Cooking the Books: From Workshop to Counting House (2005)

The Cooking the Books column from the June 2005 issue of the Socialist Standard

The demise of Rover – the much-lauded competition that is built-in to capitalism means there are losers as well as winners – has revived the debate about the decline of manufacturing industry in Britain. Matthew Parris, the former Tory MP turned journalist, recalled a debate he had last year with fellow Times columnist Anatole Kaletsky: “I asked whether it really was true that  trade balance didn’t matter, and manufacturing things didn’t matter, any more. Anatole argued that where in the world an item is manufactured is unimportant as long as we get the profits. I think Anatole won that debate” (Times, 9 April).

The “we” in question of course is not the wage and salary working class living and working in Britain but the British capitalist class. And, from their point of view, Kaletsky was right: all a particular group of capitalists need be interested is the amount of profits they can rake in. But it is still true that without manufacturing – somewhere in the world – there would be no profits to rake in. The original source of all profits is the surplus value produced in that section of the economy that changes the form of material things, and which includes, besides manufacturing proper, agriculture, mining, building and transportation .

Capital invested in other activities such as banking, insurance, buying and selling, advertising, consultancy and the like, which do not produce anything (despite them calling themselves an “industry”), gets a share of the surplus value produced in the productive sector. Basically, rather than productive capitalists investing a part of their capital in financing these activities essential to capitalism as they would otherwise have to, a situation has evolved whereby these activities have been hived off, as it were, to separate capitalists who specialise in them.

The price the productive capitalists have to pay for not having to be their own bankers, insurers, sellers, advertisers, etc is that they have to share some of their surplus value with the capitalists with money invested in these activities. This comes about, as Marx explained in the first part of Volume III of Capital, more or less automatically through competition amongst capitals to obtain the best rate of profit resulting in all capitals tending to receive the same rate irrespective of whether the activity in question is directly productive of surplus value or not.

This is the sense in which Kaletsky is right when he said that “where in the world an item is manufactured is unimportant as long as we get the profits”. The dominant section of the British capitalist class and its stewards, the government of the day, has decided to go along with the economic trend for the manufacture of certain goods to be transferred, because of lower production costs, to Asia or South America, and to get its share of the surplus value produced there by concentrating on providing services at world level that are essential to capitalism but intrinsically non-productive, mainly in the fields of banking and consultancy. It’s a sign that we are already living in one world from an economic point of view.

The decline of manufacturing in Britain means a change in the composition of the working class here but it does not mean that those working in the non-productive sector of the economy are not exploited. They are, to the extent that they are paid less than the share of world surplus value their work procures for their employers.

That Sinking Feeling (1998)

From the January 1998 issue of the Socialist Standard

If there is one thing that the current British Chancellor and his predecessor are agreed about it is that Britain currently enjoys the most favourable economic conditions witnessed in decades. Around the wider developed world, economists and politicians of various kinds have been speaking of the dawn of a new golden age, based on an economic and cultural paradigm shift never previously encountered.

Anatole Kaletsky in the Times has summed up this prevailing economic orthodoxy well:

  “. . . new paradigm theories can be divided into two quite separate kinds. One type asserts that the long-term sustainable rate of growth in the American (or British or world) economy has increased because of globalisation, technology or some other exogenous boom. The other type claims nothing about the trend rate of growth, but merely says that economies can now operate at lower levels of unemployment than in the 1970s and 1980s without inflation getting out of control” (12 September)

The first of these theories is the most exciting, but at the same time, the one that is most obviously and demonstrably false. No-one who has examined growth statistics for the major capitalist states since World War Two could possibly think otherwise unless their job was to provide propaganda and not dispassionate analysis. Growth statistics for the world’s oldest capitalist state–Britain–and for the world’s largest economy–America–give the lie to this misleading propaganda straight-away, demonstrating a post-war trend observable in most other major states too. The long-term growth rate for the major world economies has not been rising–it has been falling fairly steadily. This is illustrated in the table below:

In what are now the European Union countries annual GDP growth averaged nearly 5 percent in the 1960s. During both the 1970s and 80s this had fallen to under 2.5 percent. This decade it has so far been barely 1.5 percent.

Much has been said about the now dilapidated state of many of the so-called “tiger economies” in recent weeks. Falling growth rates in Japan are a good illustration of the underlying difficulties that are now rising to the surface in the entire Pacific Rim. Japan’s heady 1960s annual growth rate of 10 percent had declined by the 70s and 80s to the 3-4 percent range. Average annual growth so far in the 1990s is under 1.5 percent.

