The Tyranny of Usury. (1909)

Book Review from the August 1909 issue of the Socialist Standard

The Tyranny of Usury; A Plea for the Nationalisation of Exchanges,  by John McLachlan. Manchester, Leventhulme. 1d.

Superstition dies hard. Driven from the human mind on the religious side it endeavours to find entry on another, and no subject has brought forward so many cranks, faddists and maniacs as the subject of the above pamphlet if we except religion.

The author, who, by his praise of Keir Hardie, is probably a member of the I.L.P., first defines usury as the total surplus taken by the capitalist class, and then narrows it down to the ordinary definition of interest, or the amount charged for the use of money or forms of credit. By a shuffling of these two definitions, when it suits him, he is able to skim over awkward points and give his case some small appearance of being worth consideration.

An attempt is first made to explain how it is that poverty exists. “Socialists usually lay stress upon Private Monopoly of Production and Distribution as the cause. But while this later assumption (?) is undoubtedly ultimately a true one, it is daily being borne in upon us that PRIVATE MONOPOLY OF EXCHANGE is proximately the cause of Unemployment (and, of course, of Poverty) through the operation of those commercial crises which have exercised until now the wit of capitalist apologists to explain”.

What causes the crisis? The author gives the following description of a crisis while deferring the explanation of how it arises.

“On a given day let us assume, trade and commerce are exceedingly brisk . . . All is well – apparently. Suddenly the unthinking merchant discovers a difficulty in obtaining credit. Bankers call in their loans, refuse renewals, and decline to discount even the best paper except at high rates, credit being generally refused”. The ordinary features of a crisis are then detailed. The “catastrophic” and “dogmatic” economists who used to say that the cause was overproduction are summarily dismissed as “antiquated”. This sort of thing may have been the cause early in the nineteenth century, but is utterly fallacious to-day.

A so-called review of the crises of the nineteenth century is then given in an attempt to show that they were due to financial causes, and the following “general rules” are deduced.

“(1) Unemployment and trade depression always succeed a Credit stringency.

“(2) Financial Crises and Unemployment are quite possible as cause and effect without the additional factor of over-production which was formerly a feature of these crises.

“(3) An increase in the currency always lessens the immediate strain upon the national credit”.

All this leaves one quite in the dark as to why “the unthinking merchant discovers a difficulty in obtaining credit” and what it is that causes a “credit stringency”. But the next chapter, headed “The Fallacy of the Gold Standard”, attempts to explain the position gold occupies in the settlement of debts, and says, “It is legally enacted, we repeat, that debts must be paid in Gold on demand”. A comparison is given between the liabilities of the banks and the gold in circulation, and the question is asked, “Why is our gold currency not larger? Ah! there’s the rub! If our currency were enlarged to the extent of giving representation to everything considered as negotiable the People would be freed from the obligation of paying for the money they use.”

Lucien Saniel, in his introduction to the American edition of Marx’s Value, Price and Profit has pointed out the dangerous misleading given to the working class by the “revolutionary sounding but intensely bourgeois sophism of the Anarchist Proudhon”, and this warning applies with full force here. Further on we shall show the similarity of McLachlan’s and Proudhon’s positions. Note the portion of the above quotation from pamphlet italicised by the author. Who are the people who find a difficulty in “paying for the money they use”? Not the working class in any sense of the word. Not the large capitalists, for they control the powers of government and have a currency suitable to their interests. There is left the small capitalist and shopkeeping section, who, fond of calling themselves the “middle” class, find themselves unable to hold their own positions against the giant production and “chain store” system of distribution that is crushing them out in all directions. Hence this howl for an extension of “credits” and the introduction of “cheap” money for the purpose of paying their debts.

It is one of the stock lies of the money cranks to say that all exchange is a question of creditor and debtor and that all debts must be paid in gold. An exchange means to pass over one thing for another. Whether the things exchanged are directly use-values or not does not affect the point. If the commodity gold is given for the commodity food then an exchange has taken place, but there is no creditor or debtor. A debt only exists when a promise to pay in the future has been made. In the absence of any specific statement to the contrary, and only in this case, the creditor can demand payment in gold or legal tender.

