New Page: Aspect column (1967-1971)

As promised, new pages for the blog. These new pages of old Socialist Standard columns will eventually be grouped together in one page at the head of the blog alongside the pages for the current Socialist Standard columns, film reviews and theatre reviews.

An irregular Socialist Standard column from the late 1960s and early 1970s, 'Aspect' can be viewed as a column primarily given over to focusing on Marxian economics and Marxian theory. No one writer wrote every column, and it featured such seasoned Socialist Standard writers as Edgar Hardcastle, Adam Buick, John Crump and Bob Ambridge.

To access the individual articles, click on the months.

1967

• Mar: Money for Nothing by Edgar Hardcastle
• Oct: The Future according to Galbraith by Edgar Hardcastle

1969

• Dec: Socialists and Christmas by C & J. MCL.

1970

• Feb: Capitalist education by Adam Buick
• Mar: A Question of Class by John Crump

1971

• Jan: Increasing Misery by Adam Buick
• Feb: Relative Wages by Adam Buick
• Mar: Karl Marx and the Paris Commune by Adam Buick
• Apr: The Rate of Profit by Adam Buick
• May: Labour Time Vouchers by Adam Buick
• Jun: Marx and Keynes on Unemployment by Edgar Hardcastle
• Jul: Can Banks Create Credit? by Edgar Hardcastle
• Sep: Engels: The Man and His Work - Part One by Bob Ambridge
• Oct: Engels: The Man and His Work - Part Two by Bob Ambridge
• Nov: Marx’s Critique of Political Economy by Adam Buick

Aspect: Marx’s Critique of Political Economy (1971)

From the November 1971 issue of the Socialist Standard

After the failure of the European democratic revolutions of 1848 Marx, in exile in England, decided to improve his knowledge of economics or “political economy” as it was called at that time. The first result of this research, mainly at the British Museum was the publication in 1859 of A Contribution to the Critique of Political Economy*. Marx had intended, as he said in the Preface, to examine various aspects of the capitalist economic system and he listed capital, landed property, wage-labour, the State, foreign trade and the world market. In fact before he died in 1883 he had only got as far as capital with the publication of the first volume of his main book in 1867.

The Critique itself only covered the commodity and money, and is much the same as the first three chapters of Capital (though “exchange value” in the one becomes “value” in the other). In fact it too begins, “The wealth of bourgeois society, at first sight, presents itself as an immense accumulation of commodities . . .”, but is a good introduction to the labour-time theory of value, especially as applied to money.

Marx emphasises that money is not just a convenient device for facilitating the buying and selling of goods but is also, as he puts it, “an expression of a social relation of production”. Money, in other words, is a sign that the people who use it have a particular form of society; at the very least it tells us that the means for producing wealth are not owned in common and that production is not carried on according to some definite social plan. The regulation of production by money and the market disguises the domination of the means of production by a minority class.

Marx’s theory of money is that where wealth is exchanged one commodity (or, product of labour produced for sale) will eventually emerge as the one which can be exchanged for all other commodities. This commodity, which acts as a measure of the amount of socially necessary labour-time spent on producing all other commodities, is money. Being the measure of value is the money-commodity’s primary function, but it is a role which can only be played by something which itself has a labour-time value by virtue of being the product of socially-necessary labour. Say it takes the same amount of social labour-time to produce an overcoat as an ounce of gold, then we can say that the overcoat (or 4 chairs or 10 books, etc, etc) is worth 1 oz. of gold. This is its price, the expression of its exchange-value in units of the money-commodity. Being a standard of price and a unit of account like this is money’s second role. The units in which prices are expressed are purely conventional. In our example they are units of weight (which is what they originally were, a £ having once been a lb. of silver) but are now special money-units like cents and dollars or roubles and kopecks fixed by governments. These units can still be related, however indirectly, to weights of gold; the American dollar for instance was for a long time defined as l/35th oz. of gold. Finally, money serves as a means of settling debts, what Marx calls a means of payment.

Originally, the money-commodity itself, usually gold or silver, circulated as the currency in the form of coins. Where this is the case, said Marx, the amount of money that is needed depends on the total prices of all the goods and services to be bought and sold (and the total amount of debts to be settled) and, since coins can be used more than once, on how quickly the coins circulate. Marx rejected the Quantity Theory of Money, at least in the form put forward by Hume and Ricardo which made the price level depend on the quantity of the money-commodity rather than vice-versa.

But, Marx went on, “where paper notes are the sole medium of circulation”, i.e. where the currency is composed of paper notes circulating as tokens for the money-commodity, then the situation is reversed: the price level does depend on the quantity of (paper) money. This does not contradict the theory that the amount of real money is determined in the end by the price level. For the basis of the Quantity Theory of paper-money is that only a definite amount of real money is needed so that, if the amount of paper money issued exceeds this, then currency depreciation—and inflation—will result. This is because paper money is worthless in itself and only has value insofar as it represents gold or silver. If the amount of gold or silver to be represented is given, then obviously the more tokens are issued the less amount of gold or silver each will come to represent. Prices rise because in effect the whole standard of price has been altered.

As Marx put it:

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 a total 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 was 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 of prices would be merely a reaction of the process of circulation, which forcibly placed the tokens of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation.

That inflation will be the inevitable result of issuing more paper currency that the amount of the money- commodity which would have to circulate if there were no (inconvertible) paper currency was once recognised even by bourgeois economists. It was forgotten under the influence of Keynesian economics and is only now, after over thirty years of non-stop currency depreciation and rising prices, being rediscovered.

The Preface to the Critique contains Marx’s well-known account of his historical method—the materialist conception of history. The structure of a particular society, including the ideas predominant amongst its members, said Marx, was conditioned by how its members were organised with regard to the production of wealth. This, in its turn, was mainly dependent on technology and the level of productivity. As technology changed and productivity increased so social forces were set in motion which eventually led to a change of society. Marx mentioned four main stages through which human society has passed — later known as Asiatic society, chattel-slavery, feudalism and capitalism—and went on to say that the coming social revolution would end in the establishment of Socialism.

Also published with the Critique as with the original 1904 translation is a document called An Introduction to a Critique of Political Economy which is an unfinished and rough draft dealing mainly with the relationship between production, distribution (defined as a person’s share in what has been produced) and consumption. Though translated on its own into English in 1904 it is really the first part of a set of manuscripts known as “Marx’s Grundrisse," which are only now being translated. The Introduction is interesting in that it shows that Marx would have rejected the orthodox Trotskyist description of Russia as a “contradictory combination of a non-capitalist mode of production and a still basically bourgeois mode of distribution” (Mandel).

Actually, “non-capitalist” is too weak a term to convey what the Trotskyists really have in mind. For they consider that as far as the production of wealth is concerned Russia is a classless society. They do not deny that there is a privileged group in Russia but claim that this group is privileged only with regard to the distribution of wealth. To make this point Trotsky called it a “caste” to distinguish it from a class.

True, classes are defined by how groups are related to the use of the means of production rather than by how they stand in relation to the distribution of the products, but the real question is: Could a class-type mode of distribution exist alongside a classless mode of production?

Marx’s answer can be clearly inferred from the following:

The structure of distribution is entirely determined by the structure of production. Distribution itself is a product of production, not only with regard to the content, but also with regard to the form, since the particular mode of men’s participation in production determines the specific form of distribution, the form in which they share in distribution.

And how in fact could a group be privileged with regard to the distribution of the products without being at the same time privileged with regard to their production? For having the power to distribute products to your advantage amounts to being able to decide what should be produced and so to deciding how the means of production should be used — which is precisely what being privileged in relation to production means. The orthodox Trotskyist analysis of Russia is an absurdity and, as the Introduction shows, quite at variance with Marx’s theory of society.

An introduction by Maurice Dobb and two reviews of the work by Engels complete this edition. Dobb, by the way, seems to imply that commodity-production and money were not central to Marx’s conception of capitalism, but this is what you would expect from someone who mistakenly believes that, although money and commodities still exist there, Russia has abolished capitalism and established Socialism. As Marx always made clear, capitalism is the highest form of commodity-production and money-economy while Socialism by establishing democratic social control over production necessarily means the abolition of production for sale and of money.

