Monday, December 23, 2019

Cooking the Books: How Long Will it Last? (2011)

The Cooking the Books column from the October 2011 issue of the Socialist Standard

‘Permanent crises do not exist’, Marx once wrote (in Part 2 of Theories of Surplus Value), by which he meant that a check to capital accumulation brought about by overproduction would not be permanent; the slump itself would create the conditions for capital accumulation to resume.

This tells us nothing about how long this might take. That depends on the particular circumstances of each period of slump. Sometimes recovery might be fairly quick. Sometimes it might take longer, as two capitalist bosses have recently reminded us.

Sir Martin Sorrell, chief executive of the advertising agency WPP, has ventured the following opinion as to how long the present slump might last:
  ‘”Going cold turkey and weaning the economy off the stimulus drug is clearly painful and will take some time,” he said. “The nearest historical parallel to the latest recession, which started… in August 2008, seems to be the Great Crash of 1929, which took at least ten years to recover from – a long, hard slog.”‘ (Times, 25 August)
His fellow capitalist Terry Smith, chief executive of the inter-dealer broker Tullet Prebon, went even further back in time. He was reported as saying that:
   ‘the world was heading for an inevitable and necessary recession. “It’s something we have to have,” he said, dismissing governments’ efforts to stimulate the economy as “trying to push a piece of spaghetti”. He likened the present post-crisis era to the Long Depression after the 1873 banking crisis – which, according to some historians, lasted for 23 years. “People are going to realise they are a lot poorer than they used to be,” Mr Smith said.’(Times, 1 August)
While the one capitalist envisages at least ten years of pain (for others) and the other looks forward as “necessary” to people (not him) being “a lot poorer than they used to be”, Times economic journalist, Anatole Kaletsky, is not so brutal. He thinks that this will only happen if the governments of the leading capitalist countries don’t get their act together:
  ‘Sooner or later, the private sector will recover and generate some kind of economic revival. But it will be a long and painful wait if governments and central banks around the world cannot co-operate to avert another recession.’ (Times, 10 August)
Could the present slump really last for a decade or more? It’s not impossible, as this has already happened twice. The present slump has already lasted for three years and GDP is still a long way from what it was at its peak in 2008. So it’s not going to be a short one.

The truth is we don’t know and can’t know. There is a lesson here. The prolonged depression of the 1870s and 1880s led Engels to comment in his preface to the English edition of Capital that was published in 1886:
  ‘The decennial cycle of stagnation, prosperity and crisis, ever recurrent from 1825 to 1867, seems indeed to have run its course; but only to land us in the slough of despond of a permanent and chronic depression.’
He gave as an explanation that ‘while production increases in a geometric, the extension of markets proceeds at best in an arithmetic ration.’ Events proved him wrong on both counts, a warning to socialists not to draw hasty conclusions from the situation in the middle of a slump.

The future course of capitalism is largely unpredictable. All we can say with certainty is that it is an irrational system subject to swings from boom to slump which have nothing to do with the level of actual human needs.

Closing in on the Real Scroungers (2011)

From the October 2011 issue of the Socialist Standard

If there’s one thing workers hate it’s seeing some lazy bugger living it up without getting a proper job. Quite right too. But instead of blaming the rare ‘benefits scrounger’, skiving on the fiddle for 65 quid a week, how about blaming the real lazy buggers, the idle rich who own everything? None of them have got a proper job – in fact life for them is a permanent holiday, and they’re raking in a lot more than 65 quid a week!

And how do they get to be so rich? Where does their money come from? It comes from the work you do, where else? You work so that they can enjoy. You give so that they can receive. You slave your whole life so that they can enjoy fine lifestyles, cars, jets, booze and sex you could never imagine in your wildest dreams – and all at your expense.

Workers like you produce all the useful wealth of the world, but the rich own and control it and you barely get any say at all. And when their politicians and their bankers play one reckless gamble too many, no prizes for guessing who pays the price. You lose your job, your income, maybe your house, maybe even your life. What do they lose? Nothing!