The world growth rate has also fallen, though not by as much as in the major economies because of the comparatively sharp growth of some the remaining Asian states and a handful of developing states in Africa and South America. It is these states which have been able to undercut the major economic powers in the production and sale of many primary and manufacturing products, largely because of the subsistence wages paid to the working class there.

Prices

The idea that the major economic powers can now operate at lower levels of unemployment before inflation takes off is also incorrect. It is in part based on the erroneous belief–introduced into bourgeois economics by the “Phillips curve” analysis beloved of economics students everywhere–that somehow a trade-off exists in the capitalist economy between unemployment and price rises. This was in actual fact an analysis discredited in the 1970s and which is no more relevant now than then.

Persistent price rises in the capitalist economy occur when the government pushes more currency into circulation than is warranted by increases in real growth. In other words, more token representatives of value are pushed into circulation than new value actually produced. Under the influence of John Maynard Keynes economists and governments across much of the world since the Second World War have persistently issued an excess of currency, leading to rising prices year on year. Coupled with the massive oil price hikes this led to particularly large price rises in the 1970s and 80s. Price rises in the 1990s have tended to be more modest on average. This has principally been a product of the world slump and the massive indebtedness still overhanging the world economy, which has acted as a drag on accumulation. If it was not for the continuing process of currency inflation going on in countries like Britain, prices would actually have been falling not continuing to rise slowly. In effect, currency inflation has outweighed what would have been the negative effect on prices during the slump. (A similar process took place during and after the 1974-5 slump and then 1980-2). This time, the amount of unliquidated debt is so huge that the overall price level, relatively, has only crawled upwards, while some prices such as in the property market, have fallen significantly.

Unemployment rates

The view that unemployment rates are somehow lower now at each peak of the economic cycle is pure fantasy. Unemployment across the EU is currently running at about ten percent. This is not historically a low figure. Compared to the 1950s and 60s it is positively astronomical. The countries most successful at reducing unemployment have co-incidentally been the countries which have made the most significant changes to the way in which the unemployment total is calculated. These are the United States and the UK. After 30 changes in the UK alone since the mid 1980s the claimant count is now significantly lower than the unemployment total otherwise would have been. The official unemployment figure is just under 1.5 million at the time of writing, though the real total is commonly estimated as being 150,000-300,000 higher (some put the true figure much higher still). To put this into perspective, when unemployment rose to over 1 million for the first time in the UK in the post-war period, during the early 1970s, there were mass demonstrations across the country.

Huge numbers of the jobs actually created in countries like the US and UK have been part-time or short-term contract jobs. In the US in particular, millions of part-time jobs have been created while the take-home wages of huge swathes of the American working class have declined even on their levels of 20-5 years ago.

Paper tiger

There has, of course, at least until recently, been the dynamism of the so-called “tiger economies” in the Far East for the supporters of capitalism to point at. They do not seem to be pointing in their direction at the moment, however. The growth of these economies has been very real and much that has been said about them is true–or at least was. The problem is that no capitalist state can seriously expect spectacular, or even uninterrupted growth, in anything like the long-term. The history of the capitalist system demonstrates that a time always comes when the drive to expand production and profit in some sectors of the economy comes up against the limits of the market at any one time. The difficulties created by excessive and disproportionate growth in these sectors can be papered over for a time by the extension of credit. This is stored up capital gleaned by the financial institutions from previous circuits of production and which can then be redistributed and used as an advance against the sale of future commodities. It is, in effect, an advance of stored-up value against the anticipated production of new value.

The advance of credit mostly keeps capitalism running smoothly and speeds up greatly its circuits of production. The problem arises when–as always happens as the boom reaches its peak–credit is being advanced effectively as a life-belt to those enterprises in serious difficulties because they have produced too much for their available market. The more credit is advanced, and the longer this process continues, the more serious the necessary “correction” will have to be. If financial institutions keep extending credit to unprofitable enterprises, they will all go under, not just the latter. This is what has happened in the Far East.

The bubble burst initially in the regions strongest economy, Japan, at the turn of the decade where the stock market fell by over 60 percent, property prices collapsed and where short-term interest rates were reduced to 0.5 percent in a futile attempt to stimulate economic activity. But still the banks and brokerage firms ploughed money into essentially unprofitable schemes and enterprises. The result has been, after a period of apparent abatement, bank collapses and failures among the brokerage houses. Japan’s fourth largest brokerage house, Yamaichi, recently collapsed with liabilities estimated at $24 billion, followed by Japan’s seventh largest bank. Several other banks and securities firms are reported to be in severe financial trouble.

