Notes by the Way: The Housing Problem Solved Again. (1933)

The Notes by the Way Column from the December 1933 issue of the Socialist Standard

The Housing Problem Solved Again.

The housing problem has been solved at least half a dozen times since the end of the war. At any rate, each Government in turn has confidently announced that it was in process of being solved. The present Government is relying on its own slum-clearance schemes plus the activities of private builders and the building societies. Sir Paul Latham, who is Conservative M.P. for Scarborough and a member of the London County Council, writing in the Evening Standard (October 23rd, 1933), says that the present rate of dealing with unsatisfactory housing conditions, even the increased rate which is being urged by the Act of the Ministry of Health,

will do little in the lifetime of our generation to solve the housing problem in London.

The Architects' Journal, “After an exceedingly careful and detailed investigation," states that 1,400,000 houses are needed to abolish overcrowding (quoted in Evening Standard, November 17th, 1933).

Other authoritative statements quoted by the Evening Standard (November 17th, 1933) are the following: —

On the basis of the houses condemned in Manchester there must be a million slum dwellings in the country (Sir E. Simon).

Of the million slum dwellings which are estimated to have been in existence in 1918 only 20,000, equivalent to 2%, have been demolished and replaced by new buildings. In the last 60 years only 200,000 slum dwellers have been rehoused.

There are houses which were condemned 40 years ago and are still standing and being used. 

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The Cause of War.

Mr. A. A. Baumann, who writes for the Evening Standard over the initials A. A. B., is known as an old, crusted Conservative, who often shocks a more mealy mouthed generation by his crude statement of his principles. On October 4th, 1933, he dropped a brick by a candid statement about war. He said: —

It is the lust of money, and nothing else, that provokes and protracts modem war . . . the cause of all wars is lust for money.

The late Lord Brentford, when he was plain Mr. Joynson-Hicks, was equally candid. He said: —

We conquered India as the outlet for the goods of Great Britain. We conquered India by the sword, and by the sword we should hold it (quoted by A. G. Gardiner in Daily News, October 17th, 1925).

It is interesting to notice how the Liberal Manchester Guardian managed to convey precisely the same idea as the Tory Joynson-Hicks, but without his bluntness:—

There are two chief reasons why a self-regarding England may hesitate to relax her control over India. . . . The second is that Great Britain finds in India her best market, and that she has a thousand millions of capital invested there. (Manchester Guardian, December 30th, 1929.)

A last comment on the Great War is provided by Mr. A. G. Gardiner. Writing in the Star (October 11th, 1933), he discovers that the Kaiser was really quite a democrat: —

“Even under the Kaiser there was freedom of the Press, freedom of organisation, and a freely elected Parliament. . . ."

Those who have long memories will recall that Mr. Gardiner, in 1914, was Editor of the Daily News, and in that capacity was one of those who backed up the war on the plea of guarding English civil liberties against being reduced by a victorious Germany to the state of suppression supposed to exist in that country.

Now, 15 years after the war to end Prussianism, Mr. Gardiner discovers that Hitlerism is the real evil, and that the Kaiser was not so bad after all.

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Arms and the Workers.

When Communist advocates of armed revolt were asked from what source the workers would obtain arms, dark hints were sometimes thrown out indicating that Russia would oblige. Incredible as it may seem, this has at last been partly realised, for the Russian Government has made a gift of five bombing planes to the neighbouring State, Turkey, as a little memento on the 10th anniversary of the Turkish Republic. (See Daily Herald, October 27th, 1933.)

The promise is, however, only partly fulfilled, for the planes have been given, not to the Turkish workers, but to the capitalist Government. 

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Woman in a Sack.—40 Years of Progress.

Mr. George Lansbury related recently (see Daily Herald, October 23rd) how it was he first became converted to what he calls Socialism. He was making a canvass of the Devons Road area of Bow for the voting register when the door of one house was opened by a poor woman dressed in a sack, in which three holes had been cut for head and arms.

That must be nearly 40 years ago—40 years of reforms introduced by the Liberals, Tories and Labour Party, 40 years which might have been devoted by Mr. Lansbury to working for Socialism but for the fact that he decided instead to follow the line of trying to get “something now."

Yet he admits that, touring the same district recently, he “Was horrified to see the conditions in which the people are still living."

