The demands of global capitalism (1996)

Book Review from the September 1996 issue of the Socialist Standard

The End of Work. The decline of the global labour force and the dawn of the post-market era by Jeremy Rifkin (G.P. Putnam. New York, 1995)

Rifkin argues that: " . . . for the first time, human labour is being systematically eliminated from the production process. Within less than a century,'mass' work in the market sector is likely to be phased out in virtually all the industrial nations of the world".

His book is thought-provoking and discusses an issue that many economists avoid - that we have entered an era when the traditional work patterns have changed. The consequences that technological unemployment brings reverberate in every aspect of society. Rifkin estimates that in the USA, 90 million workers out of a total 124 million could potentially lose their jobs. Capitalism breeds the alienation in the young who turn to crime and the bleak futures faced by older workers, who in their economic insecurity have fears such as house repossession.

The book can be divided in two. indicated by the subtitle, ‘the decline of the global labour force and the dawn of the post-market era'. The first four parts (fourteen chapters) deal with the background and the decline of the global labour force - the strongest sections of the book. Rifkin’s strength is that the book is historically situated. It has its parallels in Volume I of Capital, where Marx analyses the historical tendency of automation to eliminate labour-power (chapter 15 - Machinery and Modern Industry). The book is well-researched, and although Rifkin is not saying much new, it is presented in an engaging manner.

In chapter I, Rifkin argues that workers are unprepared to meet the demands of global capitalism:

"The idea of a society not based on work is utterly alien to any notion we have about how to organise large numbers of people into a social whole, that we are faced with the prospect of having to rethink the very basis of the social contract."

As a liberal, Rifkin does not give up hope of workers benefitting through piecemeal reforms that would increase pay and improve working conditions, but he has grave doubts:

"The new economic realities of the coming century make it far less likely that either the marketplace or public sector will once again be able to rescue the economy from increasing technological unemployment and weakened consumer demand."

Although not the solution that socialists support. Rifkin proposes what he terms the “social economy", which is discussed in the chapters on “the dawn of the post-market era".

Rifkin proposes two courses of action to make the transition to "the post-market era". Firstly, productivity gains to be shared among workers so as to bring about an equitable re-distribution for an equitable share of the fruits of technological progress. Secondly, that the shrinking of mass employment in the formal market economy and cuts in public expenditure bring a need to focus on the third economy - the social economy - which would, argues Rifkin, meet the needs that are not met by the market and public sectors.

His strategies for dealing with technologically displaced labour are nothing new and include reducing the working week, spreading employment amongst a greater number of workers without sacrificing productivity, an index-linked minimum wage and compensatory welfare payments. What Rifkin argues here has become common in political circles especially among the communitarian movement in America and the "stakeholder society" of Blair's New Labour.

Rifkin, like many who call for what Diane Elson terms the “socialisation of the market" places emphasis on unpaid voluntary work to regenerate the community. The only positive aspect of this for 

socialists is that volunteering shows that there is no need for the capitalist system of buying and selling. However, the reforms that Rifkin proposes would not in the long term be of much benefit to workers. If a Social Democratic “consensus" government was to begin to implement these reforms it would only cut into profits and future investment, thus meeting resistance from the capitalists.

Rifkin ends the book with a warning. "The end of work could spell a death sentence for civilization as we have come to know it. The end of work could also signal the beginning of a great transformation, a rebirth of the human spirit. The future lies in our hands." Indeed it does, and we don't want our futures to go to waste under capitalism. 

Rob Smith

A Nervous Breakdown? (1956)

From the September 1956 issue of the Socialist Standard

Quite recently this writer had a nervous breakdown. He was not alone. Many suffer from nervous breakdowns, anxiety-neurosis strain and the like. The stresses and strains of our present way of life are just too much for many of us.

At six or seven in the morning we are awakened by the continuous jarring of the alarm bell; after a hurried breakfast (if we have one; and many do not), we rush out of the house on to a crowded bus or even more crowded tube train—or both. In many cases before we even start work we feel exhausted and tired out An hour on bus and tube train is enough for one day . . . but then the day has not really begun. We still have seven, eight or more hours in the office, in the shop, or at the factory bench; and then an hour on the bus and train again at night. . .

Rush . . . rush ... rush ... day and night. And for what? For the worker, a wage or a salary; for the employer, profit.

Most of us rush our lives away; and yet we achieve very little. We come into the world with next to nothing, and go out in much the same condition!

This continual striving to “make ends meet” throughout our lives also contributes to nervous illnesses and breakdowns. Our wages and salaries never seem to keep up with prices. There is never quite enough to go round. Should we blame the employer? Hardly. He does not employ us just to give us work; to make us happy; to give us money in order that we can buy everything we want. He employs us (to get to work at eight o'clock or nine) so that we. in co-operation with our mates, will make a profit for him. The more he can get out of us the better it is for him. And he is not particularly concerned, as an individual, if we do get tired on the tube train if we do have a job “making ends meet." or in most cases if we have a nervous breakdown—so long as we do not stay away from work too long. In most firms the real employer—the shareholder, the Capitalist—never sees us. He does not know us. He has his “problems" of profit; and yet more profit. That is the way our society goes round. It is the "dog eat dog" world of capitalism. It is the world that Socialists wish to replace by a different world—the world of Socialism. A world with a different basis; with a different motive—not of profit and the continual rush to “make ends meet” We want a world without nervous breakdowns, insecurity and anxiety. We are working (in our own small way) for such a world. Moreover, we would like you to work for one also. How about it?

Peter E. Newell

Obituary: Percy Young (1956)

Obituary from the September 1956 issue of the Socialist Standard

Percy Young died on the 12th of August, after being ill for a little while.