The same difficulties that have beset Japan have spread alarmingly among the other Far East economies, particularly Malaysia, Thailand, Kong Kong, and worst of all, South Korea. The financial bubble in these states, which has been an integral part of the so-called “Asian Way” of economic development, is now exacting its revenge. Legendary Morgan Stanley investment strategist Barton Biggs has summed up the situation beautifully:

  “The heralded Asian Way is something of a joke. The Asian Way, it turns out, has a lot less to do with education, hard work and family values and a lot more to do with pegging your currency, borrowing a lot of money in dollars, plowing it helter-skelter into relatively unproductive capital investment and real estate projects of dubious merit owned by the elite, corrupting your politicians by involving them in the stock market bubble and assuming everyone is going to live happily ever after” (Guardian, 24 October).

Ridiculously overvalued stock markets in Asia and in many other parts of the world are a reflection of the fact that financial speculation and growth in stock market investment bears no real relation to value production in the real economy. The stock markets may have boomed, but the productive economy has not entered into some golden new period, has not experienced a ‘paradigm shift’ and has not been able to supersede the boom-slump cycle.

At some time the world financial bubble will burst, bringing stock prices back into line with the slothful realities of the productive sphere of the economy. Stock markets growing at 20 or 30 percent annually when growth is barely two or three percent (and real manufacturing growth less still) is simply not something that is going to last. Sooner or later–as on all previous occasions–there will be a correction. Whether the situation in the Far East will be the catalyst for this process or not is impossible to say. What can be said with a fair degree of certainty, however, is that the more the fault lines are papered over and hidden, the greater the eventual damage will be.

Dave Perrin

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.

All in it together? (2010)

From the December 2010 issue of the Socialist Standard

Some are less in it than others.
The gap between those at the top of society, and the rest of us, is actually getting bigger. That applies throughout capitalism, and it is the case even in Britain, after thirteen years of Labour Governments – which promised to run capitalism in the interests of all of us. This inequality has even got Conservatives worried. So much so that sometimes you see an article in The London Times, the house-journal of British capitalism, which make you wonder if some disgruntled sub-editor has put it in as a joke. Michael Portillo, former Tory M.P. and indeed former aspirant for the job of Tory leader, has just made a speech about the way things are going. Anatole Kaletsky, the London Times economics expert (who, clearly, is very far from being a Socialist), complained that the inequality “is putting democracy in danger” (London Times, 10 November). Portillo (wrote Kaletsky) denounced the “greedy, irresponsible behaviour of Britain’s wealthy financial and managerial elite”.

“The chief executives of middle-sized financial companies [who of course are also large shareholders] receive average salaries of £2 million and continue to vote themselves pay increases, at a time when ordinary workers face cuts in their pay and pensions. Such disparities could prove incompatible with democracy, according to Mr Portillo.”

Reports from other countries suggest that this is a general trend in capitalism throughout the world. What about America, self-appointed world’s policeman, raising the banner of freedom and a fair society across the globe?

“Another shocking statistic quoted by Mr Portillo: inequality has now become so extreme that America’s 74 richest citizens receive more income than the bottom 19 million combined.”

David Cameron says “we are all in this together”. As usual, some are more in it than others. And what very many people are in, up to the neck, is the muck and slime at the bottom of society.

Why do Portillo and Kaletsky, both enthusiastic supporters of capitalism, fear this trend in society? It’s simple. In the end, if you take a typical worker, whose head has been filled since he was born with propaganda that the capitalist system is the best system of society ever devised by man, and is indeed the only possible system – if you take him and kick him hard enough, finally even he will turn round and kick you back. If there were a lot of extremely poor people, then a well-to-do person could hardly walk down the street without the fear of a physical attack by someone demanding money.

There is a story that in the days of Charles II a settler in the American colonies returned to London for a visit, and he brought two Native Americans with him, to impress them with the flaunting displays of wealth in the capital city. When the visit ended, he proudly asked them that they thought of the ostentatious spectacle. They were greatly puzzled. “Why”, they asked, “don’t the poor people kill all the rich people?” Clearly there were a lot more poor than rich: and since the majority could easily overcome a small minority, why did they not take such an obvious step to put an end to such manifest unfairness? The answer, of course, is the unremitting barrage of propaganda in all “civilized” societies to persuade everyone that rich people are rich because they are in some way better than the rest of us. (The Native Americans had not been subject to that kind of bombardment.)