Adam Buick

* Just republished by Lawrence and Wishart — £1.50.

Aspect: Can Banks Create Credit? (1971)

The Aspect column from the July 1971 issue of the Socialist Standard

Confusion about banking operations and the power of bankers has been in evidence for a long time. It was known before 1848, and that year saw the publication of two works putting opposite points of view. One was Lectures on the Nature and Use of Money in which John Gray outlined a scheme which was the forerunner of the Social Credit Movement founded by Major Douglas in the nineteen twenties. The other was John Stuart Mill’s Principles of Political Economy which contained the following:

“Credit has a great but not, as many people seem to suppose, a magical power; it cannot make something out of nothing … It seems strange that there should be any need to point out that credit, being only permission to use the capital of another person, the means of production cannot be increased by it, but only transferred … The same sum cannot be used as capital both by the owner and also by the person to whom it is lent . . .”

Part of the confusion arose out of the loose use of the term “credit creation”; by some writers to mean merely the grant of a loan by a bank, but by others to mean what Mill had in mind as making something out of nothing.

Marx on occasion wrote of the “creation of credit and capital” by the banks but not meaning anything more than the act of lending or investing. Elsewhere he described banks as merely institutions for bringing together and relending sums deposited by depositors. He ridiculed the “illusions concerning the miraculous power of the credit and banking system”, which he said, were held by those who failed to understand the nature of capitalist production and the credit system (Capital, Vol. III p. 713).

Sir Ralph Hawtrey in his Currency and Credit dealt with another confusion of terms:

“It is true that we are accustomed to think of bank credit as money. But this is only because for the practical purposes of every day the distinction between bank credits and money is rarely of any importance. And for all that a bank credit is merely a debt, differing from other debts only in the facilities allowed by the banker for transferring it to another creditor. No one imagines that a trade debt is money, though it may be as good an asset as a bank credit” (2nd Edition, p. 5).

Major Douglas, like John Gray, would have rejected outright the views of Mill, Marx and Hawtrey on credit. He claimed that bank loans are the issue of money just like the issue of notes by the Bank of England and that, by making loans, “a bank acquires securities for nothing”, and that “it is absolutely correct to say that . . . new money has been created by a stroke of the banker’s pen.” (The Monopoly of Credit, 1931 pp. 15 and 17). In the words of one of his supporters, banks can create “untold wealth at the cost of a few drops of ink and the fraction of a clerk’s wages”.

Basically the dispute is between those who hold that banks are merely intermediaries to whom depositors make purchasing power available by depositing with them, and which then make that purchasing power, or most of it, available to others by transferring it to them as loans or using it to purchase securities etc; or whether the banks themselves, by making loans create the largest part of the deposits.

Starting from the production of value by the application of human labour to nature-given materials and its conversion into money, is it that some part is lent to the banks in the form of deposits, for the banks to relend or invest, or is it the banks which create large amounts over and above the amounts deposited?

G. D. H. Cole accepted the “creationist” view. He wrote that bank loans “represent a real creation of additional money — additional purchasing power”. (What Everybody Wants to know about Money, p.39).

Among those who have held the “intermediary” view, along with Mill and Marx were many bankers and, notably Professor Edwin Cannan in his An Economist’s Protest.

Of particular interest were Reginald McKenna, politician turned banker, who was Chairman of the Midland Bank, and J. M. Keynes, both of whom at first supported creationist theory and later changed their attitudes.

One of many anti-creationist statements made by bankers, was that by Walter Leaf, Chairman of the Westminster Bank:

“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 depositors; for the banks are strictly limited in their lending operations by the amount which the depositors think fit to leave with them” (Banking. Home University Library, 1926, p. 102).

Hartley Withers, sometime editor of the Economist popularised creationist theory in his The Manufacture of Money and used the phrase “every bank loan makes a deposit”, later expanded to “every bank loan or purchase of securities creates a deposit”; and its converse that every withdrawal of a loan or sale of a security destroys a deposit.

McKenna repeated this and provided Major Douglas with weighty support.

The theory was given official endorsement in the Report of the MacMillan Committee 1931, (Committee on Finance and Industry) and found its way into the textbooks. Though McKenna was a member of the Committee he then denied that he agreed with Major Douglas about the creation of credit; which was really rather hard on Douglas who had, after all, only taken McKenna’s words at their face value. Another signatory of the Report was Professor T. E. Gregory who held the Chair of Banking and Currency at the London School of Economics and who in that capacity took Cannan’s line.

The Macmillan Committee’s support for creationist theory is still widely accepted. It turned up recently in Ernest Mandel’s Marxist Economic Theory where Mandel quotes it with approval.

One argument used by creationists to support their case was that, without creationist theory, it was not possible to explain how the deposits of the commercial banks could exceed the total amount of notes and coin in circulation. This is easily disposed of. If a bank receives deposits of £5 million a week and has £4 million a week withdrawn by depositors, deposits will increase by £1 million a week and the eventual total is in no way limited by the amount of currency in circulation. In 1937 the Post Office Savings Bank had no cheque facilities and made no loans to businesses or private borrowers, but its total deposits did in fact exceed the total amount of notes and coin in circulation with the public. The deposits were invested in government securities.

The statement of the “creationist” case in the MacMillan Report started with the following:

“It is not unnatural to think of the deposits of a bank as being created by the public through the deposit of cash representing either savings or amounts which are not for the time being required to meet expenditure. But the bulk of the deposits arise out of the action of the banks themselves, for by granting loans, allowing money to be drawn on an overdraft or purchasing securities, a bank creates a credit in its books which is the equivalent of a deposit. A simple illustration, in which it will be convenient to assume that all banking is concentrated in one bank will make this clear”.

The illustration assumed that a depositor deposited £1,000 in cash. The bank then lent £900 which was withdrawn by cheque and came back as new deposits. At this stage the deposits in the bank totalled £1,900 made up of the original £1,000 and the later deposits of £900. Against this liability the bank would show, on the assets side of its balance, cash £1,000 and loans to customers £900.

This lending process was repeated with nine more loans of £900, so that the bank’s books would then show £10,000 deposits, balanced by £1,000 cash and £9,000 loans owed to it by borrowers. The bank had thus “created” deposits of £9,000 by making loans, and the creationist case was proved. Or was it?

Certainly the Committee got the answer they wanted but in view of the way the conditions were rigged that was not surprising; little in the example had any resemblance to real banking conditions.

Not only did the Report make the thoroughly artificial assumption of only one bank in existence but it also assumed that none of the borrowers made withdrawals except by cheque, never by cash to hold and not to be returned to the bank. This enabled them to proceed on the basis that all the cheques drawn (or all the cash withdrawn) come back to the one bank — there was no other bank to which they could go. Actually the Report did not allow for any withdrawal in cash at all but treated the £1,000 cash deposit as remaining unchanged throughout the operations; which meant that the Committee was assuming, but without saying so, that a change had occurred in the world outside the bank which led to a permanent increase by £1,000 in the amount of cash left in the bank.

This line of reasoning, which isolates from a continuous in-and-out flow of deposits and withdrawals of cheques and cash, one single deposit of cash, is fallacious. If it were valid it could be applied in reverse; that is the Committee could have isolated a single withdrawal of £1,000 cash and treated it is a permanent reduction by £1,000 of the amount of cash left in the bank. It only needed one of the ten borrowers of £900 to take it out in cash or destroy the whole of the Committee’s case.

It appears to have been a belated recognition of this fallacy that later led J. M. Keynes to put a view contrary to that of the Report he had signed.

