Will Hutton: Back to the Future, part 2/3 (2015)

From the Socialism or Your Money Back blog

Part 1 here

Hutton’s view is that lax regulation around the cash reserves that banks are required by law to hold (the fractional reserve) and the abandonment of other controls on capital flows between countries (previously part of the responsibilities of central banks) are responsible for an excess of credit being ‘created’ in the global economy.  Hutton argues that the ‘emergence of a global banking system’ means that ‘central banks are much less able to monitor and control what is going on’.  Because ‘few countries now limit capital flows’ the result, says Hutton, is that ‘cash generated out of nothing can be lent in countries where the economic prospects look superficially good.’  This leads to a ‘false boom’:

‘Property prices rise. Companies and households grow overconfident about their prospects and borrow freely… all seems well until something – a collapse in property or commodity prices – unravels the whole process.  The money floods out as quickly as it flooded in, leaving bust banks and governments desperately picking up the pieces.’ 

Hutton argues that the current problems in China follow on from the financially induced crisis in 2008 and that crises in other ‘emerging market economies’ are a knock on of the same process of ‘sky-high commodity prices… fuelled by wild lending’ that create ‘super-high but illusory growth rates.’

But the crash of 2008 was not a ‘false boom’ caused by finance but a particularly far-reaching crisis in the history of the business cycle that is inherent in capitalist production.   This cycle has played out numerous times in the past couple of centuries in capitalist economies, a process of capitalist production that Marx described as moving ‘through periodical cycles. It moves through a state of quiescence, growing animation, prosperity, overtrade, crisis and stagnation.’  In an expanding economy banks see a plethora of opportunities to lend at relatively low risk.  This lending greases the wheels of the productive economy which continues to expand at an even faster rate.  At some point in the process of expansion a sector of the economy overproduces relative to the demand.  Production slows in this sector, questions are asked and glances are exchanged.  Production slowing in one sector knocks on to another and then another, doubts begin to grow and confidence is dented.  Before long what seemed like a never-ending process of expansion turns into economic contraction as panic sets in and investment slows or stops.  This is what happened in 2008 as house building in the US outstripped demand leading to a collapse in prices.  This knocked on to the global financial system because the risks of default for US mortgages were bundled up in financial institutions around the world, a contagion that caused panic to ripple around financial markets and confidence to collapse.  Lending contracted, investment stalled.  It wasn’t caused by banks and credit but the global nature of banking did allow the results of overproduction to spread widely and rapidly (just as global banking facilitates investment and economic expansion widely and rapidly). 

The cause of the crisis then is not banks or even overproduction as such but production as it is carried on in capitalism.  Goods are produced not for direct use but for exchange, for sale on the market, rather than being consciously planned in the light of social need.  Inevitably, at some point, more goods will be produced than can be sold at a profitable price causing a dislocation in the expansion of production, the consequences of which (depending on its magnitude and inter-connections) may remain only local or may ripple out to affect regional, national or even the global economy. Frederick Engels referred to this process of production in capitalism as the ‘anarchy of social production’.   The situation is not caused by banks ‘creating credit’ but rather the opposite, an increase in investment in the productive economy causes a rise in lending, which facilitates and accelerates this growth by lending to apparently relatively risk-free borrowers.  Conversely the restriction of credit does not cause an economic downturn but is a reflection of it as borrowing for investment declines and lending is relatively more risky.  Credit accentuates the business cycle by inflating bubbles in times of growth and deepening downturns by restricting credit but it does not cause it. 

So too, the Chinese financial downturn is a tale many times told of rapid growth followed by a crisis and a recession (establishing the conditions for renewed growth).  In an attempt to reverse a slow-down in the productive economy the Chinese government cut interest rates in an effort to stimulate the economy.  Borrowing increased and the Chinese stock-market boomed for a while.  All that happened was that the gap between the reality of a slowing productive economy and stock-market prices grew larger.  At some point the two had to come together again and so they have. Banks did not cause the crisis by creating credit they only delayed and accentuated it.  More regulation of banks will not solve the problem of the cycle of boom and bust inherent in capitalist production.  Banking regulations of the sort that Hutton want aim to reinstate, it is argued, prevented crises in the past and will iron out the instability caused by the psychological flaws of bankers who ‘create money’.  It did not work before and it attributes to banking a power of the economy that it does not have.  Like many on the left Hutton wants to return to a time before Keynesian interventionism was ousted by free market ideologues.  Socialists argue that capitalism, not the form that it takes, that is the problem.  The future lies not in going back in time to a world of more regulated banking but forward to a world where the anarchy of production (indirect social production where goods and services are for sale and realised only when exchanged for money) is replaced by consciously planned production for meeting human needs (directly social production where goods and services are consumed without exchange) and where the conditions of production that give rise to banks will have been abolished.