Why is this making some supporters of capitalism unhappy? It’s simple. If you refuse benefits to someone who “refuses to take a job”, what will he do? Lie down somewhere out of sight and quietly die? Or try and knock some richer people over the head and grab their money?

If you go to South Africa, you can see what might happen. Because of government policies during the half century after the war, when apartheid regimes kept down the great majority of South Africans who didn’t have a white skin, and refused them any worthwhile education, and any equal chance in the job market with whites, not to mention any reasonable place to live, etc – because of all that there is a great gap between the richest and the poorest. Well-to-do South Africans travel along the well-constructed broad roads in their expensive air-conditioned cars, passing black South Africans who are walking along the hard shoulder, and who live often in shacks without water on tap, or electricity, or mains sewage. The result is a very high crime rate. Poor people see wealth all round them, and not surprisingly want to grab a bit for themselves.

South Africa has one of the highest homicide rates per capita, if not the highest, in the world. So you pass large houses surrounded by high brick walls, with prominent notices outside – “Armed Response”: which means that if you dare to offer any threat to the owners of the house (e.g. if you try and pinch anything), they will use guns to try and kill you. If you are driving a car in Johannesburg, you are very unwise to stop at a red light, because this will be an open invitation to someone holding a gun to step into the car, and order you out. The car is then driven off, and you can walk – carjacking, it’s called. An acquaintance of mine, who was an ambulance driver, actually lost his ambulance in just that way – ambulancejacking. Now, of course, apartheid is overthrown, and everyone can vote, but the main change so far is that the new successful black politicians, and their relatives and friends, are all suddenly (surprise, surprise) much richer; so some thousands of black people are now driving expensive air-conditioned cars, and living in houses protected by “Armed Response”. But there is still an enormous discrepancy in wealth between the richest and the poorest, along with the high crime rates which always accompany such inequality.

So the theory among some members or supporters of the upper class is that it may be cheaper in the long run, and certainly more pleasant, to keep social benefits at a level which means that rich people have less fear of being robbed in a personal attack, or of having their houses burgled.

Alwyn Edgar

Cooking the Books: Zero-sum games (2010)

The Cooking the Books column from the December 2010 issue of the Socialist Standard

  “Currency trading,” wrote Anatole Kaletsky in the (London) Times (8 September), “is undoubtedly a zero-sum game for the world as a whole, in the sense that every currency trader’s profit represents a cost borne by some other trader, business or consumer. Despite this, however, currency trading can be hugely profitable for Britain, if most of the profits are made in the City of London and most of the losses are borne in some other country”.

This is very true but it doesn’t just apply to currency trading. It applies to all profit-chasing.

The source of all profits is surplus value arising from the unpaid labour of productive wage and salary workers. Although this surplus value is created in production it is only “realised” (i.e. converted into money) on the market, but each capitalist firm does not realise the surplus value produced by its own workers. If this were the case then labour-intensive industries would tend to be the most profitable. In fact, however, they are no more profitable than industries which employ more machinery and less labour.

The tendency under capitalism is for the same amount of capital to realise the same profit. This comes about through an averaging of the rate of profit, the average being the total amount of surplus value produced divided by the total amount of capital invested.

As Marx explained in Volume 3 of Capital:

“Thus although the capitalists in the different spheres of production get back on the sale of their commodities the capital values consumed to produce them, they do not secure the surplus-value and hence profit that is produced in their own sphere in connection with the production of these commodities.” (Chapter 9).

In effect the whole capitalist class exploits the whole working class:

“The basic notion in this connection is that of average profit itself, the idea that capitals of equal size must yield equal profits in the same period of time. This is based in turn on the notion that capital in each sphere of production has to participate according to its size in the total surplus value extorted from the workers by the total social capital; or that each particular capital should be viewed simply as a fragment of the total capital and each capitalist in fact as a shareholder in the whole social enterprise, partaking in the overall profit in proportion to the size of his share of capital.” (chapter 12).

This is why profit-chasing by all capitalist firms is a zero-sum game. The total amount of profits that can be realised by all firms together is limited by the total amount of surplus value that has been produced. Each capitalist firm – more accurately, each block of capital – strives to secure the maximum amount of profit it can. It is in fact through this that the averaging of the rate of profit comes about as capital leaves low-profit fields to flow into fields with higher profits.