His name never appeared in the Socialist Standard; he never spoke in public or wrote articles, or was an officer of a Branch. But be joined the Socialist Party in 1906, and with his death a link with the beginnings of the Socialist movement has been broken.

He was a brush-maker: not a factory operative, but a practitioner of a craft which has almost died. He made his brushes in the little shop off Walthamstow High Street and sold them on a stall in the market; on fine afternoons, with the shop door open, you could see him sitting with his twine and his can of pitch and watch his hands working with the deftness of a lifetime’s use.

His father was a brush-maker too. His father belonged to the Social-Democratic Federation, from which the Party sprang; he had a shop in the High Street, and “kept away custom” by having copies of “Justice” fastened to the window. And there were others in the family. Percy’s brother, Byron, was a prolific outdoor speaker for Socialism—a Liberal candidate threatened to horsewhip him once—until he went to Australia in 1920.

He had seen many changes: the decline of his own craft, for example. Last Christmas he was given a copy of "The Day Is Coming,” and sat reading it half the night because it describes Mile End Waste at the end of the 19th century—stalls, quack doctors, cheap merchandise and S.D.F. speakers. He remembered it: used to go there as a boy to help his father sell brushes.

There must be many who knew him by sight but never by name: a little bird-like man with a little white moustache, always with a cap which he raised when he spoke to a lady. He had known hard times, and was always concerned for others’ welfare. He gave generously to Party funds whenever he could, and loved to listen to a Party' speaker re-affirming the things he had held to and done his best for all his life. He had humour, too: a quiet mirthful chuckle which gave him an unexpected elf-like look.

We are sad that Percy has gone; he, like the times and the people with whom he was a link, will be remembered continually.

R. C.

THE FLATULENT REPUBLICAN (weekly poem) (2016)

From the Socialism or Your Money Back blog

THE FLATULENT REPUBLICAN.

(The man who makes even Boris seem sane!)

The rise of Donald Trump in the U.S. primaries

represents a new low point in political idiocy.

Hot air and noxious gases fan,

Out from both mouth and rump;

That flatulent Republican,

The apt-named Donald Trump!

This bilious, butch, billionaire,

This laughable, lewd, lump;

Complete with verbal derrière,

The turgid Donald Trump.

There’s certainly an anal need,

To prime the piffle pump;

The big-wig of the bullshit breed, (1)

The barmy Donald Trump.

A Yankee word like “schmuck” would do,

Us Brits might just say, “chump”;

Who can we be referring to,

But loony Donald Trump!

What do the Yanks see in this bore,

This grasping, grouchy, grump?

What motivates them to vote for, (2)

That dickhead Donald Trump?

Could some in that unhappy land,

Bring him down with a bump;

Then call the men in white coats and,

Then section Donald Trump?!

(1) See the Wikipedia entry on ‘Bullshit’ and philosopher

Harry Frankfurt’s comments on Wittgenstein’s concept

of ‘non-sense’ and on the bullshit of Donald Trump.

(2) His supporters even make UKIP voters look intelligent.

© Richard Layton

Ireland Under Capitalism (2016)

From the March 2016 issue of the Socialist Standard

The CIA World Fact Book is a useful resource for looking at how our masters view the world. Ireland, it says, ‘is a small, modern, trade-dependent economy’. It notes that between 1995 and 2007 the Irish economy grew at an average of 6 percent a year, which, compared to the trend rate for the UK of about 2.5 percent is very healthy indeed. It took Ireland from being one of the poorest countries in Europe to one of the wealthiest.

This was part of what was known as ‘the Celtic Tiger’, a moniker that linked the growth there to that being achieved by the Asian Tiger economies, such as Malaysia. The link was more than just symbolic, there were structural similarities. The growth was achieved through state-driven social partnership, low corporate taxes and inviting foreign investment (chiefly American, taking advantage of the shared language and the membership of the European single market to turn Ireland into a corporate base for American firms in Europe). Also, the European Union has transferred vast amounts of money in structural fund payments to develop Ireland’s economy.

Further, as an article in the Spring 2004 Quarterly Bulletin of the Central Bank of Ireland noted ‘While the level of Irish GDP per worker [was] second only to Luxembourg in the European Union, GNP per worker is roughly equal to the EU average. However, this means that productivity levels, measured as GNP per hour worked, are still somewhat below the EU average because of the higher average hours worked per employee in Ireland.’

All of this reflects the relatively low level of development in Ireland previously, and that it was part of a worldwide spread of industrialised production. This meant Ireland could not escape the worldwide trends, and while GDP growth was over 9 percent up to 2000, after that it fell to 5.9 percent up to 2007.

When the Great Crash came in 2008, Ireland was particularly vulnerable due to internal factors (such as the very large housing and mortgage debt market) and also exposure to foreign markets. Further, due to the over-expansion of the property sector, Ireland like countries such as Spain ended up with a property bubble, and ghost estates full of habitable houses that no-one could buy. As the CIA Factbook notes: ‘economic activity dropped sharply during the world financial crisis and the subsequent collapse of its domestic property market and construction industry. Faced with sharply reduced revenues and a burgeoning budget deficit from efforts to stabilize its fragile banking sector, the Irish Government introduced the first in a series of draconian budgets in 2009. These measures were not sufficient to stabilize Ireland’s public finances. In 2010, the budget deficit reached 32.4 per cent of GDP - the world's largest deficit.’

Ireland since has successfully imposed harsh austerity measures, as part of an international bail-out, to eliminate that deficit, and it has largely succeeded, and has managed to successfully balance its budget, but at considerable price. It has not yet returned to the productivity rates it had at the height of the Celtic Tiger period. This was falling even before 2008, as the real economy began to dry up; and even now, the profitability of Ireland has not returned to 2005 rates.