They’ve bought the politicians because they don’t want you to act. And they’ve bought the media because they don’t want you to think. If you vote for their politicians, whether Tory or Labour, you’re letting them win. if you buy into their ‘debates’ you’re letting them win. But if you turn your back on the whole business in disgust, guess what, you’re still letting them win! And as long as they keep winning, you’re going to keep losing.

Of course workers fight back. But it’s no good fighting just against this cut or that war. The global capitalist system is a game that’s rigged to keep the rich in their place and you in yours, so it’s the capitalist system that’s your real enemy. And that takes a different kind of fighting. The kind you do with your mind.

You could start by watching the video Capitalism and Other Kids’ Stuff 

The Right to be Idle (2011)

Book Review from the October 2011 issue of the Socialist Standard

How to be Idle. By Tom Hodgkinson. Penguin.

Here is a handbook for any would-be socialist wondering what life could really be like in a post-capitalist society. Of course it’s not possible to be living a socialist way of life in a non-socialist world, but this book is full of the pleasures to be had from a way of living totally different from the one we see all around us now. Hodgkinson has an insightful grasp of the iniquities of the capitalist system, its stranglehold on working conditions and its tight control of most areas of our lives. He succinctly identifies many of its outstanding features and, with his own particular brand of humour, hands out lots of good advice for the work-weary, enabling us to open our eyes and see more clearly the life we should be living. Are we to live an onerous life created for us by this current controlling system or should we choose how we build and live our own individual lives? Do we live by our rules or theirs?

One clue to Hodgkinson’s outlook on being an idler is found in a description of his routine: he works in the morning, reading and writing; spends the afternoon in the garden chopping logs and suchlike; and gives the evening over to eating, drinking and talking. ‘When work is freely chosen and creative, then it’s not really work at all.’ He claims not to know much about Marx, but having thought that work was at the centre of his philosophy’ he now says he is beginning to understand that Marx’s motivation came from ‘the boredom and misery caused by the Industrial Revolution and by his own dream to replace that system with something more humane.’  

The first step to being idle is to understand our 250 years of indoctrination into the work ethic – a topic Hodgkinson expands on. Understanding that this work ethic is based on guilt enables us to get rid of that guilt and get on with the dreaming. ‘Dreams are not about money – they are about you and about your quality of life and imagination.’  

Co-founder of the ‘Idler’ magazine ( and the Idler Academy, Hodgkinson has spent nearly twenty years attempting (working hard?) to perfect the art of idling. He draws on the work of a host of writers, poets, philosophers and sociologists to support his ideas:  Paul Lafargue, Bertrand Russell, Nietzsche, Tom Paine, Oscar Wilde and Lao Tzu, to name but a few.
Janet Surman

Cleopatra Coming At Ya (2011)

The Proper Gander column from the October 2011 issue of the Socialist Standard
“We’re girlies from the thirties; wash the dishes, scrub the floor.When all of a sudden our hubbies went to war.Did you think we’d shrink in England’s needy hour?You what? ‘Course not, ‘cos we’ve got girl power!”
Imagine that sung to the tune of a girl band’s hit single, and you’ve got a taste of the BBC’s Horrible Histories. The series gives snappy history lessons to kids, told through comedy sketches and pop song pastiches. So, Charles the Second raps about being the “king of bling … who brought back partying”, while “angry chick” Boudicca warns us “don’t dis this miss”. Palaeontology is explained through a Randy Newmanesque song, and Roman Emperors brag about their atrocities in a pastiche of Michael Jackson. Horrible Histories is just downright bizarre when compared to the po-faced way that history used to be taught to children.