The more profit one firm realises the less there is for the others. This means that firms are competing not only against other firms in the same field of activity but against all other firms. It’s a competitive struggle for profits amongst all blocks of capital.

On the world level, as Kaletsky pointed out about currency trading, the more profit the capitalist firms in one country can secure the less there is for the capitalist firms of other countries. Which is why international rivalry and downward pressures to be “competitive” are built-in to capitalism and why world cooperation for the common good is ruled out.

Helicopter Ben and the money supply (2009)

From the March 2009 issue of the Socialist Standard

Governments now call it “quantitative easing”. It used to be simply called inflating the currency. And it’s now official policy.

In the 1930s Keynes suggested burying banknotes and then paying people to dig them up. Ben Bernanke, current chairman of the US Federal Reserve, is said to have come up with a modern version:

“The most radical option is to send the newly-minted money directly to the US Government. It could then be handed out to citizens via tax relief. This form of monetary expansion would be equivalent to printing money and dropping it from helicopters for people to pick up – a graphically extreme proposal that earned the Fed chairman, Ben Bernanke, his nickname of Helicopter Ben” (Times, 18 December).

The present crisis is confirming some of the truths of Marxian economics. First, that banks cannot “create credit” out of nothing. Second, that the rise in the general price level, popularly but inaccurately called “inflation”, is caused by the government’s bank, the central bank, issuing more currency than the economy requires for its various transactions such as buying things, settling debts and paying taxes.

Inflation, which up to now politicians have been telling us is the main economic problem to avoid, is now being seen as one supposed way out of the deepening depression. After years of propaganda blaming inflation on wage increases, they now want the general price level to rise, and know how to bring this about – not by raising wages of course but by the government over-issuing the currency by printing more and more of it.

Seven years ago, when he was still only a governor of the New York Federal Reserve Bank, Bernanke explained how, by overissuing a paper currency that was not convertible on demand into a pre-fixed amount of gold, governments could create “positive inflation”:

“[U]nder a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero. ( . . .) US dollars have value only to the extent that they are strictly limited in supply. But the US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of US dollars in circulation, or even by credibly threatening to do so, the US government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." (Talk “Deflation : Making Sure It Doesn’t Happen Here”, 21 November 2002 at (http://www.federalreserve.gov/boarddocs/speeches/)

What Bernanke describes here is simply inflating the currency, even though it’s now being called “quantitative easing”. Marx had already explained this 150 years ago in his A Critique of Political Economy, where he discussed what would happen if a government overissued what Bernanke calls “fiat money”:

“Let us assume that £14 million is the amount of gold required for the circulation of commodities and that the State throws 210 million notes each called £1 into circulation: these 210 million would then stand for total of gold worth £14 million. The effect would be the same as if the notes issued by the State were to represent a metal whose value was one-fifteenth that of gold or that each note was intended to represent one-fifteenth of the previous weight of gold. This would have changed nothing but the nomenclature of the standard of prices, which is of course purely conventional, quite irrespective of whether it is brought about directly by a change in the monetary standard or indirectly by an increase in the number of paper notes issued in accordance with a new lower standard. As the name pound-sterling would now indicate one-fifteenth of the previous quantity of gold, all commodity-prices would be fifteen times higher and 210 million pound notes would now be indeed just as necessary as 14 million had previously been. The decrease in the quantity of gold which each individual token of value represented would be proportional to the increased aggregate value of these tokens. The rise in prices would be merely a reaction of the process of circulation, which forcibly placed the token of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation.”

This artificial bloating of monetary demand is what inflation, strictly speaking, means. Governments now want to consciously use this process to exert an upward pressure on the general price level to try to stop it falling as it would otherwise tend to in a deep recession. It might be thought, in view of all the publicity put out by supermarkets and chain stores about how they have all slashed prices more than their rivals, that falling prices would be a good thing. But this is not how the government sees it. They think that this would make the current depression worse, as they want to encourage people to spend whereas, with falling prices, people might postpone spending in the hope of prices falling even further.

Inflating the currency to try to stop money prices from falling is now the official policy of both the government and the Bank of England. That this is what is happening is being openly admitted. For instance, the financial journalist, Anatole Kaletsky, wrote in the Times (18 December) that “today the threat is deflation, not inflation” so that “central banks are right to flood the world economy with newly printed money – so long as they know when to stop”, conceding that “a central bank that prints money to finance large-scale government spending is, in theory, moving into territory occupied by Zimbabwe and Weimar Germany”.

