first Communist Party (for there have been several) was formed by the unity of the Workers’ Socialist Federation with the South Wales Socialist Society under the patronage of Sylvia Pankhurst and Eden and Cedar Paul. It contained no member of the S.L.P. and so far as records go, not even an ex-member of the Party. Some time later the next Communist Party was formed consisting of the B.S.P. together with some odds and ends from various quarters, amongst which were some ex-members who had been thrown out of the S.L.P. earlier, and also some ex-members of the S.P.G.B.

At the time the above events took place, the present Communist Party was as yet unborn. The C.P.G.B. was the third Communist Party to be formed.”

Now as far as we are concerned the only question that matters is the actual facts of the case, and if these are to be arrived at the writer in the Socialist could have helped by being less heated and abusive and by giving the full facts himself. As it is he leaves unexplained the circumstances surrounding the formation of the third Communist Party, the one now in existence. Also, although he several times says that the facts could easily have been verified he does not say where this could have been done and does not mention that the statement made in the Socialist Standard, though possibly inaccurate, is an account which has been accepted and has found its way into print in a number of quarters.

For example, Mr. Allen Hutt, a Communist writer, in his “The Post-War History of the British Working Class,” says: —

“At a convention in London over the week-end of July 31st-August 1st, 1920, the C.P.G.B. was formed as a fusion of the B.S.P. with the main part of the S.L.P. and with the South Wales Socialist Society.” —(Page 53.)

Similarly, Mr. G. D. H. Cole, in the Encyclopædia Britannica (Twelfth Edition, Vol. 32, 1922) says of the S.L.P. that

“Most of its more active members, however, passed over to the Communist Party in 1920”.—(Page 507.)

These two gentlemen may of course be mistaken and we certainly do not question the statement that neither the S.L.P. nor any other organisation can be held responsible for the actions of its ex-members.

To put the matter in proper order we suggest that the Socialist might usefully deal with Mr. Hutt’s assertion that “the main part of the S.L.P.” entered the Communist Party. If the Editor of the Socialist likes to send a brief letter containing his version of the facts we shall, of course, be willing to publish it.

Editorial Committee.