The show was adapted from the hugely popular range of books of the same name, and the franchise has grown to include magazines, video games, live shows and even a proposed theme park. It might be churlish to criticise Horrible Histories when it has the laudable goal of making kids interested in history, and which does so in such a lively way. The imagination and energy behind the show can’t be praised enough. The only quibble would be that by focusing on our most colourful ancestors, it reinforces the ‘great man theory’ of history. For a show which aims to breathe new life into the subject, it’s a shame that it has such an outdated perspective. But that somehow doesn’t matter when you can hear Cleopatra sing “famous beauty coming at ya” in the style of Lady Gaga.
Mike Foster

50 Years Ago: Fair Play for Teachers (2011)

The 50 Years Ago column from the October 2011 issue of the Socialist Standard

How many schoolteachers have spent how much time telling how many classes that an Englishman’s word is his bond, and that the road to happiness is paved with honesty and truthfulness?

Anybody who took this seriously must have been shocked by the recent government decisions to ignore the recommendations of the Civil Service Arbitration Tribunal, to restrict the statutory Wage Councils and virtually to destroy the Burnham Committee. And all this from an upstanding Englishman like Mr Selwyn Lloyd!

In fact, the teachers are wasting their time if they are pining for fair play, for there is no such thing in the class war. The Ministry of Education, for example, took over the Burnham Committee’s functions because the government decided that the committee was being too generous to the teachers.

This makes no sense if we are looking for fair play. But in terms of the conflict of interest between any employer and his employees, it makes very good sense indeed. Teachers as a whole, like many civil servants and other white collar workers have always denied the existence of the class struggle. But it exists for them just as much as for the miner and the docker.

That is one of the things Mr. Selwyn Lloyd seems to be doing his best to teach them. Let us hope they turn out to be bright, receptive pupils.

(from News in Review, Socialist Standard, October 1961)

The Douglas Credit Scheme Exposed. (1924)

From the December 1924 issue of the Socialist Standard

A Review of Douglas and Orage's Credit, Power and Democracy.

From the days of Marx and Engels, Socialists have pointed out that the improvements in the instruments of production added to the continual increase in the applications of science and discoveries to industry, were resulting in the means of production out-running the effective demand for and consumption of products. The periodical crises of the nineteenth century that resulted from these facts brought forward various "remedies," many of a financial character. One of the best known of these was "Bimetalism," or the double standard, which we were told would ensure "stability," in spite of the fact that countries that had adopted the scheme were just as unstable, if not more so, than those with a single standard. But the great favourite idea was the one of supplying "cheap" credit to the small producer or capitalist who was being beaten in competition by the large capitalist. As this "credit" could not—for obvious reasons—be obtained through the usual financial channels, the municipality or the State was called upon to supply it.

The Great War brought about an immense acceleration in the improvements of instruments of production and the applications of science to industry, and a great increase in combinations among capitalists reaching in many cases to the Trust stage. While the huge destruction of products by the war continued accompanied by the withdrawal of millions of men from industry, these means of production were kept occupied. When the war ended a twofold increase in the old problem faced the master class. First, the great demand for products for war having ended, large numbers of workers were thrown out of employment and plants were standing idle. Second, the demobilisation of the huge armies threw another immense number of men upon the streets. At first the cry went up for "mass production" of peace commodities, a cry backed up by the Labour leaders, and war factories were converted as speedily as possible to this end. The result was, of course, easy to foretell. After a short feverish "boom" in production of goods for which there was no effective demand, a fearful slump followed with larger numbers than ever thrown out of employment.

Of course, numerous remedies, old and new, were put forward to deal with this enormous problem, and among them our old friends the money and credit cranks turned up again. Some advocated the abolition of the gold standard. Others the inflation of the currency. And, of course, the question of "cheap" credit cropped up once more. The great point common to all these schemes was that they promised to preserve capitalism while offering enormous benefits to the workers. As the facts mentioned above show this is a contradiction in terms. While capitalism lasts the tendency is for further improvements in the means of production and extended application of science to industry. Not only so, but these improvements and applications proceed far faster than the growth in markets, with the result that the markets are filled up in a shorter time than before and unemployment spreads faster and farther as a consequence. There is no escape from this position, nor any solution of the problem while the private ownership of materials and instruments of production remains. At present the capitalist class is "staving off'' the worst effects of the enormous unemployment by extending Unemployment Insurance, inaccurately termed "the dole."