Even the sack is not entirely gone, for two weeks later the Daily Herald published a letter in which a correspondent, who signed himself “ Disillusioned," said that he had just seen “ The huddled form of a woman, covered by a dirty piece of sacking," sleeping out on a seat near Buckingham Palace.

The writer was disillusioned about the “peace" which has followed the war. He could, with equal justification, have been disillusioned about the 40 years spent in vain trying to patch up the evils of capitalism bit by bit. The Rev. William Dick, of Trinity Church, Poplar, says that there are, to his knowledge, hundreds of families in the East End hungry—“They have absolutely no food in the house." He claims that in Poplar alone (where there has long been a Labour Council) “40,000 people are living on the poverty line or are in actual want " (Daily Herald, November 3rd, 1933).

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How Reforms Divide the Workers.

Of all the political errors which have hampered the growth of Socialism there is hardly any so ill-founded as the idea that the way to unite the workers is to get together a list of non-Socialist demands, relating to so-called practical, every-day questions. The truth is that each such demand provokes opposition among one section of the workers while eliciting approval from another.

The Daily Herald (November 4th) provides an example. Mr. Alfred Barnes, Labour ex-M.P. for East Ham South, speaking at Enfield on November 3rd, said: —

“. . . a few years ago the Tories asserted that Socialism meant the bureaucratic State—industry being directed from Whitehall by well-paid officials, and initiative disappearing.

“That was just what they were doing themselves—Electricity Commissioners, London Transport Board, Milk and Bacon Boards. . . .

“All these represented the regulation of industry from Whitehall by well-paid officials in a desperate effort to bolster up capitalism.”

Now quite apart from Mr. Barnes' criticism of these Boards as being an effort to bolster up capitalism, there is the important point that while one body of workers inside the Labour Party accept his view, another body of workers inside the Labour Party are actively pressing for the multiplication of such boards. Indeed, it was Mr. Herbert Morrison who, as Minister of Transport in the Labour Government, introduced the London Passenger Transport Bill.

By one of those curious coincidences that sometimes happen even in the most judiciously sub-edited Labour papers, Mr. Barnes' speech attacking Mr. Herbert Morrison’s London Passenger Transport Board was published in the Daily Herald immediately below the report of a speech by Mr. Morrison.

Edgar Hardcastle

Northern Ireland “Socialist” Party. (1933)

From the December 1933 issue of the Socialist Standard 

A correspondent in Northern Ireland has sent us the Constitution and Rules of an organisation calling itself the "Northern Ireland Socialist Party," and affiliated with the Labour Party.

The Constitution is a mixture of the Constitutions of the Independent Labour Party (up to 1931) and of the Labour Party. It contains, therefore, the usual large and small inaccuracies and unsound notions cherished by those parties.

For example, the object consists of the meaningless phrase that Socialism "is that state of society in which land and capital are communally owned, and the processes of production, distribution and exchange are social functions.”

Even Mr. Maxton had to confess when his attention was drawn to it, that "capital” by its nature cannot be communally owned. Capital is not merely machines and other instruments of production; it is those things in a particular social relationship—the capitalist form of private ownership. When the means of production become the property of society as a whole, they will cease to be means of providing profit for private owners; they will no longer be capital.

Similarly, it is absurd to talk about ”exchange” under Socialism. Exchange only has a place when goods are privately owned. Under Socialism goods will be produced and distributed. There will be no process of exchange.

Again, the Constitution states that the basis of Socialism will be "the organisation of the wage and salary earners.” Actually Socialism involves the abolition of the system of wage-labour altogether. There will be no capitalist class and no working class, and, therefore, no wage and salary earners.

This so-called Socialist Party is merely another attempt to build up in Northern Ireland one of the vote-catching, reformist organisations with which we are familiar in Great Britain, Australia, New Zealand, and elsewhere.

It is not a Socialist Party in anything but name, and is not deserving of working-class support.

P. S.

Letter: Banks and Credit. (1933)

Letter to the Editors from the December 1933 issue of the Socialist Standard

Banks and Credit.

We have received a further letter from Mr. Hobsbaum, whose criticisms were dealt with in the November Socialist Standard: —

Tottenham, N.17.

7/11/33.