In his General Theory of Employment, Interest and Money (1936) he wrote:

“It is supposed . . . that the banking system can make it possible for investment to occur to which no saving corresponds. But no one can save without acquiring an asset, whether it be cash or a debt or capital goods, and no one can acquire an asset which he did not previously possess, unless either an asset of equal value is newly produced or someone else parts with an asset of that value which he previously had . . . The notion that the creation of credit by the banking system allows investment to take place to which ‘no genuine saving’ corresponds can only be the result of isolating one of the consequences of the increased bank-credit to the exclusion of others” (p. 80-1).

Actually, under the conditions assumed in the Report the bank was needlessly modest in making loans of only £9,000. They could have made it £90,000, or any figure they had cared to name, because every cheque had to come back to the one bank and they had in practice, but without saying so, prescribed that nobody was to draw and hold any of the £1,000 cash.

They also claimed that the result would be the same if there were many banks, i.e. that all withdrawals would automatically come back into the banking system, but this, as already mentioned, was based on the fallacy of supposing that the £1,000 deposit of cash was a permanent increase of cash in the banking system but without going into the change of outside conditions which would make it possible.

In practice there is nothing automatic about deposits. Banks have to attract money on deposit account by paying interest of millions of pounds on it and they spend tens of thousands of pounds on advertisements to attract new depositors.

The Committee also overlooked the fact that banking figures vary according to the method of investing. If a depositor with £1,000 in the bank draws a cheque to lend that amount to a business, bank balance sheet figures are completely unaffected since the £1,000 deposit has merely been transferred from the depositor’s account to the account of the business; but if the depositor leaves the £1,000 on deposit and the bank lends £1,000 to the business, bank deposits and loans both increase by £1,000.

The absurdity of creationist theory can be seen in practical terms if we consider what happens if the owner of £1,000 lends it direct to a business firm, and the effect if he deposits it in a bank and the bank then lends to the same firm. The MacMillan Committee’s example would have it that though the original owner had only £1,000 to dispose of the bank can lend £9,000 to the firm if it receives the £1,000 on deposit.

The Committee’s example also took it for granted that banks with money to lend can always find “creditworthy” clients who want to borrow all the banks have available. When trade is slack, as in recent months, they cannot.

If creationist theory had been correct banks would make profit at a rate far above that of industry — “fabulous profits” and “hundreds per cent” were the claims. It does not happen.

There is one company with wide interests in publishing, oil, engineering and other manufacturing activities, S. Pearson and Son Ltd. which also has a controlling interest in a bank, Lazards. Yet only about a sixth of Pearson’s profits come from Lazards. Lazards had a director on the MacMillan Committee who was also on the board of Lloyds Bank. It seems that he failed to convince Lazards — assuming that he even tried — that they really have the creationist powers set out in the Report he signed.

The MacMillan Report worked out its figures on the basis that banks need to keep ten per cent of their deposits in cash “to meet the demands of customers”. This ten per cent ratio enabled them to suppose that banks can lend nine times the amount of the £1,000 deposit. The conventional cash ratio is now down to 8 per cent, which would increase the creationist power to eleven and a half times the deposit. But the cash ratio is largely window dressing. If there were a mass withdrawal by depositors of the London Clearing Banks, £700 million of notes and cash would be quite ineffective if the depositors wanted to withdraw their £11,000 million of deposits. What banks endeavour to do is to anticipate events and match outgoing withdrawals and loans with incoming deposits and repayments of loans. If they could match these outgoing and incomings completely day by day they would need no cash in their tills, without the banks thereby being any less safe. If they could get it down to one per cent the assumed creationist powers would then be 99 times the £1,000 deposit. The cash ratio of the Savings Bank in 1937 was a quarter of one per cent.

Another consequence of creationist theory, accepted by its supporters, is that bank loans by increasing purchasing power have a determining influence on the price level. The facts show this to be baseless. Between the first quarter of 1921 and the first quarter of 1933 prices were falling continuously, by a total of forty four per cent. They fell when the deposits and loans of the London Clearing Banks were falling, when they were stationary and when they were rising. At the beginning of 1931 deposits and loans were at the same level as in 1921 but prices had fallen by forty per cent. Between 1926 and 1933 deposits and loans went up by seventeen per cent while prices went down by nineteen per cent. (Incidentally the MacMillan Committee wanted prices to rise in order to cure the depression). Bank deficits went down slightly between 1968 and 1970 while prices went up by twelve per cent.

Mention has been made of Marx having a view on the specific question of credit creation which was in line with that of some other economists, but he did not share their views on wider aspects. He wrote:

“The superficiality of Political Economy shows itself in the fact that it looks upon the expansion and contraction of credit which is a mere symptom of the periodic changes of the industrial cycle, as their cause” (Capital Vol. I. p. 695)

Against logic and all the weight of evidence, credit creationism still has its believers. Professor Cannan hit the nail on the head when he called them “the mystical school of banking theorists”.

Edgar Hardcastle

Aspect: Money for Nothing (1967)

The Aspect column from the March 1967 issue of the Socialist Standard

In the Sunday Times on January 29th, Mr. George Schwartz used his column to put his views about high and low interest rates and about some of those who have theorised on the matter. He recalled the late Lord Dalton, Labour Government Chancellor of the Exchequer, who believed that it was a simple matter for a government to keep interest rates at a very low level, and an American Secretary of the Treasury who shared that view. The idea is not dead: “Even at this moment there is an assumption that the Finance Ministers of the leading countries have only to put their heads together to cheapen money all round. The higher economics refuses to regard the rate of interest as a simple function of the demand for and the supply of loanable funds . . .”.

Schwartz commented on the Bank Rate:

  It is fashionable to talk of the Bank Rate as an antiquated weapon, but the antiquated thinking is in the minds of the critics. Bank rate is not a weapon but an index. It registers the going level of interest rates which is determined by all the forces operating upon saving and borrowing.

Marx long ago described the factors which immediately determine the rate of interest in about the same words as those used by Schwartz. (Perhaps Schwartz had been looking up what Marx wrote?). “. . . the relation between the supply of loanable capital on the one side and the demand for it on the other, decide at any time the market level of interest". (Capital, Vol. 3, p. 430.)

Marx described how capitalist profit derives from the unpaid labour of the working class and how, if the capitalist is using borrowed funds, he has to pay away part of this profit in the form of interest, the amount depending on the prevailing interest rates:

  . . . we shall find that a low rate of interest generally corresponds to periods of prosperity, or of extra profit, a rise of interest to the transition between prosperity and its reverse, and a maximum of interest to up to a point of extreme usury to the period of crisis. . . . It may happen, however, that low interest is found in times of stagnation, and moderately rising interest in times of increasing activity. The rate of interest reaches its highest point during crises, when money must be borrowed in order to meet payments at any cost. (Capital, Vol. 3).

Particular interest rates vary according to the class of security, and the length of the time for which the money is borrowed, but the average rate of interest, like the average rate of profit, shows long periods of stability, apart from the ups and downs referred to above.

  The average rate of interest appears in every country for long epochs as a constant magnitude, because the general rate of profit—in spite of the continual variation of the particular rates of profit, in which a variation in one sphere is offset by an opposite variation in another sphere—varies only in long intervals. 

In our day there is continual argument between those economists who expect the average rate of interest to remain high for many years and those who expect it to fall.

It follows from the way in which interest rates are determined that, as Schwartz points out, a government cannot determine those rates simply by exhortation or by monetary manipulation but would have to control all the economic factors which combine to affect the supply and demand for loanable funds. Schwartz recalled the belief some people held in the years before the war that there was a tendency for interest rates to go on falling till they reached zero. It was at that time that the theories of Silvio Gesell had some vogue, in particular his scheme of “free money” which, he claimed would do away with interest payments.

But the will o' the wisp of very low or zero interest rates on loans was much older than Gesell, whose works were first translated into English in 1929— the year before his death. Gesell had been influenced by Proudhon, and Proudhon had been preceded by John Gray, who was writing in the first half of the nineteenth century.

Gesell proposed that money should be issued in a form which depreciated with every week from the date of issue, his suggestion being that each note should lose one-tenth of one per cent of its face value each week. This, he thought, would deter people from holding on to money, they would want to get rid of it quickly and this would keep the level of investment up and the rate of interest down and would also obviate depressions.