The work now under consideration is one of these attempts to save capitalism from catastrophe by means of "credit" manipulation. This statement may surprise those members of the I.L.P., etc., who have been mystified by its confused exposition into supposing that its object was to provide a scheme to benefit or even to emancipate the workers. In fairness to the author it must be stated that he makes no such claim himself, for while he says capitalism is breaking down, he proposes the scheme to save society from crashing into chaos. The workers are to remain workers and the capitalists are to continue to be capitalists.

Major Douglas takes about 150 pages to expound his scheme, and Mr. A. R. Orage of the New Age kindly adds another 60 pages of commentary to "explain its general meaning." There was certainly great need for this, but it is doubtful if the object has been accomplished. The author exhibits little knowledge of economics and hardly more of industry. His various and confusing uses of the word "credit" makes it difficult for the non-technical reader to follow his argument, while the student of economics is merely irritated at the mis-statements and misunderstandings of capitalism shown in the exposition. Thus on page 6 we are told that the fundamental policy of a capitalistic manufacturing enterprise—
  is to pay its way as a means to the end of maintaining and increasing its financial credit with the banks.
The most elementary student of economics knows that under capitalism the "fundamental policy" of a concern is to produce profits for the capitalists, and its "financial credit" is only one of the factors in that policy. The first sub-heading to chapter I is entitled "The Fallacy of Marxianism." Yet there is not one word of Marx nor a single statement of Marxianism in the whole chapter. According to pages 22 and 26 Major Douglas imagines that all increases of capitalisation consist of bankers' overdrafts, and it actually is made a part of his scheme. This absurd notion leads to the further fallacy that the banker not only decides what shall be produced, but also the prices at which the articles shall be sold (pp. 32 and 46.). "Credit" is used at one time to mean instruments of production, while later on it is defined as "the correct estimate of the capacity of a community with its plant, culture and labour, to deliver goods and services" (p. 101). Financial credit it the issue of money as overdrafts, etc. Mr. Orage explains on page 192 that "consumable goods plus capital goods and imports make up between them the sum of the real credit produced," but on page 197 he defines real credit as given on page 101. Further confusion is shown in dealing with capital. On pages 28-29, we read that "capital represents potential production of ultimate commodities," while on page 34 it is described as "tools, factories, intermediate products." In the same paragraph it is asserted that the prices of ultimate products turned out in a limited time includes the total cost of tools, factories, etc., although the latter may continue to give service for years after. The fact is, of course, that the average life of a machine, tool or factory is taken and its cost split up among the number of articles produced during that life, and therefore the "prices of ultimate products" for any period less than this life will not contain the whole of the capital cost. While it is admitted on page 42 that the "individual entrepreneur" has been superseded by the limited liability company, both Major Douglas and Mr. Orage retain and repeat the superstition that the capitalist "administers" industry.

Numerous other fallacies are scattered throughout the book but we must pass them over to examine the scheme proposed.