Dear Comrade,

That bank deposits result mainly from lending operations is testified to by Mr. McKenna, chairman of the Midland Bank, Ltd., in his book on Post-War Banking Policy. He says, on page 7, “bank loans are the main source of the growth of deposits ”; and indeed, how else would you explain the fact that total deposits in January, 1932, were £1,714 millions, while currency notes were only £400 millions? If deposits were created by depositors placing surplus funds with the banks, how on earth would the total deposits exceed total of notes in existence by such a huge figure? (£1,314 millions.)

In one section of your reply to my letter you both admit and deny that loans by banks increase deposits. You say an advance of £50,000 would result in an increase in total deposits, whereas an overdraft of the same amount would leave deposits unchanged! Why?

I did not wish to imply that cheques were currency. A cheque book handed to a borrower entitled to draw up to £50,000, means that that amount has been credited to him, and the cheques he draws are the instruments by which he transfers that credit or portions thereof to others. Clearly, if he does not utilise the whole of the credit, it does not become cancelled as you suggested, but remains available.

How are prices affected? There are many influences which condition changes in prices, one of which is the variation in the quantity of those units in which prices are expressed. Granting that Mr. McKenna is right in attributing growth of deposits to loans (mainly), since these loans swell the quantity of money (or more precisely its representative forms), then the tendency is for prices to rise, unless, of course, a proportionate increase in the productivity of labour follows. To deny this is to deny the possibility of inflation. Too full lending by banks always carries that danger, and though it increases the indebtedness to the banks, it is not until the banks slow down their lending, i.e., deflate, that the value of that indebtedness is realised, for restrictions on lending make it difficult for borrowers to obtain money, enhance the value of money itself, which is reflected in a tendency for prices to fall, and the bankers find that their loans in terms of goods have risen in value.

Yours fraternally,

R. Hobsbaum.

Reply.

The contradiction which Mr. Hobsbaum thinks he has discovered in the reply given to him in the November issue is the product of his own confused thinking. If he will read again the section which we assume he has in mind, he will see that its purpose was to show the futility of maintaining, in the face of all experience, that the price level is a function of the total deposits shown in the books of the banks. It was pointed out that one method of recording a loan transaction in the books of a bank can produce an effect on that total which is different from the effect produced by another method. If a bank agrees to make an advance of £100, it debits the client immediately with £100 in an advance account and credits him with a similar amount in current account, thereby causing an immediate increase in the total of deposits shown in its books. If, however, it should agree to allow a customer to go debit in his current account, there is no immediate effect on the total. But even if, for the purposes of book-keeping, the total of deposits shown in the books of a bank are increased immediately to record the fact that the bank has agreed to make a loan, this increase does not represent something created by the bank. Until the borrower draws a cheque on, or cash from, the bank the latter, in fact, has lent him nothing and so certainly cannot have created anything. In due course, however, the client will avail himself of his borrowing facilities. Suppose him to draw a cheque for £100 with which he pays a car manufacturer for a car. The latter pays the cheque into his own account, thereby increasing his bank balance by £100. The balance (if any) in the borrower's account is now the same as it was before the bank agreed to make the advance. The total of bank deposits is, therefore, higher by £100 than it was before the bank agreed to grant the loan, but if the car manufacturer was told that the bank had “created" the increase he would quite rightly tell his informant not to be a fool, and would point out that it arose from a car having been produced. It should also be noted that the increase has not occurred in the deposit? of the bank which made the advance; so that the "credit creation" theory comes down to a statement that a bank creates deposits of the other banks, but not for itself! The fact that banks make loans to customers is not inconsistent with the statement that banks must borrow before they can lend, and cannot lend more than a part of what they borrow, for before the bank could undertake to lend £100 it had to have that amount of cash available. Mr. Hobsbaum has not yet brought forward a single argument to prove his claim that a bank actually lends more than it borrows (i.e., than is deposited with it). He seeks to support it with a statement by Mr. McKenna that "bank loans are the main source of the growth of deposits." However objectionable this phrase may be, there is a world of difference between it and Mr. Hobsbaum’s statement that bankers create deposits. Mr. McKenna's views on the subject are not free from confusion, but the following passage taken from the report of the examination of Major Douglas before the MacMillan Committee is quite dear: —

Mr. McKenna: “ Are you quite familiar with the banking system? "

"Well, reasonably, I think."