At the height of the crisis, Ireland had an unemployment rate of 14 percent. This however, whilst being lower than, say, Spain’s horrific unemployment rate, is slightly distorted. Ireland has historically been able to export population in times of crisis: to nearby Britain, or the United States, Canada or Australia (due to historic connections), as well as the wider EU.

The chart below, released by the Irish Statistical Office last April, shows net emigration in Ireland over the past ten years. The advent of the crisis clearly shows the switch away from net immigration to emigration, and around 45 percent of those leaving the country are Irish nationals. It represents an average rate of about 70,000 leaving per year.

As unemployment falls to 8.8 percent today, people are returning. This rate of unemployment, though, remains relatively high, and is the rate at what could well be the top of the current economic cycle (for example, the unemployment rate in the UK is about 5 percent).

Further, there may be distortions in the official figures: ‘an additional 22.8% of the working age population are ‘inactive’, arising from disability or illness, care duties, full-time education, full-time parenting or early retirement. In order to sign on to the Live Register, a person has to be available for full-time employment, an eligibility criterion that discriminates against those who cannot be available full-time, particularly women.' That’s about 120,000 people who might want to work but aren’t counted. (www.tasc.ie/download/pdf/tasc_cherishing_all_equally_web.pdf).

Even those who are working aren’t benefitting. As the Irish Times noted last year (16 February), ‘a third of all income [is] concentrated in the hands of the top 10 percent of earners. When taxes and benefits are taken into account, though, this is just about the European average. Further, ‘Estimates of wealth distribution give the Top 10% between 42% and 58% of all wealth, and the Top 1% between 10% and 27% of all wealth.’

As demonstrated by the below graph (from the same website):

So, for the vast majority of the Irish, they do not own Ireland, nor Ireland’s wealth. They are not invited to share in growth in good times, and they are politely shown the door in bad times. That is what independence has meant for the workers of Ireland.

What it means for the top dogs in the country is that they have been able to shop around for patronage. No longer tied to the capital of John Bull next door, they can become the clients of European and American capital instead. The Tiger economies were known for their crony capitalism, and Ireland has had its fair share of that. Charles Haughey was legendarily corrupt when in office in the 1980s, Bertie Ahern (who was Taoiseach throughout most of the Celtic Tiger years) eventually fell due to revelations of brown-paper enveloped ‘dig out’ funds. The Mahon Tribunal found that he was not alone, and numerous public officials and councillors had been engaging in corrupt practices.

Legitimate business people are largely benefitting from foreign capital inflows. As Paul Sweeney noted in the Irish Times (16 January): ‘[The Irish] State is highly interventionist and spends between €4.7 billion and €6.2 billion a year supporting enterprise (half to agribusiness and farmers under the European Union). The equivalent of 5,200 full-time public servants supports such firms. Foreign firms play a key role in all small, open economies, but here their role is disproportionate because we do not have enough successful indigenous firms of scale.’

It’s worth noting that, according to the CIA World Fact book, agriculture in Ireland makes up about 1.6 percent of economic activity, so its share of state aid represents a hang-over of the status of farm and land owning in the Irish Republic.

Independence has not benefitted the working class of Ireland. It has not freed them from wage slavery. It has not freed them from exploitation and inequality. The Irish economy is not run on behalf of the people who live in Ireland, but on behalf of the owners of capital. For all the state intervention, it is still subject to the anarchy of production and the vagaries of the market.

In the good times Ireland’s wealth grows based on the work of its citizens, most of which is stolen from them. When the market turns sour, they are shown the door, or robbed some more to balance the books.

Ireland is enmeshed in a worldwide capitalist system, and only by joining a general struggle to emancipate the working class of the whole world, and turn the planet into the common property of humanity will people in Ireland liberate themselves.

Pik Smeet

Letter from Austria (1964)

From the September 1964 issue of the Socialist Standard

In the “ free world," demonstrations and marches of discontented workers are now the order of the day. No trade, profession or service is exempt from these public protestations against rising prices, lagging wages, social injustice and other evils suffered by all sections of the wage-slaves. One trade after another, from transport, metal, textile and chemical industries to doctors and teachers, is on the move threatening strikes, and marches to the seat of government. Banners and posters are carried, airing grievances and demanding redress and help. Television usually focuses on these demonstrations — such mournful processions, plus military parades, are indeed among the regular tele-features.

In Austria, last year's march of a thousand miners to Vienna recently had its double, this time from the federal province Burgenland, the most depressed area of this country.

Among the inscriptions on these Burgenland workers’ banners was one reading : “ Not yet come of age.” One sadly reflects how many Burgenland workers are aware of the sorry fact that in whatever respect or aspect they may consider their province as "not yet come of age” the workers themselves, and for that matter, the workers of the whole world, have yet to reach maturity. One wonders how many adult and normally intelligent workers would be ashamed to confess their political unripeness. Or does it betray political maturity and common sense for workers with the overwhelming majority of votes in their hands, to invariably vote for the continuation of their economic dependance on a small parasite minority, and to entrust leaders and guardians the safeguard of their class interests?

While it is generally understood that infants and minors, mental deficients, the old and infirm, like the blind and other unfortunates, need guardianship and leading, what is one to say of the brightness and brains of apparently sound adults blindly following leaders, despite their black record in the grim history of blood, sweat, and tears? The sorry fact is that the mass of the workers of the world are quite prepared to remain under tutelage and dominance; to go begging to, and leave their fate in the hands of their masters and ‘‘superior" leaders, instead of themselves organising for the purpose of working out, with their fellow-workers, their lives in accordance with their own needs. As already mentioned, the vote in their hands is the instrument to achieve this end—their emancipation from wage-slavery.

