Wednesday, May 4, 2011

Cooking the Books: Brown re-invents the wheel (2011)

A Cooking the Books column from the April 2011 issue of the Socialist Standard

Gordon Brown has written a book. Not gossip about what went on between him and Tony Blair but about the Crash of 2008 and what he thinks should be done to avoid another one. Called, Beyond the Crash, the subtitle of the first part could well have been “How I saved the world from financial meltdown.”

He writes that by 26-27 September “the choice was clear: either we had to step in and accept all the associated risks, or simply leave the free-market system to collapse”:
“We were facing a situation that risked becoming worse than 1929. No one trusted anyone in the banking system, and people were predicting not a recession but a depression. People were panicking, asking which would be the next bank to collapse. The financial system was looking over an abyss.”
Brown puffs himself for discovering that the way to end a financial panic in which banks and other financial institutions are afraid to lend to each other is for the government to make more money available. As if governments hadn’t done this in the past, even in Marx’s day.

In Volume III of Capital, Marx quoted extensively from the parliamentary reports into the financial panics which occurred in 1847 and 1857. This from the Report on the Commercial Distress, 1847-8:
“[T]he bankers and others finding that they would not rely with the same degree of confidence that they had previously done upon turning their bills and other money securities into bank-notes, for the purpose of meeting their engagements, still further curtailed their facilities, and in many cases refused them altogether; they locked up their bank-notes, in many instances to meet their own engagements; they were afraid of parting with them… The alarm and confusion were increased daily; and unless Lord John Russell…had issued the letter to the Bank…universal bankruptcy would have been the issue.”
Lord John Russell was the Prime Minister and his letter to the Bank of England suspended the Bank Charter Act of 1844. Engels explained in a footnote what this meant:
“The suspension of the Bank Act of 1844 permits the Bank to issue any quantity of bank-notes regardless of the gold reserve backing in its possession; thus, to create an arbitrary quantity of fictitious paper money-capital, and to use it for the purpose of making loans to banks, exchange brokers, and through them to commerce.”
Marx wrote of “a point where either the entire industrial world must go to pieces, or else the Bank Act”, and went on:
“Both on October 25, 1847, and on November 12, 1857, the crisis reached such a point; the government then lifted the restriction for the Bank in issuing notes by suspending the Act of 1844, and this sufficed in both cases to overcome the crisis.”
So Brown did nothing extraordinary. He merely did what the capitalist class expect their government to do when there’s a financial panic that threatens to seize up commerce and production – make more money available to the banks. As in similar circumstances in the past, this stopped the immediate financial panic. But it didn’t stop the coming slump, as GNP fell from that quarter on and is nowhere near its pre-crisis level even today.

Lord John Russell was more modest. He didn’t write a book about how in 1847 he had saved the world from universal bankruptcy.

Editorial: What then must we do? (2011)

Editorial from the May 2011 issue of the Socialist Standard

Mervyn King, the governor of the Bank of England, kicked off a speech he gave earlier this year by stealing the words of the 19th century Russian novelist Leo Tolstoy, author of War and Peace and Anna Karenina. (The speech is available here.) King turns the opening sentence of the latter novel to his own purposes, stating that, ‘all happy economies are alike; each unhappy economy is unhappy in its own way’. He then goes on to tell us what ‘happy’ economies look like: they ‘combine growth, stability of prices and of the financial system, fiscal sustainability, supply-side flexibility and low unemployment’. He leaves aside the puzzling coexistence of such blessed happiness with historically unprecedented levels of stress, anxiety and depression, and presses on instead to give some of the reasons for the present unhappiness.

One reason we might be feeling glum, speculates King, is that most of us are getting poorer. Real take-home pay has already fallen 12 percent and is likely to fall again in 2011 to 2005 levels. ‘One has to go back to the 1920s to find a time when real wages fell over a period of six years,’ says King. But this ‘squeeze in living standards is the inevitable price to pay for the financial crisis and subsequent rebalancing of the world and UK economies’. Here King inadvertently invokes the ghost of another 19th century radical thinker, but does not mention this one’s name: it was Karl Marx who taught us that capitalism inevitably goes through periods of ‘rebalancing’ (i.e., of restoring profitability by destroying capital and devaluing labour), which inevitably leads to a squeeze in living standards (for the working class).

King concludes his speech with Tolstoy ‘s conclusion to Anna Karenina. This is that, despite life’s ups and downs, happiness is less important than trying to live in the right way. King must have been smugly proud of his intellectual prowess, connecting something as dull as a long speech on inflation with the words of one of the world’s best loved novelists. But the result is revealed as putrid when you compare King’s intent with that of Tolstoy’s.

Tolstoy was disturbed and horrified by the high levels of poverty and misery in the towns of the Russia of his day, and turned his mind to identifying the cause of the misery in his book, What Then Must We Do?” Tolstoy followed Jesus in arguing that the first thing rich men like himself (and Mervyn King) could do would be to ‘get off the backs of the poor’ by giving up their own wealth. King misses this advice.

Tolstoy recognized that even such grand gestures of charity would not make a dent in the problem, because the problem is rooted in the whole system of property ownership and money, backed up by the tyranny of the state machine, which Tolstoy said must all be abolished. King strangely missed these lessons too. Tolstoy was on the right lines because he had the courage and intellectual honesty to pursue social problems to the root, and to state his conclusions regardless of the harm it might do to his previously existing beliefs, or social status or wealth. That makes Tolstoy a truth-telling hero.

What it makes Mervyn King we leave our readers to decide for themselves.