Major Douglas avoids numerous difficulties and questions by laying it down that everything economic is "credit." Raw materials, instruments of production, and finished products are all "credit." This credit is the creation equally of consumers and producers because without the consumer the goods produced would be useless. Consumers and producers appear in their joint characters as "members of the public." The first point to be grasped clearly is that the capacity of our means of production is far greater than our actual production. The total capacity to produce, or "the correct estimate of ability to produce and deliver goods as and when and where required " (p. 189) is called our "real" or "national" credit. When giving an illustration, however, some further confusion is introduced by sometimes limiting "real" credit to means of production. Whatever definition may be taken, the object of the scheme is to distribute the margin between the amount of consumable goods produced and the amount of real credit, among the consumers. It is estimated that the present production of real credit is four times greater than the production of consumable goods. The scheme proposes to distribute this difference or margin by regulating the price of consumable commodities in this ratio. That is to say, that consumable goods would be sold at one-fourth the total cost of production, thus distributing to the consumer his share of the national credit at the moment of purchase. For the purpose of illustration the coal industry is taken and the scheme worked out in some detail on that product. Coal besides being a consumable good is also used as a means of production, but, as here, it increases the "capacity to deliver goods and services out of all proportion to the 'cost' of raising it" (p. 119) the manufacturer is already in possession of his margin, or rather more than his margin, and he is to pay over this excess in the form of an increased price—"an agreed percentage"—above the cost of production. The question of coal for export would be decided by our need of coal and the conditions of the world market. We thus have "domestic" coal sold at a quarter its cost of production, "commercial" coal sold at "an agreed percentage" above the cost of production, and "export" coal at a price determined by the world market. It is assumed as probable that the total of above prices will not equal the total cost of production. Then what is to become of the poor coalmine owner? Quite simple. The margin between the total prices and the total costs of production—including interest, dividends, etc.—will be made good to the coalowner by the Government in Treasury notes issued against the National Credit. The larger the amount of National Credit the lower will be the price of domestic coal, and the lower the cost of producing coal, the lower will be the prices of goods into the production of which coal enters. This is where the coal miner is considered. As he is a consumer of numerous articles of the latter kind, it will be to his benefit to produce coal as cheaply as possible so as to lower the prices of the articles he requires. Further, as these articles will be consumable goods their price will be regulated by the ratio between their cost of production and real credit, as in the case of domestic coal. Hence another inducement to the miner to increase real credit, so far as coal forms a part of it by working hard and cheap.

Such is the proposal, and its application to all branches of industry producing consumable goods will, presumably, follow the same line. What would happen in the industries that only produce "intermediate products" as machines, engines, ships, railways, factories, etc. we are left to guess.

The next point is how the scheme is to be brought into operation. The object to be attained is that "the public acquire control of credit-issue and price-making." On page 86 we are told "There is no hope whatever in the hustings." Yet the second clause of the scheme, calls in the Government to enforce the scheme upon industry. And clauses 1—2 and 6 of Part 2 call in the Government to carry out important details.

A producers' bank is to be established in each industry. The Government shall recognise this bank as an integral part' of the industry and representing its credit. It shall ensure its affiliation with the clearing house.

The shareholders of the bank shall be all the persons engaged in the industry, who shall have one vote each at a meeting. The bank as such shall pay no dividend.

The directors (of the industry) shall pay all wages and salaries to the producers' bank in bulk and the bank shall allocate to each employee's account his wage or salary.

Once the bank is in operation all subsequent expenditure on capital account shall be financed jointly by the colliery owners and the producers' bank in the ratio which total dividends bear to salaries and wages. The benefits of such financing done by the producers' bank shall accrue to the depositors.

The capital already invested in the mining properties and plant shall be entitled to a fixed return of, say, 6 per cent., and, together with all fresh capital, shall continue to carry with it all the ordinary privileges of capital administration other than price-fixing.

The Government shall reimburse to the colliery owners the difference between their total costs incurred and their total price received, by means of Treasury notes, such notes being debited, as now, to the National Credit Account.

In the case of a reduction in the costs of working, one-half such reduction shall be dealt with in the National Credit Account, one-quarter shall be credited to the colliery owners, and one-quarter to the producers' bank.

Other clauses deal with the questions of prices, accounts, etc., that need not detain us here.