Meanwhile it remains a pitiful spectacle to see adult men and women humbling and degrading themselves by going hat in hand to a propertied, non-working minority of landowners, industrial magnates, bankers, shareholders, etc., with appeals for what can only be crumbs falling from the rich man’s table.

The Burgenland workers are typical of the lack of human dignity. The Esterhazy family, who own one-fifth of the whole federal province, draw 15 million schilling (£205,000) net profit annually from their forest property; 17 million (£233,000) from their lake ground and reeds, plus the income from leased arable land and vineyards, and the Esterhazy castle and grounds at Eisenstadt. Withal, Dr. Esterhazy is not even Burgenlander—he hails from Hungary. The Vienna conservative government procured for him the Austrian citizenship, but Esterhazy left Austria at once and lives in Switzerland. He is doing well there, while 23,000 poor peasants eke out a most precarious existence, and 25,000 itinerant workers are toiling far away from their families in summer, living on the dole in winter. No wonder that one of the delegates of the marchers asked the minister in Vienna how to exist on 167 schilling (about £2 6s.) a week.

Much more could be said on the dismal side of things in Austria, on the housing problem, with nearly half the population still living in single rooms or room-kitchen tenements (no water or W.C. within) and 30,000 urgent cases of home-seekers on the waiting lists in Vienna, while there are at the same time an equal number of empty flats—100,000 of them in the whole of Austria! There is the ever increasing criminality (632 murders between 1945 and 1963), alcoholism, accidents at work (160,000 annually, of which 600-700 fatal), the slaughter on the roads (60,000 accidents with 1,700 killed in 1963), etc., etc. Space does not allow us to deal with more, except to say that with the average annual income of about 20,000 schilling (£274), poverty and sickness is as rampant as ever in the midst of great wealth and affluence. Indeed, the Finanzamt has just revealed that in Austria more than a thousand persons have incomes of a million schilling (about £14,000) per year, and 2.652 persons paid taxes on 500,000 schilling (£7,000) each per year.

To anyone who should ask how this squares with the usual tale of “never had it so good,” I would say this; If the late American Presidents Roosevelt and Kennedy and the current President Johnson had to campaign against the terrible poverty and the innumerable accompanying social evils in the richest country in the world; if, as President Johnson admitted, with “ever increasing productivity and growing wealth on the one side, you have chronic unemployment on the other,” which they “can only try to mitigate, but cannot solve”—is it likely that the working class in any other country are better off and happier?

Withal, some thoughtful writers, politicians and scientists, often express concern and alarm about “Where are we going? ” “Where does science and the further technical development lead to? ” they ask. And they supply themselves an answer: “It will lead to the end of mankind, or at least to total slavery.” Others prophesy: “Relapse into the worst barbarism after a nuclear war.” 

Says one writer: “What is to be done?” And he suggests: “To bring the effects of the continued technical advance drastically and clearly to the knowledge of the people, so that they at last begin to do something about the contemporary problems of their existence.” As if the people were not daily being reminded of the terrible conflicts brewing everywhere, which never allow the constant fear of war to abate. And has this generation not had “the effects” of the continued technical advance “drastically and clearly” enough brought to its knowledge by two actual world-wars? And by the many smaller wars in Korea, Suez, Algiers, in the Middle and the Far East, in Cyprus, etc.? Fact is that none of those writers and seers have any alternative to offer to enable mankind to extricate itself from the most awful dilemma it has ever faced in all its history.

Looking back and at the present anarchic, chaotic world situation, one must ask oneself how long the working class will continue to invest their masters and their paid hirelings with their trust and confidence? Is it not time to ask themselves what intellectual and moral credentials, references or merits those welfare agents and leaders have, to deserve that trust? And what value can be put on their promises? Just consider for example the record of some of the contemporary statesmen, leaders, politicians, experts and scientists, bishops and popes and other top personalities in public life.

The cause of the two world-wars was economic rivalry, which did not justify the shedding of a single drop of working class blood. Yet did not the world’s leaders, ignoring the real cause, either take part in one or the other belligerent line-up or otherwise support the carnage, or do nothing against it? And what are these worthies doing now against the monstrous new armaments which are part of their masters’ preparations for the next holocaust?

Were not “reformers" like Roosevelt, Kennedy and Johnson—and Stalin, Khrushchev, Churchill, Hitler, Mussolini, Tito, and the rest of the war lords— among the foremost active agents in the two bloodiest mercenary commercial conflicts the world has known? And do not the military chiefs on all sides boast of the superiority of their armaments, their preparedness for any emergency, and even indicate the approximate figure of casualties in the initial phase of an all-out nuclear war?

Verily, only real innocents and very naive workers can still look up to their “betters” and continue to place their trust in an “intellectual elite” of such past record, instead of “at last beginning to do something about the contemporary problems of their existence.”

While the writer of these latter words did not or could not say what this “something" should be, Socialists can, and consistently DO SO. They have the beacon light and the rallying parole for the mass of the people, the working class.

It is: “Organize and vote for fundamental change of the present vile and imbecile social system, i.e., abolish the private ownership of the means of life, and establish the World Socialist Commonwealth!

Rudolf Frank

Wring their necks (1997)

From the March 1997 issue of the Socialist Standard

There is a poignant moment in Bertolt Brecht's play Mother Courage, where the protagonist. Courage, despairing at the likely impact the demobilisation of any army will have on her canteen-wagon business, sighs "Peace’ll wring my neck."

They're not words that are meant to be taken lightly. Brecht was fully aware that war was just the continuation of business by other means, and the words are meant to scream out at you from the page, echoing at every announcement of arms sales. They remind you that there are thousands of such Courages roaming the world every day peddling their wares and dreading always the cessation of hostilities or even the threat of peace.