Mr. McKenna: "I suppose you appreciate its working? Supposing for a moment that you are a borrower and I am a banker. If you come and borrow £10,000 from me you take £10,000 from my cash."

"Not from your cash, do I? "

Mr. McKenna: "From my cash absolutely." ("Minutes of Evidence," Vol. I, Page 301.) 

This is quite a definite statement that the banks can "create" nothing but can only lend what they have. Other bankers, with a larger experience of banking than Mr. McKenna, are equally definite. The late Mr. Walter Leaf, at one time Chairman of the Westminster Bank, wrote: —

The banks can lend no more than they can borrow—in fact not nearly so much. If anyone in the deposit banking system can be called a “creator of credit," it is the depositor;. for the banks are strictly limited in their lending operations by the amount which the depositor thinks fit to leave with them.

("Banking," Home University Library, Page 102.)

If the evidence before the MacMillan Committee of bankers, like Sir W. H. N. Goschen (former Chairman, National Provincial Bank, Ltd.), Mr. J. W. Beaumont Pease (Chairman of Lloyds Bank, Ltd.), Mr. Hyde (Managing Director of the Midland Bank, Ltd.), etc., is studied, it will be seen that they quite certainly regard their lending as controlled by the amount of deposits with them, not vice versa. The last-named quite definitely stated, in reply to a question regarding the granting of advances, "We have to be guided by the position of our deposits " (Vol. I, page 59) while the reply given by Sir W. Goschen to the question, "Have you any views regarding the proportion of your deposits that you should advance on loan and current account?" was, "If the remainder of your assets are very liquid, I think you are entitled to lend a higher proportion of your deposits than you are if you have unliquid assets." (Page 116.)

After reading into Mr. McKenna's statement more than it says, Mr. Hobsbaum goes on to argue in effect that "Banks must create deposits, otherwise how could the total of bank deposits greatly exceed the total amount of currency in circulation?" This is an entirely illogical and fallacious argument. At the date Mr. Hobsbaum mentions, deposits in the Post Office and Trustee Savings Banks totalled about £480 million, or about £80 million more than the total notes as given by Mr. Hobsbaum. Nobody has ever claimed that such banks “create" deposits. If their deposits can exceed the total of currency notes without their creating deposits, why should a similar position in other banks be impossible ? The following illustration may help Mr. Hobsbaum to understand the matter.

Assume Mr. Hobsbaum starts business as a banker on a desert island on which there are only 100 units of currency. To begin with he has 10 units of currency representing the capital of his bank, and nobody has made any deposits with him. Then along comes "A" with the other 90 units of currency on the island and deposits them in Mr. Hobsbaum’s bank, thereby raising the deposits to 90 and the currency holding to 100. Mr. Hobsbaum now lends 95 to "B," who takes currency and pays it to “A” for coconuts. “A” deposits the 95 units of currency with Mr. Hobsbaum, thereby raising the total of deposits to 185, although all the currency in the island was only 100. If the process is repeated, deposits would rise to 280, but Mr. Hobsbaum, the banker, would not have lent more than he borrowed, he would not have “created" any credit or deposits, and he would have received currency in respect of all the deposits, despite the fact that the island never held as much currency as he has deposits. On a larger scale this is what happens in the banking system of the real world. So much for the power of banks to “create” deposits!

Mr. Hobsbaum has abandoned, or not sought to defend, the other claims made in his first letter. Faced with the figures which show that in recent years prices have not moved with, but in the opposite direction from deposits, he falls back on the implied defence that if prices fail to rise when deposits are increasing it is due to an increase in the productivity of labour. The ridiculousness of this assertion is soon apparent if the figures are examined. Thus, from May, 1920, to January, 1922, deposits rose by 8%, so that on Mr. Hobsbaum’s theory, prices should have also risen by 8%, unless labour became more productive. In fact, prices fell over this period by 50, which, on Mr. Hobsbaum*s theory, meant that labour more than doubled its productivity. Does he really believe this?

Another correspondent, Mr. Wright, sends us a letter in which he expresses the belief that “A Socialist State" could be founded upon £2,000 millions of money, and urges us to adopt a policy of gaining control of the banks so as to be able to use them to create this amount of money to “finance Socialism." Mr. Wright, like Mr. Hobsbaum, has still to prove that banks create money, deposits, or anything else, out of nothing.

B. S.