The first point that sticks out from the scheme, like a column on a plain, is that the capitalist and capitalism are to remain. Public control of credit issue and price-making is to result merely in the capitalist being guaranteed his dividends from the National Credit. "But prices will be lower for all consumers," we will be told, "and therefore the workers will benefit as consumers." The remark is fallacious, for while every producer is a consumer, every consumer is not a producer. Those consumers who live, without producing, on profits—whether in the form of interest or dividends—will, first, have their profits guaranteed to them, and second, their purchasing power enormously increased by the fall in prices. But the worker remains a wage-slave and his wages will be determined by his cost of living, modified by the pressure he may be able to exert through his Trade Union. Mr. Orage claims that under the scheme "the exclusively proletarian Trade Union ceases to be necessary." On the contrary they will be required more than ever for an employer whose dividends are guaranteed is in a far stronger position than one who has to use his dividends in a fight with the workers.

Thus the workers will be called upon to work harder and produce more in order to cheapen consumable goods for the capitalists, while the workers' own position will be worse relatively, and even absolutely. Major Douglas says quite definitely that if the demand for the product falls off "the industry would produce the same amount of real purchasing power for distribution among its members through the agency of dividends with less work, wages and salaries" (page 124, italics ours). In other words the exploitation of the workers would increase under the conditions mentioned.

It may be objected to this that under the scheme every worker in the industry would be a shareholder in the bank, and could draw "dividends" on his portion of the shares the bank holds for credit advanced for capital expansion. Or, as Major Douglas puts it:
  So that as improvements in process displaced men from industry the purchasing power they had helped to create would be available in the form of dividends. (P. 125.)
Under the illustration given in the book the ratio of wages and salaries to dividends is estimated as 9 to 1; so that it £100,000 were required for an extension of the industry, £90,000 would be advanced by the producers' bank and £10,000 by the owners of the industry. But this clause is sheer farce. It may astonish the ignorant Major Douglas and his followers to know that many industries extend their business out of revenue without any fresh capitalisation at all. The big banks have been doing it for years. Even where capitalisation takes place later on, it is usually done to hide large profits. The owners of an industry under this scheme need not ask for a single £1 note from the producers' bank, but could carry out their extensions as "expenses of business" and the amount would be guaranteed by the Government. Even if it suited the owners' interests to call upon the producers' bank, the amount called need never be large enough to balance the owners' shares, while to argue that the few shillings—at most—that would be the share of each of the hundreds of thousands of workers in the industry, would maintain a man out of work, is absurd.

It is thus easy to see that the scheme was drawn up with the object of preserving the economic position of the small capitalist and dividend drawer from the result of what Major Douglas thinks is an impending collapse. The workers are to be deceived into fancying they are capitalists or sharing in the control of industry by a few shares collectively owned through a bank, just as many are misled by the "profit-sharing" schemes in operation in so many industries to-day. But the scheme will fail to find general acceptance because the large capitalists and financiers are not interested in it, nor even in Major Douglas' cry of "chaos coming," while the smaller capitalists do not possess the power to put it into operation.

The portion of the book written by Major Douglas is written in the bombastically ignorant and offensively arrogant style of a youth from a so-called Public School. Mr. Orage, as an older and more experienced propagandist, is far more careful as he sees the necessity of converting or hoodwinking the workers into accepting the scheme before it can be tried.

But its fallacies seem too glaring even for his hopes.

The book is priced at 7s. 6d. The publishers should have made it £7 6s. to prevent any worker who might have made a bit of overtime one week from wasting money upon its purchase.
Jack Fitzgerald

Letter: Currency Illusions. (1922)

Letter to the Editors from the June 1922 issue of the Socialist Standard

To the Editor,

Dear Sir,

I am writing on a somewhat perplexing subject, that of Currency. The views of Noah Ablett which I present here, are in my opinion not Marxian, and I shall be obliged if you will give your comments and endeavour to throw some light on the question.