One is the Defence Minister Michael Portillo. Towards the end of November last year he could be found flying to the UAE to sign a co-operation agreement whereby the British government would commit British troops to the defence of the UAE in return for arms contracts his industrial sources suggested could be worth £2 billion.

One week later, Britain's other prized arms promoter, Prince Charles, was also off to the UAE. No doubt in order to lick the sand from the boots Portillo missed.

Only weeks earlier it had been revealed that the British off-shore firm. Mil-Tec Corporation, had supplied $5.5 million-worth of arms to the Hutu militia in Rwanda, and most of this in the wake of the UN imposition of arms sanctions. In true Thatcherite tradition they were in fact "battling for Britain" and hence the government has decided to take no further action. Coincidentally, this came at the same time as evidence was emerging that Britain was re-equipping the Argentinian navy in exchange for a deal that allows Britain to explore for oil in the contested waters between the Malvinas (Falklands) and Argentina.

November was in fact a busy month for the arms dealers. The US, for instance, could be found retraining and rearming Muslim and Croatian forces in Bosnia. One consignment of arms on just one Adriatic-bound ship contained 45 M60 tanks, 80 M1 13 troop carriers, 15 UH-I helicopters, 840 anti-tank weapons and 45,000 rifles complete with ammunition.

As December dawned, the Observer reported:

"The growing number of deals involving conventional arms and nuclear technology between Russia, China and Iran is creating an informal club of powers capable of altering the balance in regional conflicts that would challenge the West’s assumptions of weapons superiority"(1 December 1996).

Russia has signed a $2 billion contract with China and is none too concerned that Iran has announced plans for a $4.5 billion oil-backed deal with China for military equipmentand joint weapons production.

Though such weapons might realistically be used against Russia it does not perplex the likes of one Russian spokesman, Anton Surikov who, believing the pros outweigh the cons, announced that Russia's security was strengthened by the rearming of America’s military rivals with submarines, missiles and sophisticated fighter aircraft. The logic being that in future less Western attention would be focused on Russia who could be left to carry on its global profit-seeking unmolested.

January came and Michael "Courage" Portillo gave the nod for the sale of 350 armoured cars and police vehicles to Indonesia, in spite of the MoD admitting they would most likely be used to suppress pro-democracy demonstrations. This was an admission that makes a fool of Trade Minister Anthony Nelson who declared last year: "We do not allow arms to be exported indiscriminately. We do not export equipment which is likely to be used for internal repression" (Observer, 19 November 1996). Which is why the same paper could report on the same day that "Britain covertly sold arms which ended up on the Turkish side of flashpoint island of Cyprus".

Arming the rest of the world, however, gives the West the perfect reason for arming itself against its arms buyers. Thus because the world is militarily an unsafe place, Britain is desperate for 232 Eurofighters costing £16 billion, 386 Challenger 2 tanks and 64 EH 101 battle helicopters.

As the arms trade escalates, we may well ask where arms suppliers, tainted with the blood of Rwandans and Indonesians. and indeed workers the world over, will draw the line. History, though, shows that the competitive drive for profit obscures all such lines, and that wars, or the threat of them draw the arms suppliers like flies to a cow pat.

John Bissett

Economics: Banks and Credit (1975)

From the February 1975 issue of the Socialist Standard

The use-value of loan capital, which is made available through the banking system, consists of producing profit, and this type of profit is described as interest. The rate of interest is arrived at by competition between lenders and borrowers, or by supply and demand; the lender of loan capital striving to obtain the highest rate of interest for the use of his capital, and the borrower seeking the lowest rate. There is no "natural" rate of interest, nor is there any limit to the rate that can be charged.

In the German Weimar Republic during the period of great inflation after World War 1, the rate of interest was raised weekly in some cases to 200%. The "natural" rate theory has its basis in the repetitive form of dealings between merchants and industrialists in the negotiation of Bills of Exchange. A substantial part of the business of a bank consists in discounting (cashing) Bills of Exchange. They are, generally speaking, promises to pay between merchant and industrialist at 60-90 day intervals, or longer. These Bills usually represent goods in transit or in store, and for the facility of advancing cash immediately on the strength of the Bill, which guarantees the value of the goods nominated in the Bill, the banker will deduct or discount a fraction of the amount shown and buy the Bill. If, for example, a Bill of Exchange was valued at £10,000, and the annual rate of interest was 10%, and the Bill was due in 90 days, the banker would deduct the sum of £250, i.e. 90 days' interest, and advance the sum of £9,750. When the Bill was finally redeemed, the banker would then receive the sum of £10,000 - the full value of the Bill.

Rates of Interest

Naturally the merchant and the industrialist (incidentally banking transactions as described above are not just confined to these two) would seek out the most favourable discount rates, and over a period of years the rate would tend to become adjusted at a regular rate. For many years between World Wars I and II the bank rate remained almost stable, around 2½%-3%. The old bank rate was based on this practice of discounting Bills, and gave rise to the theory of the "natural" rate of interest. Regarding the possibility of the banker getting the better of the merchant, industrialist etc., by successfully charging high discount rates; this would only result in a transfer of wealth between them. Were the British banks to consistently charge usurious rates, capitalists would endeavor to have their Bills discounted elsewhere, say New York or Paris.

Since interest is part of industrial Profit, the maximum limit of interest is marked by profit itself. The leaves can never be greater than the tree, or the part can never be greater than the whole. The high rate of interest today, i.e. 15%-16%, is distorted by inflation. The Chairman of Barclays Bank, Mr. A. Favil Tuke said:

"It is worth recording that of the three parties who make up a bank, namely stockholders, staff and customers, none has gained much from these profits.  Customers do not need to be told how much interest rates have risen in the last year or two; the increases in the salaries of our staff have been limited to about 7% per annum, and that of the stockholders dividend to 5% per annum; all this at a time of inflation of some 10%, per annum." (Directors' Report to AGM, 1974).