Moreover, the removal of this obligation would not alter the facts of the case one atom. If the currency gave representation to all things considered negotiable, where is the debtor to obtain this currency when his debts fall due? From the State bank, it may be answered. How will the bank advance the money? Upon the negotiability – that is, the saleability – of the debtor’s things. But that is exactly what applies to-day, and it is only when his goods are unsaleable that he fails to pay his debts. In other words, it is because of the industrial crisis or depression that we have “Credit stringency” in various directions. A striking illustration of this “stringency” fallacy was shown a little time ago when the L.C.C. floated the last loan. The money market was “tight” and business bad, yet the amount required was subscribed nearly forty times over. In other words this was a proof that bad trade caused the “stringency”, and not the absence of currency, of which there were large amounts seeking sound investment. It is a well known fact that when trade is bad, or a crisis is upon us, there is more currency circulating than when trade is good. According to Mr. McLachlan’s third general rule, this should lessen the strain. Therefore, the crisis should bring its own cure! Such is one of the absurdities these cranks land themselves into.

In the section dealing with the Clearing House the author objects to the “commission” levied upon the paper transactions there recorded, and then says that this “the toll paid by commercial men for the management of their accounts”. Why he objects to this he does not say.

In the last section on “The Nationalisation of Exchange”, the author reaches his grand panacea – and shows incidentally how superficial and shallow his knowledge is, and how easily he has been gulled by another money crank – Mr. Kitson. After stating that “to confer upon any single article the sole privilege of determining the values of all other commodities whatsoever is iniquitous”, without giving any evidence that this is done, he gives us the following gems.

“What is value? Simply an exchange relation between commodities.” Then he says “cost of production must be reckoned with in all transactions”. Here is a flat contradiction, for what has cost of production to do with the exchange relation? If it is answered that this decides the quantities in the exchange relation, he at once denies this, for in the next sentence he says “Value is determined by Supply and Demand and its relations are always changing in deference to changes in the supply and demand for commodities”. To explain this he follows the old dodge of the capitalist apologists who, as Marx has so caustically put it, always have to wander outside Capitalism in their endeavour to talk round awkward points. Mr. McLachlan therefore leaves modern society and goes to an island.

“If on an island, there existed at a given time, 6 pigs, 4 sacks of flour, 12 sacks of potatoes, and two cows, it would follow that for the time being one cow would exchange for three pigs; for two sacks of flour; or for six sacks of potatoes. And if £1,000,000 in gold were imported, 1 cow would inevitably exchange for £500,000, while potatoes would cost £166,666 13s. 4d per sack”. And if I import 10 bricks each brick will be worth £100,000! Political economy up to date. “When any increase or decrease takes place in the quantities on the market of any commodities the ratio of values (and, of course, the price) undergoes a corresponding change”.

In the above statements the immense superiority of the method of demonstration used is at once apparent. Dull, awkward things like facts, evidence, history, experience, are beneath our author’s notice, and from the higher standpoint of his “inner consciousness” he evolves the proof in the words “it would follow”. The only authority he can evoke is the “inimitable” Mr. Kitson, who says in his book A Scientific Solution of the Money Question, that the only relation between commodities is number and “this is the only expression of value possible”.

And yet a 3rd standard school boy can put a question that knocks the bottom out of the whole case. Why does a given number of one article exchange for a given number of another article? Mr. Kitson cannot tell us. His disciple says it is a question of division of the quantities existing into each other. Then how can he explain that the Statistical Abstract gives Raw Wool at 11.88d. per lb while Woollen Yarn is given at 20.54d., or nearly double the price? Divide wool into wool and the result is – wool. Yet the difference in price is 8.34d.!

Finally we have an outline of the scheme for salvation laid down.

“A municipal bank would operate in this fashion. Let us take the case of a farmer short of ready money, but with 400 acres under wheat crops, estimated to produce from four to six quarters of grain per acre. His labourers want their wages. Ordinarily a credit stringency would cripple the farmer, whose workmen would also suffer as a result, but at our Municipal Bank he could monetize his credit based on 1,600 quarters of wheat. He draws notes on the Branch Bank at Puddleton and pays his workmen therewith, the notes circulating as legal tender, and being received by tradesmen in Puddleton and elsewhere on the strength of the stamp of the Puddleton Branch Bank. Farmer Brown doesn’t pay 3½ per cent for the accommodation, either; any charge upon his loan is calculated upon the cost of maintaining the Bank, which preferably should be a charge upon the local rates. Farmer Brown simply exchanges his unknown credit for that of the Bank, which forthwith debits him with the amount of the loan, payable in a given period of time by tendering a number of notes equal in total value to the amount of his loan. And this procedure could be followed in the case of all reputable citizens, commercial and industrial houses, shopkeepers, etc.” In fact by everybody except the working class, whose “unknown credit” would fail to pass the bank test.