In a previous article (15 December) he had attempted a more sophisticated analysis, introducing the concepts of “monetary base” and “money multiplier”. He gave the definition of the first as:

“banknotes issued by the Bank of England plus coins from the Royal Mint plus private bankers’ deposits at the Bank of England and therefore available at any time for conversion into banknotes with literally zero risk”.

This is rather more than the currency as it includes deposits from banks at the Bank of England, which do not circulate and so do not have an effect on the general price level. Nevertheless, the currency makes up over half of this “base money”.

According to Kaletsky, this figure is currently around £100 billion. He then introduces what he calls “broad money” defined as “all private sector bank and building society deposits, money market funds and so on”. Reverting to the language of before the credit crunch when it was thought that banks would never have any problem to lend money, Kaletsky refers to this “broad money” as being “created by private banks”. This is highly misleading in that what the banks lend out has not been “created” by them but is the result of them acquiring other people’s money in one way or another. It reflects what banks do, which is to recycle the purchasing power of those who don’t want to use it immediately. He does, however, admit that “the moment there is an iota of doubt, bank deposits cease to be true money, as demonstrated by the queues outside Northern Rock last year”.

Whether it is “true” money or not (and Marxists would say that it is not) the figure for “broad money” is some £1,900 billion. So, in Britain, the “money multiplier” is 19. Kaletsky notes that in other countries it is much less. In Japan it is 11, in the Eurozone 7.5 and in the US 5.3. He says that this means that Britain can safely afford to issue more “base money” and suggests a doubling to a further £100 billion, so reducing the “money multiplier” to about 10.

If all of this additional “base money” were to be in the form of notes and coin this would amount to a massive inflation of the currency, bringing it way above what the economy needs for its transactions (especially as, in a depression, the number of these will fall). Kaletsky envisages this to a certain extent as he mentions the Bank of England buying government bonds or even providing money directly to the government to spend, both of which would involve printing more currency .

In fact. facilitating the buying of government bonds with new money has been the way that successive governments have, intentionally or not, inflated the currency in Britain since 1940 and why the general price level has risen continuously since then. Kaletsky explained in his 18 December article how this worked in the US. The Federal Reserve Bank, as the central bank, will buy government bonds and

“will pay for them simply by making electronic transfers into the bank accounts of the people or institutions selling. For every $1 million worth of assets bought, the Fed will transfer $1 million of new money into private bank accounts. This ‘money’ will come literally out of nowhere. It will simply be an electronic blip on the Fed's computer. Because electronic deposits at the Fed are the ultimate form of legal tender in the US system, the result will be that the US economy has $1 million more money.”

When these banks draw on the extra amount in their accounts extra currency is brought into circulation which, if it more than is required by the economy (as it has been), leads to the rise in general price level popularly called inflation.

Kaletsky had already explained in a previous article (11 December) where the money to try to spend a way out of the depression was likely to come from:

“For the next year or two, the money for the British fiscal stimulus will come from the Bank of England's printing works in Dedham. In the case of the far bigger job-creation schemes and industry bailouts planned by Barack Obama, the money will come from the Washington and Fort Worth facilities of the US Bureau of Engraving and Printing, an institution rejoicing in the most succinctly descriptive internet address I have encountered: www.moneyfactory.gov.”

Burying bank notes and digging them up again. Dropping them from helicopters for people to pick up. In fact even using printed coloured pieces of paper to have access to what you need. These are crackpot ideas compared with the simple socialist proposition to produce things for use not for sale at a profit, so ending the need to use money at all.

Adam Buick

Cooking The Books: Have the Tories gone Marxist? (2009)

The Cooking The Books column from the February 2009 issue of the Socialist Standard

Since the onset of the present crisis, as we have noted, Marx has been mentioned many times in the papers. One of the oddest must be a photo in the (London) Times (8 January) of the Tory Leader, David Cameron, with the caption “David Cameron has lined up with Marx and the Church of England”.

The photo was used to illustrate an article by the paper’s financial guru, Anatole Kaletsky, in which he argued that the way to stop the depression getting deeper was to follow Keynes’s advice and encourage people to spend more. But how can David Cameron, the Church of England and Marx be placed in the same boat? Because, says Kaletsky, all three don’t think much of the government’s policy of trying to spend its way out of the crisis.

True, they don’t, but for quite different reasons.

The Church doesn’t like people pursuing the acquisition of material things and so is opposed to the government encouraging people to spend more on this. In fact, they probably want us all to consume less.