CSK

Cooking the Books: Moore on Marx (2015)

The Cooking the Books Column from the November 2015 issue of the Socialist Standard

‘Marx did have an insight about the disproportionate power of the ownership of capital. The owner of capital decides where the money goes, whereas the people who sell only their labour lack that power. This makes it harder for society to be shaped by their interests.’ So wrote Charles Moore, Thatcher’s biographer and former editor of the Daily Telegraph in the World Street Journal on 25 September.

He had already assured his readers that ‘no one should worry that I have become a late convert to Marxism’ and went on: ‘In recent years, that disproportion has reached destructive levels, so if we don’t want to be a Marxist society, we need to put it right.’

As a fan of Thatcher his way of putting it right is to create a so-called ‘property-owning democracy’ where ‘people who sell only their labour’ come to own their home and some stocks and shares. Quite a few are already in this position, especially in the US with regard to stocks and shares.  But the assumption that this gives them any more power to decide where the money goes or to shape society in their interest is preposterous.

In fact being burdened with a loan to buy a house over decades weakens a person’s bargaining power vis-à-vis their employer as they can’t afford to lose money by striking or their job through being militant as they need to keep their mortgage payments up or risk losing their house. If ‘people who sell only their labour’ have a steady income from stocks and shares, as up to a third are said to in the US, this means that their employers don’t have to pay them so much to keep fit to work.  So what’s the gain there? It’s just swings and roundabouts.

Moore needn’t have worried about being taken for a convert to Marxism as elsewhere in his article he displayed an ignorance of what Marx thought. According to him, Marx ‘did not understand markets or respect political institutions, and he thought liberty was a sham.’

On the contrary, Marx well understood how the market works. In fact Moore himself recognised this earlier in his article when he commended three passages which he later revealed were from the Communist Manifesto:

‘Where might one find a useful analysis of what is happening today in the market democracies of the West? How about this: “The executive committee of the modern State is but a committee for managing the common affairs of the bourgeoisie.” Or this: “Modern bourgeois society … is like the sorcerer, who is no longer able to control the nether world which he has called up by his spells.” Or this: “The productive forces no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions … [and] they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property.”’

And why should Marx have respected the political institutions of capitalist society if they were there to manage the common affairs of the capitalist class? And isn’t ‘Liberty’ a sham if the ‘owners of capital’ exercise ‘disproportionate power’? Not that Marx was against the limited, political democracy that can exist under capitalism. He was all for it but regarded it not as amounting to freedom for ‘people who sell only their labour’ but only as an instrument to this, or as he put it, a ‘means of emancipation.’

Sting in the Tail: Fine in theory (1994)

The Sting in the Tail column from the February 1994 issue of the Socialist Standard

Fine in theory

What lay behind the desire of all those governments to bring about the recent GATT agreement? One of the main reasons was, we were told, "the need to stimulate competition".

In Australia a new football boot, "Blades", has been designed. It has diagonal rubber blades on the soles and heals instead of studs and the makers claim it will improve grip and reduce injuries. Eighty percent of Australian rugby league players now use it.

Glad cries all round then? No, in fact every obstacle is being put in the way of this competitor by the multinational football boot makers:

"A club sponsored by one took out a Supreme Court injunction to try to stop the Nine Network's "A Current Affair" programme showing its results of boot trials. It failed. In another incident subcontractors of a rival company stopped Blades' production by removing equipment from the factory. Power struggle and patent intrigues lie ahead." (Guardian, 11 December)

The fiercest opposition is what always faces those who try to put rhetoric about competition into practice.