The basic economic fallacies of Proudhon and John Gray were examined by Marx in his Critique of Political Economy and Capital (Vol. 3, chapter XXI). Both Proudhon and Gray wanted capitalism, but not the features which inescapably belong to it. They wanted products to be bought and sold but not to conform to the economic laws of commodity production. Products were to have their price determined directly by a National Bank which would issue certificates related to the amount of labour it required to produce them. Those certificates were then to circulate as money: no-one would need to pay high interest rates for loans or indeed any interest at all.

Gesell’s particular scheme has not caught on although Keynes, who combined a low opinion of Marx with a high opinion of Gesell, expressed the view that “the future will learn more from the spirit of Gesell than that of Marx”, (General Theory of Employment).

But we have had quite a good test of the Gesell theory, even if not in the form he proposed.

For a quarter of a century money in this country has been more or less steadily depreciating but far from interest rates foiling to zero, Bank rate has recently been up to a peak 7 per cent and one of the government’s complaints at the present time is that manufacturers have been slowing down their rate of investment.

As befits followers of Keynes low interest rates have been an article of faith with the Labour Party. Their publication Twelve Wasted Years (1963) had scathing criticisms of the Tory government for failing to keep interest rates down.

In the election campaign in 1964, Labour were promising lower interest rates generally, including the hope of very low rates on house mortgage loans. Events soon overtook them, as shown by the rise in the Bank rate to the same level as under the Tories and by mortgage rates at the end of 1966 more than double their promised three per cent. Like Gray, Proudhon, Gesell and Keynes, Labour are trying to have capitalism without its inherent consequences.

Edgar Hardcastle

Aspect: A Question of Class (1970)

The Aspect column from the March 1970 issue of the Socialist Standard

Ask any reasonably literate but otherwise typical Lefty for his appraisal of the class structure of capitalist society and he will probably inform you that there are two classes in society — the working class and the capitalist class. There is even a reasonably good chance that he will be able to recite Marx’s definition of these from the Communist Manifesto :

 By bourgeoisie is meant the class of modern Capitalists, owners of the means of social production and employers of wage-labour. By proletariat, the class of modern wage-labourers who, having no means of production of their own, are reduced to selling their labour-power in order to live. [1]

But give him a couple of minutes more and he will no doubt be at least neck deep in the regular assortment of complex arguments about the relative roles of the working class and the middle class/petty bourgeoisie/salariat which collectively represent his grand design for the socialist revolution.

In other words, nearly all left-wing groups exhibit a very definite schizophrenia on the question of social classes. At an abstract, intellectual level they will adhere to the Marxian position, but for all practical purposes (that is for deciding their overall strategy and their day to day tactics) they rely on an entirely different analysis of society. As an illustration of this we could refer to the ways in which such organisations reacted to the upheaval in France in May 1968. They all argued that this episode had an enormous significance not just because millions of ‘workers' showed their dissatisfaction and contempt for Gaullisme through strikes and demonstrations but also because “many sections of French society followed the lead of the workers — footballers, office workers, customs men, hotel workers . . .” [2]

Ideas such as these are as dangerous as they are confused. Not only do they lead to a completely false assessment of what constitutes the socialist revolution but they also serve to reinforce the divisive pressure which capitalism is bound to exert on its workers, They encourage the already widespread belief that wage earners in different sectors belong to different social classes and therefore do not have identical interests — a myth which as much as any other helps to keep capitalism secure. By way of contrast, the Marxist approach of the Socialist Party of Great Britain offers a means of uniting workers around an understanding that all “wage-labourers who, having no means of production of their own, are reduced to selling their labour-power in order to live” are members of the working class and therefore have a common interest in getting rid of capitalism.

Perhaps we can clarify this by taking a group of workers regarded by most people as impeccably ‘middle class’ and showing how they arc exploited. The dental profesion is particularly interesting in this respect because not only are they a relatively small body of workers on whom a considerable amount of data has recently been published but also because they are in the uncommon position of having been ground down into working directly for wages within the last generation. Up till roughly twenty years ago dentists in Britain really were self-employed people. But the transfer of most dental surgeons to the National Health Service in the immediate post-war years meant that they were now nearly all employed by the state. (Out of 15.000 dentists in Britain in 1967 only 500 were estimated to still be working in private practices).

Like many other workers, dental surgeons in the general dental services are paid on a piece rate system. There is a complex mechanism for fixing these rates but basically it amount to the government periodically laying down a target annual net income for the average dentist, providing he works a specified number of hours per year. The Dental Rates Study Group then draws up a set of fees designed to produce average earnings at the target level. This method of payment has been described by many dentists as the ‘treadmill system’ "for, as more treatment is carried out each year by dentists working faster or more efficiently than previously with the help of technological changes, the scale for that treatment will fall, or at least not be increased to the extent that it might." [3] To give an example of how this works in practice we could mention that the fee being paid for a single surface amalgam filling in the mid-sixties (13s.6d) was less than it had been ten years previously (15s.). How this affects the individual dentist was well summed up in the report just quoted:

  The system is such that income is in fact related to the total number of courses [of treatment] an individual practitioner undertakes since the more the profession accomplishes, the lower the income per course. Thus if an individual dentist maintains only a constant performance his income falls. [4]

The pressures acting on this group of workers over the last twenty years have given rise to enormous increases in productivity— and an equally enormous upsurge in the rate of exploitation. The total number of courses of treatment carried out in the general dental services by roughly the same number of dentists throughout has more than doubled since 1949, while the cost to the government of providing this treatment has fallen from more than £5m. to around the £2m. mark (at constant 1949 price levels).

The ways in which dentists react to this situation are no different from those of other workers. Two recent surveys on the attitudes of dentists towards their wages and working conditions [5] showed that 55 per cent objected to the long hours they were forced to work to maintain their incomes, a similar percentage found the pace of the work gruelling, and 78 per cent disliked the restrictions placed on their work by their method of employment. Despite these sort of data, however, many left-wingers would object that although it might be possible by these means to demonstrate that objectively groups like dental surgeons are members of the working class, subjectively they remain intransigently capitalist minded. Such sections, they would say, can be “integrated into the system, to monopoly capital” by the relatively high wages and other benefits which (according to the Leninist theory of imperialism) capitalism can use to buy off parts of the working class in the most advanced countries. And as evidence of the overriding capitalist ideology of professional workers like dentists they would point to the fact that they do not consider themselves working class. Perhaps more than anyone else they differentiate between their own status and that of manual workers and other lower paid strata.

But objections such as these can be shown to be sociologically quite naive. The conviction that higher paid workers can be bribed into accepting capitalism by the level of their salaries rests on the assumption that in their attitude towards society they will be predominantly motivated by money or material rewards. If this were the case, it would be clearly shown in their work motivation. Such a theory has a very long pedigree, but at the same time has very little else to recommend it. As Tom Lupton, the professor of industrial sociology at the Manchester Business School, has put it:

  It is easy to fall into the error of supposing that because the desire for money is by common consent a compelling motive for working that it is also the overriding motive. Work is a social activity, that is it involves the worker in relationships with others. If the worker is faced with a decision whether to attempt to maximise income or to sacrifice possible gains for the sake of establishing or maintaining satisfying relationships with his workmates, he might well choose the latter course. [6]

Researchers like Lupton arrived at these conclusions mainly by studying the working behaviour of piece rate workers in factories. Research into the motivating factors for dentists has given results almost identical to those for other piece rate workers. Thus a recent survey carrying the question ‘What are the things you like most about your work?’ elicited the following responses:

These sort of figures, then, do not give a very impressive backing to the contention that higher paid workers like dentists arc primarily concerned with the defence of their supposedly privileged position and must therefore be considered as being distinct from the bulk of the working class. But, for all that, it does remain true that white collar workers (and among them the example we have been using of the dental profession) generally do regard themselves as different from industrial workers. But, of course, this is not a one way process. Blue collar workers reciprocate with similar prejudices about non-industrial workers, regarding them as ‘middle class’ and so on. It is quite illogical to use the common left-wing argument that subjectively white collar workers are outside the working class because they do not identify themselves with their fellow workers. Exactly the same stricture can be applied to blue collar workers.