Obviously the depreciation of money is taken into account when fixing a rate of interest, and this is basic to the preservation of the value of the loan capital. On the other hand any prolonged fall, resulting in a total loss of interest, as well as an erosion of the value of the money capital, would eventually remove loan capital from the money market. This would, sooner or later, have repercussions in the productive process, as industrialists and other capitalists would find difficulty in raising capital for certain projects. As capitalism's wealth develops there is a tendency for the owner of inherited wealth to live on the annual interest without actively participating in the productive process. The same attitude is adopted by retired capitalists who want to take things easy, instead presumably of just taking them - as in their youth. Loan capital arises mainly from these sources.

Were there no profit in loaning capital, that capital would be hoarded until such times as things improved. The owners of such capital would not retain it in the form of paper currency at the mercy of inflation, which has the effect of gradually reducing the wealth of the banker and the landlord, as well as literally confiscating such savings as are owned by workers. They would hold their hoard either in gold, works of art, land, buildings, or any other desirable commodity which retained its value. No profits would accrue from assets held in this way, but on the other hand, there would be no losses either. However, if this happened on any scale there would be industrial dislocation.

Lenders & Borrowers

The function of banks is firstly to make recurring payments on behalf of their customers; meeting mortgage payment rates, quarterly bills, and regular annual orders. These are payments which are entirely concerned with the circulation of commodities. But their second and most important function is to provide credit or capital for industry, commerce, property, etc. This is not provided out of the resources of the bank, as can be seen by the statement of the London Clearing Banks. Total advances were £16.7 thousand millions (Quarterly analysis of Bank advances; Bank of England, 20th November 1974), whereas the total capital of these banks was £658 millions as at December 1973 (Annual Reports, 1973).

Generally speaking, bank overdraft limits are reviewed every year, and bank borrowing is mainly short-term; up to 3 years in the main. Long-term loans are usually handled by the merchant banks who charge a higher rate of interest for this facility. The credit system which owes its development to the specialized function of the bank has proved to be a significant force in the centralization of capital. Gathering as they do all the disposable money which is spread throughout society, they channel it into the hands of groups of capitalists, who turn it into capital. The accumulation of capital is speeded up, and with it the productiveness of labour, as more and more machinery is introduced into the productive process.

Credit, and the credit system, have given rise to many misconceptions about the power of banks to create credit. Firstly, credit, whatever its form, whether in money or goods, consists in a transfer from one person to another.

Credit, in its simplest expression, is the well or ill founded confidence which induces one man to extend to another a certain amount of capital, in money or in commodities, estimated at a certain value, which amount is always payable after the lapse of a definite time. (Tooke. Capital, Vol. III. Kerr edn., p. 471).

Elements of social wealth, and the conditions under which the transfer takes place, or the trustworthiness of either of the parties to the transaction, need not concern us. An owner of goods may be separated by an interval of time from realizing the value of these goods in money. Certain articles take a longer time to produce than others, and others longer to market. The production of certain commodities, mainly agricultural products, depends on certain seasons of the year. Inevitably the owner of the commodities will borrow money on them, or sell his right to them for money on the spot, or the written promise of money. This is putting it at its simplest — the goods providing the security for the loan. In any case, goods are exchanged or secured against a sum of money which is due to be repaid at a given date in the future. Payment in advance of delivery, or delivery in advance of payment, represent the two sides of simple credit. It is to be assumed that the credit seeker has a reputation for solvency, and that fraud is not the purpose. Credit advances in this way merely facilitate the circulation of commodities by getting them to the market quicker.

Weakest to the Wall

The second and most important function of the banker is to provide money for industry, which is capital. This has a separate function from money as the medium of circulation. The function of capital is not merely the circulation of commodities but their production in the first instance. Therefore, money used as capital is withdrawn from circulation because the wealth which it represents has been locked up in the process of production. The credit system of advancing capital allows individuals to use capital which is not theirs, and has opened the door to all sorts of swindles and reckless speculation. Who would not gamble with other people's money?

If banks could create credit with the stroke of a pen, that would mean in effect they could create wealth, and consequently the Marxist Theory of Value would be shown to be wrong. However, as time passes the validity of the Labour Theory of Value, i.e. that wealth can only come into existence when men apply their energies to nature, is all too apparent. If banks could create credit, they would never be in financial difficulties, nor would they go bankrupt. As we have seen in recent years, a number of bank failures are taking place. The Ideal Savings Bank, and the Bank of the Lebanon, for example. More recently, the Herstatt Bank of Germany, and the Sindona group of Banks in Italy; the Israel British Bank (London) with deficits of over £40 millions. Many of the 40 or so fringe banks are in dire trouble, and some have gone into liquidation, including Mr. Jeremy Thorpe's London & Counties Bank. (His insight into the political future has not helped him in his banking adventures.) Many of these failed banks had the dubious benefit of advice from economic and political experts forecasting the future of capitalism. Once again they have come unstuck, and we can say with certainty that more banks will fail as the competition increases — the large fish will gobble up the little ones.

Credit Creation a Myth

In these circumstances, why did these banks not create a bit of credit for themselves and literally pull themselves up with their own shoelaces? The answer is all too obvious. The credit of the banker is provided only by his depositors. This is real money. It matters not whether the bank transfers depositors' credit to a bad risk or a dud enterprise — he is liable for its return. At the present time, the property market has turned out to be a bad financial risk, and the little fish are in trouble having lent long to property speculators, and borrowed short from their bigger brothers. The alleged "rescue" operations organized by the Bank of England are nothing other than the lambs being eaten up by the wolves. The smaller fry of the financial and banking world are no more immune from the centralization of capital than the small car firms, garages, shopkeepers, etc. In the last four years the Big Five Banks, Westminster, Barclay's, National Provincial, Lloyd's and Midland, have become the Bigger Four. A number of Scottish banks have been taken over by the Big Four — the Bank of Scotland for example is now under the control of Barclay's, whilst the Clydesdale Bank is controlled by Midland; National Westminster controls Coutts & Co., also the Ulster Bank Ltd. Lloyd's control the Bank of London and South America, the National Bank of New Zealand and many others.