Patching them up

An advert in the national press by the charity St. Christopher's Fellowship (31 December) announced that: "Christmas is over! In a few hours she'll be back on the streets." It told of a young woman who "is counting the hours until her temporary Christmas-time refuge is closed down".

She was not alone. Two thousand single homeless people in London hit the streets again after Christmas as temporary shelters closed. A week of being fed, given medical check-ups and even haircuts only highlighted for some the misery of the other 51 weeks and suicide attempts were reported.

And what did all this achieve? Crisis, one of the major charities, claimed:

"most of the homeless people who passed through its temporary hostels this Christmas emerged refreshed and better able to cope with life on the streets."

Could anything better demonstrate the utter futility of charity than this?

Segregated again

Remember the tremendous effort and sacrifice that went into the civil rights campaign to desegregate schools in the USA? Eventually schools were legally integrated.

But now a study by Harvard University reveals that 66 percent of black and 74 percent of Hispanic youngsters attend schools which have few white classmates. The prediction is that within 20 years half of US state schools will be predominantly black or Hispanic.

The Harvard report's director concluded:

"The civil rights impulse of the 1960s is dead in the water and the ship is floating back towards the shoals of racial segregation." (Guardian, 15 December)

What has happened is that poverty-stricken blacks and Hispanics have moved to the towns and cities and become concentrated in areas where those whites who can afford to have moved out.

So population drift has replaced overt racism as the cause of segregated schools: that may have changed, but the poverty factor remains constant and that is something the reformists can do nothing about.

The truth hurts

What politicians will do just to "get in" is exceeded only by what they will do to stay in. An example of this is the suppression of information which will be politically embarrassing.

The Black Report was commissioned in 1977 to inquire into inequalities in people's health. When it was ready in 1980 the Tory government did not publish it. Instead, 200 duplicated copies of the typescript were made available on August bank holiday in the hope that it would never be noticed.

The reason is clear:

"The report laid out a mass of evidence pointing out that social class and economic deprivation had a profound effect on health, with the inequalities of childhood persisting so that ill-health was worse, and death rates higher, at every stage of life the poorer the person was." (Guardian, 17 December)

London's yo-yo

London share prices have reached record levels - the FTSE share index rose by 22 percent in 1993 and another big rise is forecast for 1994.

What is causing this? Current low interest and inflation rates will encourage business to think they can plan ahead with more certainty. This, plus a feeling that the recession is now over, has pushed shares up, but there are other less rational reasons for the rise.

For instance, London prices usually follow prices on Wall Street and Far East markets and these have been rising (Tokyo is the exception). Then there is the fact that many investors buy on a rising market simply because they are afraid of being left out of what they think must be a good thing.

Of course, the last budget's tax rises may reduce consumer spending and the recession on the continent, which is British capitalism's biggest customer, may slow down the recovery and send the FTSE tumbling again.

The last emperor

Mao's centenary gave the media the chance to disclose some awful truths about the old tyrant. For example, on one TV programme his megalomania was on display. He saw himself as the greatest of China's Emperors and boasted how he had more power and killed more "enemies" than any previous Emperor.

And he was completely ignorant of even basic economics. His "Great Leap Forward" in the 1950s had an officially estimated 100 million peasants taken out of the fields to produce steel, of which they knew nothing, and resulted in tens of millions dying in the inevitable famine. Incidentally, Mao the "Marxist" had read very little of Marx's writings.

What, we wonder, were those British Maoists, past and present, thinking as they watched or read about the monstrous crimes committed by the man they so idolized?

That's them that is

"In this edition of 'History Today' Professor Lewis and I will be discussing the question 'Is there really a working class in contemporary capitalism?' Professor Lewis, what is your view?"

"See a boring old fart who thinks history is all about kings, queens, military commanders, politicians and other useless parasites?"

"I suppose there may be such a person."

"That's you, that is."

"Perhaps, Professor Lewis, but who are the working class today?"

"See those millions of people all over the world who must work for a wage or salary in order to live, who produce all of society's wealth and fight and die in wars which have nothing to do with them?"

"I have heard that there are such persons."

"Well that's THEM, THAT IS!"

(Acknowledgements to Newman and Baddiel)