David Cameron claims to believe that the policy won’t work. He wants a different policy to be pursued, but only with him as Prime Minister.

Marxists, like Marx, are not interested in proposing policies for governments to pursue. We say that, whatever the policy they pursue, they cannot make capitalism work in the interest of the majority class of wage and salary workers. We add that, in any event, once a crisis develops, an increase in government and personal spending cannot make it any shorter than it is otherwise going to be.

Crises only come to an end when stocks have been cleared, inefficient businesses eliminated, asset values have depreciated and real wages and interest rates fallen, so restoring the rate of profit, the incentive to produce (and the brake on producing) under capitalism.

Printing more money (or, what amounts to the same thing, the government borrowing money from itself), as an inflation of the currency, is likely to lead simply to rising prices while production continues to stagnate. “Stagflation”, as it has been called.

Cameron – of course – does not accept this. He has a different explanation for the crisis: that it was caused by the policies of the Labour government, and so can be ended by a new government pursuing a different policy. This is just the stuff of the game of parliamentary politics, based on the illusion that governments can, and do, control the way the economy works. But they don’t.

If Brown is being blamed for causing the crisis it’s partly his own fault. When the economy was expanding he was keen to claim the credit. He even made the ridiculous boast that he had ended the boom-slump cycle. Now that things have gone wrong, he’s blaming the international economic situation. This is true, but he – and politicians generally – can’t have it both ways. They can’t claim credit for the good times and blame world events for the bad times. Actually, it’s the uncontrollable world economy that’s responsible for both.

We hold no brief for Brown, but the Tories’s claim that the present crisis is made in Britain, that it’s “Gordon Brown’s crisis”, is not true. It’s not the government’s fault. It’s capitalism’s. It’s capitalism’s crisis, and the answer is not to change the government but to get rid of capitalism.

The end of capitalism - or just of "neo-liberalism"?

From the Socialism Or Your Money Back blog

In the 1980s, with Reagan in America and Thatcher in Britain, it became acceptable amongst the system’s supporters to use the word "capitalism" again. Before that if you used it you risked being called a "communist". But by capitalism they meant the ideology of free-market, private-enterprise capitalism, a capitalism with much less state intervention and regulation than up till then.

The supporters of the old form of mixed private/state capitalism were appalled. They denounced the new form taken by capitalism as "neo-liberalism", using the term "liberal" in its 19th century sense when the Manchester cotton lords who wanted free trade were supporters of the old Liberal Party.

Both supporters and opponents of free-market capitalism now seem agreed that the current financial and economic crisis represents a turning point. Even the free-marketeers recognise this, though they don't like it. "An historic turning point has been reached", wrote Anatole Kaletsky in the London Times (12 September) following the State take-over of the US mortgage companies, Freddie Mac and Fannie Mae, "the West is ditching its faith in free markets and private enterprise".

The decision of the US State to let Lehman's go bankrupt revived their spirits a little. "What critics are too hasty to see as capitalism in crisis is, in fact, capitalism in action", the London Times editorialised on 17 September, explaining: "It might be brutal and unforgiving but this is how capitalism works. The market ensures that those who make mistakes are accountable for them". But that was before the US State intervened to try to save AIG, the insurance giant that sponsors Manchester United. Collapse of the stout party.

On the same day the Guardian asked a number of well-known, self-proclaimed "anti-capitalists" -- among them Daniel Cohn-Bendit, Ken Livingstone, Tony Benn, George Galloway, George Monbiot and the leaders of the SWP -- for their views on the current crisis . None of them saw this as a final crisis of capitalism (as of course it isn't). Most of them called for an end to "neo-liberalism" and a return to the more state-regulated capitalism of previous decades. As if this hadn't proved a failure too from the point of view of meeting the needs of wage and salary workers and their families.

Ken Livingstone put it this way: "Sadly, I don't think this will be the end of capitalism. But there is going to have to be a return to a much, much more interventionist state". 1968 students' leader and now a Green MEP Daniel Cohn Bendit followed suit: "It's not the end of capitalism because capitalism has always had the intelligence to reform itself. It will be the end of capitalism when it's incapable of reforming. However, the belief that the market is god is over. It must now be regulated". Fellow Green MEP Caroline Lucas, from the UK, agreed: "This is a defining moment; the end of the kind of unbridled, deregulated capitalism of the past few decades. We are going to have to return finance to its role as servant rather than master of the global economy".