If these small satellites wanted to remain independent all they need have done was to create credit by increasing their capital by a stroke of the pen. Such fictitious capital would no doubt pay a fictitious dividend, and create a series of fictitious deposits. Unfortunately, however, the original depositors who have loaned real money have no sense of fiction — even the science fiction of the economic experts — and would require repayment in very realistic banknotes.

The bank profits for 1973, the last accounting year of the London Clearing Banks and subsidiaries, do not bear out the miraculous power of credit creation. Although this was a bumper year the total profits, after tax, were £335.7 millions (Annual Statement for 1973). This is a large profit, but it is only a small portion of the total industrial profit.

Inflation Fraud

The one institution which appears to create credit is the State, operating through the Bank of England. This is an act of deliberate political policy, the reasons for which will be given in a separate article. The Government, in a variety of ways, instructs the Bank of England to print an excess of paper currency, which the Government uses to finance its own schemes, and without having to introduce tax legislation to deal with particular cases. This inflation of the currency does not, nor cannot, add to existing wealth. What is really happening is that, far from creating credit, the Government is confiscating other people's. This has the same effect as a general increase in taxation. The constant dilution of the purchasing power of money by inflation raises prices and dislocates production and distribution. This is public fraud posing as public credit.

Capitalism is a system of production and distribution with many contradictions, and inflation adds yet another. Whatever strategy is worked out by economic planners and monetary specialists will make no difference. Capitalism will run according to its own laws, and they can only run after it. After all — who ever heard of an expert on anarchy? 

Jim D'Arcy

Economics: Do Banks Produce Wealth? (1975)

From the January 1975 issue of the Socialist Standard

There are three main divisions within capitalist society which share the surplus-value which is socially extracted from the working class; the industrialist, the landlord and the banker. These divisions historically reflect the application of the division of labour to the specialized investment of capital in any field of production and distribution, any process of circulation, of which banking is part.

Individual capitalists, or groups of capitalists, may have financial interests in all three of these groups. There is nothing to stop the industrial capitalist from becoming his own landlord and banker, but were he to do so he would require to hold huge reserves of cash, or have part of his capital locked up in bricks and mortar, thus preventing it from being more usefully employed in the exploitation of human labour-power. Generally speaking, the industrialist, the banker and the landlord pursue their own separate courses. Their interests are intertwined but nevertheless are antagonistic. Whilst it is true that the capitalist class have more in common with each other than with the working class, it is necessary to add that a class society must inevitably produce a conflict of interest between capitalist and capitalist, as it does between capitalist and worker, and worker and worker.

Interest and Profit

In capitalist society all wealth takes the form of commodities and is bought and sold. Capital itself is subject to this process: the price of capital represents the amount paid for the use-value of that commodity for a prescribed period. The lender sells to the borrower the use-value of his capital, and expects to receive an additional payment (i.e. interest) as well as having the original sum returned to him at the end of the mutually agreed period.

If we assume annual average rate of profit is 10%, this would mean that anyone owning £10,000, employed as capital, and provided it was used with average intelligence under normal conditions, would expect this capital to yield a profit of £1,000. If, however, he gives or transfers this £10,000 to another person who also proposes to use this as capital, then he has given to that person the power to produce a profit of £1,000; a surplus value which would have cost him nothing. Obviously this person does not expect to receive this privilege without making some payments in return. If he decides to pay, say, £250 to the original owner out of the £1,000 profit, for making the £10,000 capital available to him, that part of the profit is called interest. It is a payment made for the use-value of the capital.

The banker makes his money out of the process of indirectly bringing borrower and lender together. The banker borrows money at say 10% and lends it at say 14%, and the difference between the two rates, after deduction of expenses of book-keeping, rent, wages, etc., represents his profit. It should be borne in mind that the rate of profit has its origin in the productive process, or at the point of production: that is, at the place and places where socially useful human energy or labour-power transforms natural wealth and natural forces into commodities. The essence of the capitalist form of exploitation is that the capitalist does not, nor cannot, pay the full amount of the value of that socially-necessary labour, and pays only the value of the living labour as represented by wages, and that is not the same thing.

Capital

The surplus-value is the difference between the value of the product and the value of the producers. Living labour produces a greater value than it takes to reproduce itself, and consequently all surplus- value comes from the exploitation of human labour-power under a wages system. Banks produce nothing. They are really middlemen or custodians of idle capital which must be available as a hoard, as potential money capital waiting to be put to use. “The purely technical labour of paying and receiving money constitutes an employment by itself which necessitates the making of balance, the balancing of accounts, as far as money serves as a means of payment. This labour belongs to the expenses of circulation and does not create any value. It is abbreviated by being organized as a special department of agents who perform this work for the rest of the capitalist class . . (Marx, Capital Vol. Ill, p.373). Their profit is made during the process of circulation, as is the case with all commercial and interest-bearing capital.

The difference between interest-bearing capital and industrial capital, or capital used in the productive process where wage-labour is exploited, is that the owner of money capital who wishes to earn interest on that money throws it into circulation not as capital for himself, but so that others can use it; and consequently gains a profit by this service. The basic difference is that whereas the individual capitalist has his capital locked up in factories, mines, heavy machinery, ships and means of transport and distribution, stocks of materials, or committed to a wages bill, the lender of interest-bearing capital invariably has it returned to him. The main exception to the rule is when certain money has been loaned to the government, in which case the lender has a legal title to a permanent income at a fixed rate of interest.