An unbreakable sense of working class solidarity can only spread at the same rate as socialist understanding develops among all sections oft he workers. The Socialist Party constantly attempts to foster this unity in its work of analysing capitalism and its class structure and presenting the socialist alternative to present society. On the other hand, the divisive activity of the Left is entirely symptomatic of their slovenly attitude to Marxist theory. Almost to a man they are committed to ‘leading the working class’. A hard task indeed when they don’t even know what the working class is!

John Crump

Footnotes:
[1.] The Communist Manifesto. SPGB, 1948. p. 60
[2.] Socialist Worker. June, 1968
[3.] The Dental Service. London, 1969. p. 20
[4.] Ibid. p. 27
[5.] British Dental Journal. September, 1969. p. 222
[6.] Industrial Society. Penguin. 1968. p. 297
[7.] Adapted from BDJ. September, 1969 p. 222

Aspect: Capitalist education (1970)

The Aspect column from the February 1970 issue of the Socialist Standard

Socialists have no illusions about the role which institutions like the universities have to play in class society. Like the government and the churches they serve the interests of the ruling capitalist class.

The basis of modern society is the ownership of the means of production by a section only of society and their consequent use to make profits for those owners. The rest of us, cut off from ownership, have to sell our mental and physical energies in order to live. We, who make up over 90 per cent of the population, alone produce all the wealth of capitalist society.

The time has long since past when the capitalists themselves took any part in production. They have long since become redundant parasites, employing specially trained wage-labourers to perform the jobs, in the administration of the State and the management of their businesses, which when capitalism was younger they used to do themselves.

Modern society and industry is now run from top to bottom by paid members of the working class. All the jobs in the administration, planning, production and distribution of wealth are carried out by workers.

The glaring contradiction in modern society is between large-scale social or co-operative production and the outdated sectional ownership of the means and instruments for producing wealth. Class ownership has become an anachronism that is holding back the use of society’s wealth to provide plenty for all.

So what have we got? A modern technology capable of providing abundance. Workers capable of operating this highly-developed industrial system, yet doing this in the interests of a non-working, owning class who want their means of production geared to profit-making. But whether these are used to make profits or to satisfy human needs the technology is the same. Thus, the owners face the problem of training workers to administer and operate modern industry.

At one time the task of schools was merely, by means of religious indoctrination, to break in the children of the working class to the sort of discipline and hard work they could expect when they went into the factories and mills and mines. But with the growing application of science to production the employers required more and more specially-trained workers. In 1870 the State brought in compulsory elementary education. More money was spent on technical schools. Soon, a three-fold division emerged in education: Elementary schools turning out factory workers; secondary schools turning out clerks; and the public schools teaching the children of the ruling class to be the rulers. This division was recognised and enshrined in the 1944 Education Act which made secondary education compulsory.

Compelled by economic necessity to spend money through the State on education, the capitalists came to expect more of schools than mere indoctrination. They wanted to turn out workers who understood what they were doing in the factory or office. They wanted, in other words, an educated or rather a trained working class.

Hence, in capitalist society, money spent on education comes to be seen as an “investment”, the return on which can be calculated in commercial terms. The educational system becomes the “education sector” of the economy or the “knowledge industry”. Thus Lord Butler, former Tory politician now an academic, can write about students “as the type of capital investment which will accrue with every year” and which has “enormous value” (The Times, 20 November 1968). Labour Ministers are not different. Gordon Walker, who used to be Education Minister, wrote in the Financial Times (11 March 1968) about the colleges of education achieving “a striking increase in productivity”, that is, turning out more teachers per £ invested.

People like to think of education as something outside the commercial world where human rather than commercial values are taught and learned. Thus all this talk of “investments”, “industry” and “productivity” in connection with education seems offensive and cynical. But Butler and Gordon Walker are being realistic. They are telling the truth. What is called education is today prostituted to the service of capitalist industry and its profit-making, pandering to its manpower and research needs. Education today really is an industry, a sector of the economy turning out a certain kind of product, whose performance is judged on the rate of return it brings on the capital invested in it.

This, of course, applies equally to the universities—though how they were captured by Big Business is another interesting story.

For universities existed before the rise of capitalist industry. They came into being in the Middle Ages as centres of religious learning where people could study theology, law and medicine. Indeed up until the end of the 18th century nearly all graduates were Church of England clergymen and until 1871 acceptance of the 39 Articles was a condition for going to a university (the poet and revolutionary Shelley was expelled from Oxford in the 1820’s for being an atheist). In the last century Oxford and Cambridge, the main universities, were institutions turning out Anglican clergymen and top civil servants. Since at that time the governing class still managed its own affairs, their role was to train the ruling class to rule.

Capitalist industry was faced with the problem of turning these bastions of aristocratic privilege into the knowledge industry, of driving out leisurely learning for its own sake and replacing it by business and technical training. Many of the early manufacturers were non-conformists and so were barred from Oxbridge. They therefore used their money to set up their own rival institutions—the redbrick universities—where the emphasis was on science and commerce rather than on Latin and Greek. The capitalists denounced the old universities as “a collection of books” and “a place where nothing useful is taught”.

This was an ironic situation. The mediaeval origins and traditions of these old universities, geared to serving a leisure class, made them value learning as such and resist the capitalist pressures to reduce them to the simple task of training managers, engineers and technicians for capitalist industry.

Traditionally, then, the universities were attended only by the sons of the rich, and especially Oxbridge by the idle sons of the idle rich. This is no longer so. Part of the money invested in education goes to provide grants for children of the working class to go to college. 90 per cent of students are the sons and daughters of workers maintained at college out of local authority grants. When after three or four years training they leave university, they enter the labour market just like someone leaving school at 15. Thanks to the capital invested in them, their ability to work is more valuable and so they can get a higher wage. But wage-workers they still are. The labour market for graduates is conducted partly through the advertisement columns of papers like the Daily Telegraph, the Times, the Sunday Times and the Observer, but now increasingly capitalist firms are entering the universities and trying to sign up students even before they graduate.

Make no mistake about this: students come from the working class and are merely being trained as special high-grade workers who still have to find an employer to live. Most students come from the working class and are being trained to fill the top posts in the State and industry.

Universities are capitalist bodies geared to producing valuable graduates for the employing class to exploit. So it is not surprising that these students who have seen this can only regard as hypocrites those academics who proclaim that the universities are “republics of learning” or “communities of scholars” dedicated to seeking after Truth. Students have every right, like other workers, to protest about being treated as an “investment” and judged merely from a profit-making point of view.

Adam Buick

Aspect: Socialists and Christmas (1969)

The Aspect column from the December 1969 issue of the Socialist Standard

To a greater or a lesser degree, we are all conventional—yes! Even socialists. In many instances we find life in capitalism more tolerable and comfortable if we comply with those customs and traditions, of which Christmas is one, that do not conflict with our case. Anyway, to register protests against patterns of behaviour which are virtually caused or perpetuated by the system of society in which we live, is so much wasted effort.

If we accept—as all socialists do— the historical materialism of Marx, for analysis we divide a society into two parts. The first part is the economic foundation which consists of actual means of production (factories, mines, tools, power) and also the relations people form around these productive forces. These relations are the vital part of the base: they determine what sort of system it is and so they are the part that makes the system 'tick'. In capitalism, they are the antagonistic relations of the wage-labourers and the capitalists, which form a class division and consequently a class struggle. The second part arises, as it were, from this base and forms a kind of superstructure. Capitalism's superstructure consists of such things as governments, armed forces, the church, prisons, and in the less tangible field: orthodox ideas and morals, customs, laws, which are compatible with the base because in the main they serve and protect the interests of the ruling class of capitalists.