In Easy Outlines of Economics on pages 49 and 50, under the heading "The Paradox of Paper Money," he states the following theory :—Given a certain amount of commodities the quantity of gold which can remain in circulation is definitely limited; but if gold is replaced by paper, the quantity of paper money which can circulate is not limited. Consequently, if the quantity of money required in circulation is one million sovereigns, and two million pound notes are introduced instead, then the commodity previously valued at £1 will want two one pound notes in exchange; if another million notes are introduced the £1 commodity will want three notes in exchange and so on. Ablett explains this by saying that the laws of currency have been violated. Now I understand him to mean that the prices of commodities are determined by the excessive number of notes in circulation, which to me appears to be a negation of the labour theory of value, on the basis of which alone I had thought prices understandable.

To illustrate this, let us take any two dissimilar commodities; for instance, a pair of boots and a bicycle. We know that both are useful and have shape, weight, and colour, but when we put them in exchange relation we find that none of the above attributes can determine how the value of one corresponds to the value of the other. Examination however shows that they have one thing in common, they are both the products of human labour. This provides the rod with which to measure their value, just as distance is measured with a foot rule.

The use of a universal equivalent, e.g., gold, as a measure of value, enables all commodities to express their value in exchange, in one substance; that is, it gives their price in money terms. This serves instead of expressing the value of each commodity in so many hours of labour time necessary for their production. If in our example a pair of boots cost £l, and a bicycle £8, it is at once seen that these different prices represent different values.

Now, if on the introduction of an excessive issue of notes we have to give £2 and £16 for boots and bicycle, where previously we gave £1 and £8 respectively, what will have happened? One of three things must have taken place. Either (1) the value of the boots and the bicycle have increased; also the value of the sovereign measured by Treasury notes, but the value of boots and bicycle to a far higher degree, or (2) the value of gold has fallen, while the values of the boots and the bicycle are the same, thus necessitating more gold in circulation and a higher price for the boots and the bicycle, or (3) the value of gold is the same, but the value of the boots and bicycle have increased.

While I agree that only a given quantity of gold can circulate, I do not see how an unlimited quantity of notes can remain in circulation. An excess of notes, like an excess of sovereigns over the quantity required for circulating the commodities, would lie idle in the banks.

Anyway, if the high cost of living is a result of the so-called excess of notes in circulation, how is it that the Treasury note will buy as much as the sovereign? Again, in the United States of America, where there is a gold medium, we find the cost of living as high as it is here.

Finally, I am told that Marx in Capital, volume I., page 144, (Kerr), under the heading of "Coins and Symbols of Value," deals with Noah Ablett's point .in this way :—If the quantity of paper money issued be double the amount required, then as a matter of fact, £l would be the money name, not of a quarter of an ounce, but of one-eighth of an ounce of gold. The effect would be the same as if an alteration had taken place in the function of gold as a standard of price. Those values that were previously expressed by the price of £l would now be expressed by the price of £2. I ask for information on this point : What does it all mean?
Yours for Socialism, 
Edward Littler.

In no subject, except perhaps that of religion, is mankind so prone to accept statements without enquiry or examination, as in the matter of money. As Marx says, "the wildest theories" prevail upon the question. An illustration from present circumstances will show how easy it is to mislead people on this matter.

When prices were at their height, shortly after the war, one of the "explanations" put forward by the Capitalist Press, and repeated by Labour College writers and members of the Labour Party, was that the rise in prices was largely due to "the inflation of the currency." In both articles and correspondence in the Socialist Standard, we have pointed out the falsity of this claim, and have shown that, both from the quantity of currency notes issued compared with prices, and from the fact that the "Bradbury" is convertible, no inflation has taken place.

Money as a measure of value and a medium of circulation, is a necessity under a system of commodity production on a large scale. It is the "universal commodity," set aside for the above purposes in a system where private ownership of the means of life is the ruling factor. Hence, the futility of all the schemes that attempt to solve the social evils by juggling with one item, the currency, while leaving the others intact. As money is a result of the private ownership of the means of life, it is obvious that it cannot be abolished until the cause is removed.