Banks not Dominant

It is quite true that individual sums of money deposited with banks may be too small to function as capital by themselves, but they can be gathered together into useful masses of capital, and advanced to industrialists and others who use the banking system. In the main, however, the hoard of capital which is deposited with the banks is the residue of unconsumcd profits, or capital which is surplus to immediate requirements.

Contrary to popular belief, banks do not dominate the capitalist system. This mistaken view is due to the fact that wealth is represented by enormous quantities of money. All wealth under capitalism expresses its value in the symbolic money form, but that form tends to conceal the fact that capital exists in the physical implements of the labour, factories, minerals, buildings, ships, etc. and that these are the dominant form of capital; the expansion of capital can only arise from these sources and not from the variety of banking and commercial transactions involving interest-bearing capital. At the present time banks have advanced £8,897 million to the manufacturing industries, including £2,103 million to the engineering and metal industries, £2,247 million to the construction industry, and £1,187 million to food, drink and tobacco. The balance of the loans is mainly divided between chemicals, electrical engineering, shipbuilding, agriculture, and forestry (Financial Statistics, HMSO, Table 53. Oct. 1974).

An estimate of the value of the physical assets of the UK wealth was published recently. The total value of the assets was estimated at £400,000 millions. Of this, the figure of £175,000 million was allocated as representing the value of assets which were directly productive. These are mainly the manufacturing industries referred to above. (Times 16/11/74: “Wealth of the UK” by J. Rothman). The banks’ advances, on the basis of this estimate, show that the banks have a stake in British manufacturing industries of about 5 per cent., and this could hardly be regarded as a dominant interest. In any case, banks do not exist to lend their own money, but other people’s. The total advances made overall by the London Clearing Banks — Barclay’s, Lloyd’s, Midland, National Westminster, Williams & Glyn’s, amount to £21,992 million, but the combined deposit and current accounts (money loaned by depositors to the banks) were £37,374 million (Committee of London Clearing Banks statistical unit, 16th Oct. 74).

Effects of Crises

The Labour Party and the Communist Party mistakenly argue that the slump of the ’thirties was due to the fact that the banks withheld loans from industrialists. A variation of the same argument being used today by politicians of all parties, including the residue of the Left and a number of economists, is that the present high rate of bank interest will dissuade the capitalists from borrowing for fresh investment, thus causing unemployment by reducing production. The assumption behind this rather naive conception of capitalism is that as long as the industrial capitalist can find capital, whether by borrowing from a bank or out of his hoarded resources, he can maintain full employment. The point that they constantly overlook is that the function of capital is to produce profit. This can only become a reality when the commodities produced can be sold.

If for some reason, whether it be that the market is already overloaded and cannot absorb further commodities, or that over-production has already taken place, then production will be scaled down, curtailed, or in some cases halted entirely, and workers will be laid off. In these circumstances there will be little prospect of profit, and as experience has shown a number of capitalists, the smaller ones, go bankrupt. “In the first 9 months of this year, 4,000 Receiving Orders were made ... an increase of 40% over the same period for last year” (Sunday Telegraph City 4, 24 Nov. 74). All the machinations of the banks, either by advancing or retarding credit, whether charging low interest rates or not, cannot alter this. At the moment there is no shortage of cash available for investment, and the banks are only too eager to make capital available to bona-fide capitalists. However, in a failing market there is little incentive to the industrial capitalist to commit himself to paying interest when the prospects of earning surplus-value on the borrowed money are extremely remote. Only these capitalists in dire financial trouble, or those who have to meet certain contracted obligations, will be forced to borrow.

Generally speaking, in periods of crisis, when the capitalist’s position deteriorates and he has to meet payments, he will borrow money almost at any price to stay in business. Invariably the rise in the rate of interest implies a fall in the value of shares and securities. Interest comes out of profit, and in these periods the fact that the capitalist needs to borrow means that his normal source of profit has temporarily dried up, therefore the price of shares has fallen. The present rate of interest, i.e. 14-16 per cent, is the highest for over forty years, and the price of shares the lowest for sixteen years (Financial Times Index 168.5, 23 Nov. 74). There is, of course, the element of inflation written into the present interest rate. Unlike real wealth in the physical sense, loan capital exists as a symbolic paper hoard, and as such is subject to the hazards of inflation. Were the commercial capitalists not to take some preventive action their assets, as they exist purely in the monetary form, would be eroded year by year as a result of inflation. So the price of capital rises as with other prices, and the high interest rate is the protective mechanism the banks etc. use to protect their assets. The Utopian promise of low interest rates, at times when the operation of capitalism is forcing high ones, can be ruled out as a pious hope.

The industrial capitalist does not suffer to any great extent from the ravages of inflation as his assets consist mainly of real wealth, whose relative value rises as the purchasing power of paper currency falls, and he can adjust his prices upwards taking into account the rising cost of production. On the subject of inflation generally, we are reminded of the small boy at the seaside saying to his father “Dad, where does the water go when the tide goes out?”. It had obviously gone elsewhere, but it certainly wasn’t lost, and neither is wealth during periods of inflation.

The rate of interest, or bank rate, itself is not arbitrarily fixed. It fluctuates according to the conditions of the market. Supply and demand cause competition between buyers and sellers, and raises or lowers prices. Competition between borrowers (buyers of capital) and sellers (owners of capital) operating through their banking agents, determines the rate of interest.

The mythology surrounding the power of banking helps those who take the view that this vast institution is so necessary that the prospect of a world without money would be unthinkable. The present world with money is becoming uninhabitable, and that is why we want to establish Socialism.

(To be concluded)

Jim D'Arcy