Now the institution of Christianity is some few thousand years old; the system of capitalism is only as many hundreds. However, because ruling classes in many parts of the world have been able to use Christianity to serve their own ends, to enrich themselves and to pacify and fool the subject classes, it has been carried over from one class society to another.

In spite of the continued existence of the church, its influence declines so that the original meaning of Christmas as a celebration of the birth of (a perhaps mystical) Christ, is becoming lost. In spite of this, the tradition remains because both classes find it serves a purpose. Workers look forward to it as a time for family reunions, feasting, a rest, and social enjoyment and of course as a break from the monotony of their lives. This is where the capitalists 'cash in'; they do this by promoting and encouraging through advertisements and shop window displays, what is to them the focal point of Christmas: the present giving custom.

Unlike previous customs, capitalism is entirely an exchange economy. It has to be in order that the ruling class can realise the surplus value which is produced by the working class. As goods are produced for the purpose of being exchanged on a market for their equivalent in money, we are taught in our schools and colleges that exchange is the moral order of things. Among adults, therefore, gift giving usually takes the form of exchange. On those occasions when we receive an unexpected gift, we tend to react with acute embarrassment and rush out to buy an equivalent: the result is two embarrassed people!

Even where presents to children from parents are concerned, it is still not a very satisfactory affair as far as the workers are concerned. As they always produce more wealth than they receive in the form of wages, the worry when they 'overspend' can be great. This may be the case particularly when they happen to have developed a 'keeping up with the Jones’ complex. Which is understandable in a competitive system of society.

These are all little points, we know, and capitalism is responsible for far worse results, but they do illustrate the 'knack' the system has of spoiling human relationships.

When it comes to the Christmas bonus from the employers, at least things are a little more straightforward and everyone knows where they stand. The wheels of capitalism are being oiled.

In case we should be sounding a bit 'sour' we hasten to add that socialists manage to enjoy the season like any others of their class, despite all the petty snags. Nevertheless, we think that in the society we were aiming for Christmas will quietly fade away, simply because nobody will have any use for it. There will be no-one wishing to celebrate it in a religious way and that doesn't leave very much else except the presents. The gift ritual (a reflection of commodity-exchange) would serve no purpose in a society where commodities do not exist, but only products of labour which are communally owned.

It may occur to you that perhaps in a way it will be a pity to be deprived of the pleasure of giving. But think for a moment: our values will be different in Socialism. We shall be able to give to our children and friends much more of our own time than we can spare now. If this should sound ridiculous to you in capitalism, imagine the absurdity of trying to give presents in a society where everyone contributes to production to the best of his ability and takes from the common pool what he needs!

C & J. MCL.

Aspect: Marx and Keynes on Unemployment (1971)

The Aspect column from the June 1971 issue of the Socialist Standard

The first volume of Capital, in which Karl Marx analysed the workings of the capitalist system, was published in 1867. Although Marx’s economic theories were under ceaseless attack by economists who defended capitalism the theories made headway in working class circles, particularly in the prolonged depression of the 1930’s. One of the reasons for the universal interest in Marx in those years was his treatment of unemployment, for he showed how unemployment arises and why it is necessary to capitalism. Then in 1936 John Maynard Keynes’ work The General Theory of Employment, Interest and Money brought about a twofold shift in the attitude of many economists and politicians. On the one hand they now accepted that unemployment—sometimes of acute and politically dangerous proportions—can arise out of the normal functioning of the capitalist system, but on the other hand they hailed Keynes as the man who they thought had shown them how full employment could be achieved if the right measures were taken by governments. Keynes’ theories were welcomed most of all by the trade unions and the Labour Party because they seemed to offer the prospect that a future Labour government need not be overwhelmed by an “economic blizzard”, as had happened to the Labour government which entered office in 1929 and collapsed under the weight of two million unemployed in 1931.

One of the consequences of the rise of Keynes was of course that working class interest in Marxian theories suffered a sharp decline.

Keynes was given the credit of having demolished the theories of 19th century economists who had taught that, if left to its own devices, capitalism would always and of its own accord tend towards full employment. What was little noticed was that most of the ground covered by him had been treated in detail by Marx three-quarters of a century earlier. Keynes was quite contemptuous of Marx, describing Capital as “an obsolete textbook which I know to be not only scientifically erroneous but without interest or application to the modern world” (A Short View of Russia, 1925) and he never seems to have appreciated that his own criticisms of earlier economists were much like those of Marx.

Among those economists were the Frenchman J.B. Say and the English economists James and John Stuart Mill and David Ricardo. The first of the four is remembered by what is called “Say’s Law”, which was that as people acquire money only to spend it, production and sale will always keep in balance. Keynes in his General Theory wrote:

 Thus Say’s Law, that the aggregate demand price of output as a whole is equal to its aggregate supply price for all volumes of output, is equivalent to the proposition that there is no obstacle to full employment. If, however, this   is not the true law relating the aggregate demand and supply functions, there is a vitally important chapter of economic theory which remains to be written and without which all discussions concerning the volume of aggregate employment are futile.

Keynes also quoted J. S. Mill who, in his Principles of Political Economy, set out to show that no matter how much production is increased the output will always be sold:

  All sellers are inevitably, and by the meaning of the word buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should by the same stroke double the purchasing power. Everybody would bring a double demand as well as supply; everybody would be able to buy twice as much, because everyone would have twice as much to offer in exchange.

Marx had seen this mistake long before. In his A Contribution to the Critique of Political Economy, published in 1859, he pointed out that Say had in act borrowed his law from James Mill. Marx quoted a passage from James Mill putting exactly the same idea as that borrowed by his son and quoted by Keynes. In Capital Marx wrote:

  Nothing can be more childish than the dogma, that because every sale is a purchase and every purchase a sale, therefore the circulation of commodities necessarily implies an equilibrium of sales and purchases (Kerr edition, p.127).

He showed that “no one is forthwith bound to purchase, because he has just sold”; there can be an interval and if this “split between the sale and the purchase becomes too pronounced” the result is a crisis.

Keynes, like Marx, saw that although capitalists could, in times of depression, invest to expand production they will not do so unless there is prospect of selling the products at an adequate profit. Marx dealt with this reluctance to spend to expand production, under the heading of “hoarding”; Keynes coined the term “liquidity preference”, meaning that the capitalist prefers in that situation to keep his money in cash or its equivalent.

Although Marx and Keynes both saw the fallacy of the early economic theories they reached different conclusions. Marx showed that, under the inducement of competition for the market, capitalist industry is always seeking to reduce costs of production by utilising labour-displacing machinery or other means of securing the same output with less labour, thus creating unemployment; and that capitalism needs “an industrial reserve army” both in order to be able to take advantage of periodical opportunities to expand old industries and develop new ones, and to keep wages down to a level which makes production profitable. For Marx periodical crises are inevitable and equally inevitable is eventual recovery to go through another phase of expansion, boom, crisis and depression.

Keynes challenged this. He maintained that government action can be taken to encourage investment (or to undertake its own investment) and to expand consumption so that recovery from depression can be speeded up and activity maintained at a continuous level of more or less full employment.

The years of relatively low unemployment in this and some other countries since the second world war were held to have proved the validity of Keynes’ argument. This interpretation has, however, been disputed and not only by Marxists. Professor R.C.O. Matthews, for example, argued in the September 1968 issue of the Economic Journal that the major factors have been demand arising out of war-time destruction and an unusually prolonged investment boom, and that positive Keynesian measures have had at most a very minor effect. And the Keynsians have been dismayed by the repeated crises and the gradual long-term increase of unemployment that began in the sixties.

Labour Party supporters who associated their schemes of nationalisation with Keynesian proposals for government action to maintain employment have been particularly disappointed. In the Labour Party Election Programme of 1950 they explained what a Labour government would do:

  Publicly owned industry will be ready to expand its investment when employment policy demands it. The public sector will, by speeding up necessary capital development, help to maintain employment.

But the Labour government’s Nationalisation Acts required the nationalised industries to be run at a profit, like any capitalist industry, and this involved closing down unprofitable coal mines and railways lines.

