Wednesday, January 9, 2019

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

From the January 1930 issue of the Socialist Standard

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

The first issue was Mr. Wright’s denial of our statement that banks make profit by receiving money on deposit and lending it out at a higher rate of interest than the rate they pay to depositors. Mr. Wright’s "evidence” to support his denial consists of a statement which he attributes to Mr. McKenna. Mr. Wright says :—
  Mr. McKenna denies that banks pay their way by merely borrowing from one person and lending to another. His exact words are: "Every bank loan creates a deposit," which is a denial that banks lend money already deposited, if cheques are used.
In our last issue we invited Mr. Wright to say which part of our statement he considered to be wrong. It will be noticed that he does not attempt to do so, but relies entirely on a mere assertion by Mr. McKenna; an assertion unaccompanied by argument or evidence. Let us therefore repeat the statement :—(a) banks receive money on deposit; (b) they pay interest to depositors; (c) they lend money at interest; (d) the interest they pay is less than the interest they receive. Neither Mr. Wright nor anyone else can deny the accuracy of these four propositions.

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

The late Mr. Walter Leaf, Chairman of the Westminster Bank, in his book "Banking” (Williams & Norgate. 1926) dealt with this question. He wrote as follows:—
  It has indeed been argued that every loan by the banks creates a deposit; that as long as the banks go on increasing their loans, so long will their deposits grow in the same degree, and that thus the banks can be regarded as creating credit. Unfortunately, this theory will not stand confrontation with the facts . . . the course of events in the first half of the year, 1925, gives a decisive answer to this hypothesis.—(P. 102.)
He then gave figures showing that an increase in the amount of loans and advances made by the "Big Five” Joint Stock Banks, from £746 million in January, 1926, to £776 million in June, was accompanied by a decrease in deposits from £1,515 million in January to £1,490 million in June.

The second issue raised by Mr. Wright was his statement (see December "S.S.”) that Marx and Marxians "approve of a gold standard.” We denied this and asked for evidence. Mr. Wright now offers his evidence. He writes:—
  In “Value, Price & Profit,” Marx says, “ Even in England the mechanism (of banking) is less perfect than in Scotland.”—(P. 28.)
   Now Marx unfortunately helps the banker and the rich rather than us. On page 110/111 of 1 Vol. Edition of “ Capital,” he states: “ It is necessary that the quantity of gold be greater than that required as coin. This condition is fulfilled by hoards,” and (P. 110) "this mass of gold must be capable of expansion and contraction.” On page 90 he writes, “The erroneous opinion that it is prices that are determined by the quantity of money . . . this opinion is based on the absurd hypothesis that money is without value when it first circulates.” On page 102, Marx states, “ Money based on credit implies conditions totally unknown to us.”.
These quotations, according to Mr. Wright, show that Marx “approved the gold standard,” and that he “admired our money system,” and that he “defends bankers.”

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

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

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

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

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

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

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

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

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

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