The commodity in general use as money, in the western world, is gold. On the average, the amount of gold exchanged for a given commodity is the quantity that has taken the same amount of social labour time to produce as the commodity has taken. To guarantee the unit of money as to quality, weight, etc., it is issued under Government control.

Inside any national boundary where social conditions are fairly stable, it is easy to replace gold with tokens or symbols for purposes of circulation. In fact, in every country with a "gold standard," metal tokens, usually silver or copper, are used for purposes of small change. Paper notes may also be substituted inside a particular country. In general, this paper is issued under one of two systems.

In one system, such as prevails in this country to-day, the notes are "convertible" into gold upon demand at some central institution, like the Bank of England. It is easily seen that, so long as the promise to pay gold holds good—or is believed to hold good—the notes will exchange at their face denomination, and no inflation of such a currency can take place.

Under the second system, the notes are issued as "legal tender," without any promise to redeem them in gold. This is called an "inconvertible" issue. Inside the national boundary, and for home produced commodities, these notes function similarly to the "convertible" ones, and their issue has no particular effect upon prices under normal circumstances.

Outside of the country issuing notes, the position will depend upon certain other factors. First of these is the confidence of the outsiders in the promise to pay gold in the case of the "convertible" notes. Where there is full confidence in this promise, the notes will circulate at their face denomination, less the amount required to cover the cost of carrying gold to the country in question. If this confidence is lacking, the degree in which it falls below "full" will be shown by the rate of exchange.

With "inconvertible" notes, the matter is somewhat more complicated. These notes will be taken at their power to purchase gold or goods in the world's markets. It is at this point that a great confusion of thought exists on currency matters.

An examination will show that the power of purchase possessed by these notes is based upon the resources of the country issuing them. If the notes are issued in such quantities that their face denomination exceeds these resources, their power of purchase abroad will fall in a similar ratio. This brings forward the factor that has confused Mr. Ablett and so many writers in the Capitalist Press—the factor of Credit.

When Mr. Ablett states (p. 50): "Governments may easily inflate the currency by printing pieces of paper," it is a pity he does not state what they could do with this paper when printed. Moreover, he has been refuted in principle, as long ago as 1682, when a certain writer stated :—
  If the wealth of a nation could be decupled by a proclamation, it were strange that such proclamation have not long since been made by our Governors.
This writer was the famous William Petty, and the above quotation from his work is given on p. 73 of Capital. (Sonnenschein.—ed.)

As Mr. Ablett, probably for quite good reasons, fails to give any description of the functioning of a paper currency, a short account may be useful here.

If the government of a country with an inconvertible paper currency requires certain commodities, such as guns or battleships, it may order firms in its own country to build them, or it may order them from abroad. In the latter case, it may offer to pay in its own currency—if necessary, printing the notes for this purpose—but this would not be inflation, as the currency would only be issued to the amount of the prices to be paid. To the firms supplying the commodities, the notes would be useful only so far as they would purchase gold or goods in the world's markets at their face denomination. If the government were to order goods beyond the capacity of the taxes to meet the bill, then their credit would fall, and their notes—as they stood, without printing a single one extra—would fall below their face denomination outside of their own country. The printing of more notes to meet this fall would not alter the situation, or the price level of the notes. It is this extension of credit that the would-be experts confuse as an "inflation" of currency.

The government in question might purchase gold with its notes, to pay the bill, but of course the more usual way is to issue bonds for the amount, on the taxes of the country, and pass these bonds through the banks and financial houses.

The huge increase in demand, accompanied by an enormous extension of credit, that has taken place between governments and firms, during and since the war, has been the great cause of the rise in prices. Such rise has necessitated a large increase in the currency to' meet the demands of business. This obvious fact has been inverted in the minds of the shallow apologists for Capitalism, who claim the rise in prices has been due to "the inflation of the currency."
Jack Fitzgerald