The Keynsians did not at the outset admit the force of Marx’s analysis of capitalism’s need to keep wages down in order to safeguard profits, but finding in practice that the need exists, Labour governments achieved what they thought was a substitute in the form of wage restraint through an incomes policy.

In face of the realities of capitalism Keynes’ reputation is now greatly diminished, while Marx still provides an unanswerable case for not wasting time – trying to save capitalism.

Edgar Hardcastle

Aspect: Labour Time Vouchers (1971)

The Aspect column from the May 1971 issue of the Socialist Standard

A reader has asked us why the Socialist Party of Great Britain speaks of free access to consumer goods in Socialism rather than of the distribution of consumer goods by the labour-time vouchers mentioned by Marx.

The first to suggest the use of labour-time vouchers instead of money was Robert Owen in 1820. The Owenites stood for a society of co-operative communities. Each community would own its own means and instruments of production and each member of a community would work to produce what had been agreed was needed and in return would be issued with a note certifying for how many hours he had worked; he could then use this note to obtain from the community’s stock of consumer goods any product or products which had taken the same number of hours to produce. Owen believed that this co-operative commonwealth could begin to be introduced under capitalism and in the first half of the 1830s some of his followers established “labour bazaars” on a similar principle: workers brought the products of their labour to the bazaar and received in exchange a labour-note which entitled them to take away from the bazaar any item or items which had taken the same time to produce, after taking into account the costs of the raw materials. These bazaars were failures but the idea of labour-time vouchers (or “labour-money”) appeared in substantially similar forms in France with Proudhon and in Germany with Rodbertus and is one source of currency crank theories.

Those who advocate labour-time vouchers can have two different circumstances for their use in mind. Like Robert Owen, they can advocate their use within the context of co-operative ownership and production for use or, like Proudhon, within the context of private ownership and production for sale. Marx exposed as currency cranks those who wanted labour-time vouchers and buying and selling. Where goods are produced for sale, he pointed out, sooner or later one commodity will emerge as the one which can be exchanged for all the others. This special commodity is of course money and its appearance signifies the end of barter. To perform this role of the medium of exchange the commodity must itself have an exchange value. Money is basically a special commodity, a fact which is obscured by the later evolution of money where almost worthless coins and notes have come to circulate as tokens for the money-commodity. Those who advocate the abolition of money and its replacement by labour-time vouchers while retaining production for sale are thus, said Marx, quite confused; wherever there is production for sale one commodity must become money (see his comments in his Critique of Political Economy on the theories of John Gray).

Within the context of common ownership and production for use, however, labour-time vouchers are quite feasible. Then they are not money at all, but merely a method of sharing out consumer goods. As Marx said of the Owenites’ plan for a co-operative commonwealth:

  Owen’s ‘labour-money’, for instance, is no more ‘money’ than a ticket for the theatre. Owen presupposes directly associated labour, a form of production that is entirely inconsistent with the production of commodities. The certificate of labour is merely evidence of the part taken by the individual in the common labour, and of his right to a certain portion of the common produce destined for consumption (Capital, Vol &, Moscow, 1961, pp. 94-5).

Engels says much the same in his comments in Anti-Dühring on Owen’s labour-notes.

The German Social Democrats of the 1860s and 1870s inherited the idea of distribution according to labour-time from Rodbertus. They envisaged a system where, with the means of production vested in the community, workers would be given a labour-time voucher entitling them to a share of the social product; thus they would, as Lassalle put it, get “the full product of their labour”. This phrase is confused because, if everything produced in a given period is distributed in full for consumption, then nothing would be left over to renew and expand the means of production or to store in the case of emergency. This point was made by Marx in one of his criticisms of the Gotha Programme which was adopted by the German Social Democrats in 1875 when the followers of Lassalle united with the group with which Marx and Engels had been working. In the course of this criticism Marx made his well-known statement about labour-time vouchers in Socialism (“not as it has developed on its own foundations, but . . . just as it emerges from capitalist society”):

  The individual producer . . . receives a certificate from society that he has furnished such and such an amount of labour (after deducting his labour for the common funds), and with this certificate he draws from the social stock of means of consumption as much as costs the same amount of labour. The same amount of labour which he has given to society in one form he receives back in another (Selected Works, Vol II, Moscow, 1958, p. 23).

Supporters of state capitalist Russia have used this passage to try to show that Marx thought that  money — and of course gold does function as the money-commodity in Russia — could exist in Socialism. This is so much nonsense since elsewhere Marx specifically stated that labour-time vouchers were not money (see his comments on Owen quoted earlier):

  The producers may . . . receive paper vouchers entitling them to withdraw from the social supplies of consumer goods a quantity corresponding to their labour-time. These vouchers are not money. They do not circulate (Capital, Vol II, Moscow, 1957, p. 358).

Marx nowhere states that labour-time vouchers were the only method of distributing wealth in Socialism; they were only one possible method. [1]  The actual method adopted would depend on the circumstances (Capital, Vol I, pp. 78-9). Alternatives were suggested, as for instance by Edward Bellamy in his Looking Backward written in 1887. He wanted everybody in Socialism to be issued with a credit card entitling them to obtain an equal amount of consumer goods. In any event, later in his criticism of the Gotha Programme Marx made it quite clear that if labour-time vouchers were used in Socialism this would be a temporary measure imposed by the comparatively low level of technology. In time, he saw, when the “springs of co-operative wealth flow more abundantly” Socialist society could abandon labour-time vouchers (or whatever) and go over to “from each according to his ability, to each according to his needs” that is, to free access to consumer goods.

In 1875 the then existing level of technology might well have meant that many consumer goods would unavoidably be available only in limited quantities for some years after the establishment of Socialism. But in the hundred years since, technical progress has made it possible for the springs of co-operative wealth to flow more abundantly than Marx could have foreseen so that free distribution—to each according to his needs—can be implemented almost immediately after Socialism has been established.

Potential abundance has made the idea of labour-time vouchers quite outdated.

Notes:

[1] Baran and Sweezy are quite wrong when they write in their Monopoly Capital (Penguin, p. 325) that “Marx emphasised in his Critique of the Gotha Programme that the principle of equivalent exchange must survive in a socialist society for a considerable period as a guide to the efficient allocation and utilization of human and material sources”. For Marx there was no “must” about labour-time vouchers (and so more or less “equivalent exchange”); they were just one way of allocating consumer goods before free access could be introduced.

Aspect: Increasing Misery (1971)

The Aspect column from the January 1971 issue of the Socialist Standard

The theory of The Socialist Party of Great Britain is Marxist in the sense that certain of our key ideas about society, economics and politics are derived from Karl Marx.

Although our case rests entirely on its own merits and not on what Marx may or may not have said, we have always been ready to defend Marx’s views where we believe them to be correct against criticisms based on an ignorance of what he wrote.

Recently for instance, the Guardian claimed that “Marx has been proved wrong on fundamentals; the workers far from being denied a fair share of profits and so becoming poorer, are vastly better off”. Is this true? Was it fundamental to Marx’s economic theory that under capitalism the workers would come to own less and less material possessions?

The short answer is, No. Marx did not believe that the amount of goods and services the workers consumed would necessarily have to decline. What he did say was that the misery of the workers would increase, but he did not equate this misery with destitution. For him, as we shall see, misery referred to the general circumstances under which workers, however well-paid, had to live and work.

Poverty can be used in two senses: absolutely, to refer to a low standard of living in terms of a given small amount of goods and services, or relatively, to refer to a low standard of living compared with that of others. There can be no doubt as to where Marx stood on this issue. In one of his earliest economic writings Wage Labour and Capital (first given as a series of lectures in 1847, and revised and republished by Engels in 1891) Marx wrote:

  A house may be large or small; as long as the surrounding houses are equally small it satisfies all demands for a dwelling. But let a palace arise beside the little house, and it shrinks from a little house to a hut. The little house shows now that its owner has only very slight or no demands to make; and however high it may shoot up in the course of civilization, if the neighbouring palace grows an equal or even greater extent, the occupant of the relatively small house will feel more and more uncomfortable, dissatisfied and cramped within its four walls. 