George Monbiot wanted to revive Keynes, the discredited 1930s economist: "A Keynesian solution along the lines of Roosevelt's New Deal could deliver many of the things the left is calling for -- more public spending, more training and education". Respect Party councillor, Salma Yaqoob, and Lindsey German of the SWP were more moderate. They called for just one reform measure. "Why not do something literally concrete on the ground and start building cheaper social housing?" said the one. "The left needs to put forward answers. People have the right to work; we have a housing crisis, so why not employ people to build more houses?" echoed the other. It's true that by concentrating on one reform such as housing these would-be vanguardists have a better chance of fooling people into following them than if they raised a demand for a "Keynesian solution". That wouldn’t "mobilise the masses" and would also expose them for the reformers of capitalism they are in practice.

Chris Harman, Tony Cliff's successor as the SWP's theoretical guru replied, curiously: "This is a very, very serious crisis of capitalism: it has been the build-up of private borrowing that has kept the system going, and it's coming unstuck". Since when has capitalism been kept going by consumer spending, whether financed by borrowing or not? This is a new version of the SWP's old mistake of thinking that what kept capitalism going was arms spending (exposed as wrong when arms spending was cut and capitalism kept going).

What keeps capitalism going as an economic system is the pursuit and attainment of profits. It falters when profits are not attained, though it can also be temporarily upset by a financial crisis. What also keeps capitalism going is of course, politically, the support or acquiescence of the vast majority of the population who see no alternative to the money-wages-profit system that is capitalism. Livingstone, Galloway, Benn, the SWP and the Greens, in only criticising "neo-liberalism" and advocating instead what might be called a "neo-statism", are not helping to dissipate this acceptance of some form of capitalism as the only possible way of organising the production and distribution of wealth.

The only real alternative to capitalism, whether private enterprise or state capitalist or a mixture of the two, is a society based on the common ownership and democratic control of the means of production, with production to meet people's needs not to make profits and distribution on the principle of "from each according to ability, to each according to needs". A view the Guardian too omitted to mention.

Adam Buick

Is it the Big One? (2008)

Editorial from the August 2008 issue of the Socialist Standard

There’s a joke amongst stock exchange gamblers about the analyst who predicted nine of the last three bear markets. The same could be said about some critics of capitalism who have been predicting the next Great Depression since 1945.

Capitalism is an uncontrollable system and another 1930s slump cannot be ruled out. But history never repeats itself exactly, not even as a farce (not that a repeat of the horrendous 1930s could be viewed as a farce). Every slump or recession is different because capitalism is anarchic and unpredictable. In fact, if it wasn’t then capitalist governments might have a better chance of developing some policies to avoid them.

The socialist case against capitalism is not dependent on capitalism being in a slump. Even in times of “prosperity” capitalism does not, and cannot serve the interests of the majority who are obliged to sell themselves for a wage or a salary to get a living. Unemployment may be lower and real wages may be rising slowly, but the basic fact of profits being derived from the unpaid labour of those who work remains. And profit-seeking dominates decisions about what, where and how to produce. Priorities are distorted as profits always come before meeting needs.

Obviously more people are discontented in a slump than at other times but history does not provide any evidence that slump conditions are consistently better for getting across the socialist message. The priority for an unemployed person is a job or rather the money needed to buy things that goes with a job. Socialism could indeed immediately solve this problem by ensuring that everyone’s material needs were met, but socialism cannot be established until and unless a majority want it and are prepared to take the necessary political action to get it. Socialists, however, cannot produce this immediately by waving a wand. In the meantime unemployed people want a job and have been known to follow all sorts of demagogues who promise them this.

Socialists do not subscribe to the view “the worse, the better”. Even so, slump conditions do expose the irrationality of capitalism. Closed factories alongside unemployment queues. People in bad housing alongside stockpiles of bricks. People in need of food alongside food mountains and, worse, food bonfires. In short, poverty amidst potential plenty.

But are we heading for another big slump? Nobody knows. Capitalist opinion is divided. Anatole Kaletsky, writing in the (London) Times (17 July), reported that “according to the overwhelming majority of financial analysts in the City of London and Wall Street, the world is now in the worst economic crisis since the 1930s”. He disagrees. He regards this merely as a panic reaction amongst bankers who are seeing their expected profits disappear.

Socialists don’t know either but the very fact that another big slump cannot be ruled out confirms in itself that capitalism is an irrational and uncontrollable economic system. The sooner it is got rid of and replaced by a system under human control and geared to serving human needs the better.