  A noticeable increase in wages presupposes a rapid growth of productive capital. The rapid growth of productive capital brings about an equally rapid growth of wealth, luxury, social wants, social enjoyments. Thus, although the enjoyments of the worker have risen, the social satisfaction that they give has fallen in comparison with the increased enjoyments of the capitalist, which are inaccessible to the worker, in comparison with the state of development of society in general. Our desires and pleasures spring from society; we measure them, therefore, by society and not by the objects which serve for their satisfaction. Because they are of a social nature, they are of a relative nature.” (Marx-Engels Selected Works, Vol. 1, pp.93-94, Moscow, 1958)

Marx understood subsistence, too, in a relative sense. According to his theory, wages fluctuate about the subsistence level of the worker. Certain critics (and even supporters) have taken this to mean that there was a fixed amount of goods and services above which real wages could never rise. This so-called Iron Law of Wages was repudiated by Marx. He regarded the subsistence level as something which varied not only amongst workers of different skills but also from place to place, in the same place at different times and even, to a small extent, under the influence of the workers’ own trade union activities.

To suggest that Marx expected wages to fall towards, and even below, some absolute poverty line is to misunderstand him completely.

Marx also writes in Wage Labour and Capital that, even though the most favourable situation for the working class under capitalism is the fastest possible growth of capital, “however much it may improve the material existence of the worker, does not remove the antagonism between his interests and … the interests of the capitalists” (p.98). Marx returned to this theme in Chapter XXV of Capital which considers “the ‘influence of the growth of capital on the lot of the labouring class”.

Marx’s comments on the occasions when the wages of some workers have risen as a result of a temporary labour shortage again make it quite clear that high wages do not end the economic exploitation of the working class.

  The more or less favourable circumstances in which the wage-working class supports and multiplies itself, in no way alters the fundamental character of capitalist production.” (p.613).

  A rise in the price of labour, as a consequence of accumulation of capital, only means, in fact, that the length and weight of the golden chain the wage-worker has already forged for himself, allow of a relaxation of the tension of it. (p.618, Moscow, 1961). 

Later in the same chapter just before the passage about the “accumulation of misery”, Marx explicitly states that high wages do not affect the misery of workers either:

   In proportion as capital accumulates, the lot of the labourer, be his payment high or low, must grow worse. (p.645)

Clearly by misery Marx cannot have meant absolute poverty. For, as this passage shows, workers may be better off materially but still worse off in some other sense. This referred to the conditions under which they had to work. Marx mentions the boring drudgery workers had to perform under capitalism in place of the pleasure they could get in a Socialist society from creating useful things. He also mentions the fact that workers are employed by capitalists and deprived by them of the fruits of their labour. As he put it in 1875 in a criticism of the Iron Law of Wages:

  The wage-worker has permission to work for his own subsistence, that is, to live, only insofar as he workers for a certain time gratis for the capitalist (and hence also for the latter’s  co-consumers of surplus value); that the whole capitalist system of production turns on the increase of this gratis labour by extending the working day or by developing the productivity, that is, increasing the intensity of labour power, etc.; that, consequently, the system of wage labour is a system of slavery, and indeed of a slavery which becomes more severe in proportion as the social productive forces of labour develop, whether the worker receives better or worse payment. (“Critique of the Gotha Programme”, Selected Works, Vol. II, p.29)

In the next article we will examine this concept of “relative wages” which Marx did believe would tend to decline under capitalism.

In the meantime readers are referred to two useful articles: 

• Poverty or Misery? Socialist Standard, January 1957. 
• Marx’s “Increasing Misery” Doctrine by Thomas Sowell, American Economic Review, March 1960.

Aspect: Relative Wages (1971)

The Aspect column from the February 1971 issue of the Socialist Standard

Last month we refuted the suggestion that Marx held that under capitalism the amount of goods received by the working class would gradually fall below the poverty line. We showed that by “misery” Marx could not have meant absolute poverty of destitution because he stated on a number of occasions that working class misery would grow, even if wages were high. Finally, we promised to examine in this issue the concept of “relative wages”.

Marx first introduces this concept of  in Wage Labour and Capital, one of his early lectures on economics dating from 1847.

In section IV Marx distinguishes three relations involving wages:

First, the actual sum of money the worker receives from his employer which he calls “nominal wages” and which we would now call “money wages”.

Second, the actual amount of goods and services which at any time this sum of money will buy, or “real wages”.

(In this age of inflation workers are all too familiar with this distinction.)

Third, says Marx, “wages are, above all, also determined by their relation to the gain, to the profit of the capitalist – comparative, relative wages”. Relative wages, he goes on, “express the share of direct labour in the new value it has created to the share which falls to accumulated labour, to capital”.

Marx himself had not invented this idea; it was originally put forward by David Ricardo. Indeed at this time before he had fully worked out his theories Marx could properly be described as a “Ricardian socialist”, as the followers of Ricardo who gave his theories an anti-capitalist aspect were called.

Relative wages (i.e., the workers share in the product of their labour) can fall even though real wages (i.e., the amount of goods they receive) have risen, as a simple example will show.

Because value is measured by the amount of labour expended over time, the total amount of new value produced in a given time will always be the same (provided the skills of the workers remain unchanged). Thus if productivity increases and more wealth is produced in the same period, then the prices of each individual commodity will fall but the total value of all of them together will remain the same. Assume that, as a result of an increase in productivity, prices fall by 5 per cent. If wages remained unchanged, then real wages would rise by nearly 5 per cent. Relative wages, however, would be unchanged. But say money wages were to fall but not by as much as prices. The workers would still be better off in terms of the goods they received but their relative wages would have fallen.

As Marx put it:

  The share of capital relative to the share of labour has risen. The division of social wealth between capital and labour has become still more unequal. With the same capital, the capitalist commands a greater quantity of labour. The power of the capitalist over the working class has grown, the social position of the worker has deteriorated, has been depressed one step further below that of the capitalist. (Wage Labour and Capital, section IV)

Nearly twenty years later in 1865 Marx returned to this theme in another popular lecture on economics. Here he assumes that wages fall by as much as prices, which would mean that the workers would be no better off materially, and comments:

   Although the labourer’s absolute standard of life would have remained the same, his relative wages, and therewith his relative social position, as compared with that of the capitalist, would have been lowered. If the working man should resist that reduction of  relative wages, he would only try to get some share in the increased productive powers of his own labour, and to maintain his former relative position in the social scale. (Value, Price and Profit, Chapter XIII)

We are now in a position to say in what sense Socialists think the working class tends to become worse off as capitalism develops. They tend to become worse off in terms of the value of the amount of goods they receive compared with the value of what they produce. Saying that under capitalism the share of the working class in the wealth they produce will tend to fall is quite a different proposition to saying that the amount of goods and services they receive will fall. Most of those who accuse Marx of having believed that capitalism would reduce the working class to starvation have failed to understand this key distinction, which he took over from Ricardo, between relative wages and real wages. Relative, rather than real, wages is what tends to decline.

Capitalism is not to be justified by comparing the standard of living of most workers today with the lower standard of their grandfathers’ yesterday. The valid comparison is between what people get today and what they would get if modern industry were commonly owned and geared to producing for use not profit.

In any event, the case for Socialism does not rest on capitalism producing a poverty-stricken and down-trodden working class. Indeed, if capitalism were to do this Socialism would be impossible because it could not be  established by what Marx called “one level mass of broken wretches past salvation” (Value, Price and Profit). Socialism, both for its establishment and for its functioning, demands people who have learned the technical and social skills needed to live in a modern technological society. It is by training the working class in this rather than by completely impoverishing them that capitalism undermines itself and produces its own grave-diggers.

The case for Socialism rests on the fact that a society based on the common ownership and democratic control of the means of production can provide a better life for people who are now members of the working class, in terms of quality as well as in terms of satisfying material needs, than can capitalism.