Passing by the numerous assumptions with which the above quotation bristles, the general position is that laid down by John Gray, afterwards plagiarised by Proudhon and crushingly dealt with by Marx in Poverty of Philosophy and The Critique of Political Economy. How a tradesman would be better off in having to accept a note instead of gold for his goods it would be difficult to explain; while the experience of the French Assignats shows the folly of trying to pay debts with paper.

The quotation assumes sound security in one part and denies it in another. If the Bank issues notes upon security of an exchangeable value, then, as shown by the L.C.C. loan, there is plenty of money awaiting that use now. If the farmer’s credit is “stringent” , that means his security is of doubtful exchange value. Then where is the soundness of the Bank?

The only point that might be said is the one that Farmer Brown would not pay 3½ per cent for the loan. Ignoring at this stage the question of what it would actually cost to run the Bank, we can now see the economic interest standing behind this scheme. It is to relieve the farmers, commercial men, shopkeepers etc from the burden of paying interest on their borrowed capitals. It is the attempt of the smaller section – financially speaking – of the capitalist class to increase their share of the surplus-value by cutting out one of those with whom they at present have to share that surplus, namely – the interest lord. So blatantly ignorant is the author of even the smallest conception of the working class position that he has the brass to say that “It is safe to say that the [French] Revolution of 1848 failed mainly because the insurgents neglected to capture the means of Exchange. The breakdown of the Commune was due, too, largely to the financial operations directed against it”. Shades of Thiers and Gallifet! What friends you have in the Anarchists and the I.L.P.!

Jack Fitzgerald

State Banking in Australia (1934)

From the July 1934 issue of the Socialist Standard

Another Quack Remedy 

In the Glasgow Forward (October 21st, 1933), Tom Johnston takes G. D. H. Cole to task for omitting to mention the results of State banking in Australia in his recently published work, “What Everybody wants to know about Money."

As Mr. Johnston seems highly incensed at this omission one would expect that he would have supplied the deficiency and would have tried to show what good things State banking has achieved for the workers of Australia. But Tom deserves the carrot for modesty, for he does not even attempt it. For the benefit of those workers who are always being lulled to political sleep by references to Australia's magnificent “socialistic" examples, let us speak for ourselves. First let us give a few facts.

The biggest State-controlled Bank in Australia is the Commonwealth Bank. It was established in 1911 and has been a profitable concern for the Government ever since. Up to the 20th anniversary the aggregate profits were: —

General Bank  . . .        . . . £6,943,942 11 9

Savings Bank  . . .        . . .   2,781,995 19 9

Rural Bank  . . .        . . .      328,078 11 2

    Total                              £10,054,017    2    8

These figures are exclusive of the note issue branch. These profits have been distributed as follows: — 

To Capital Account       . . .  £4,000,000 0 0

Reserve Fund . . .   . . .            1,406,580 13 3

Rural Bank Reserve . . . 164,039 5 7

Savings Bank Reserve . . . 658,382 3 10

National Debt Sinking Fund 2,660,975 14 5

      Total                                 £10,054,017       2    8

These figures are from the Commomuealth Year Book and Labor Daily Year Book. They show that nearly one-third of the profits went into the National Debt Sinking Fund.

A common claim made on behalf of the Bank is that the profits go to lighten the “people’s burden" by helping wipe off the National Debt. But that is the crux of the whole matter, how does wiping off the National Debt help the workers. Reducing the National Debt reduces the amount of interest payable to bondholders, and thus enables the Government to reduce taxation. Reduced taxation, however, does not help the workers, but only the propertied class. What the workers get is their wages. If, owing to reduced taxation, the workers' cost of living is reduced, their pay is reduced likewise. It is on that rock that all the reformist schemes for bettering the workers’ condition under Capitalism are wrecked. As a prominent advocate of debt reduction by means of a capital levy (Mr. Pethick Lawrence) once admitted, it was merely a redistribution of wealth among the wealthy only.

If therefore State banking is a success it is as an adjunct of Capitalism. According to Senator Barnes, Labour Party, “The Commonwealth Bank has made a profit of 31 million pounds since its establishment." (Melbourne Herald, February 5th, 1934.) In the book of the Commonwealth Bank (an official publication by C. C. Fawkner) we are told that “The bank's policy was not to enter into aggressive competition with the existing financial institutions, and this was shown by determining the rates of interest on fixed deposits at ½  per cent. below those quoted by the leading trading banks." (p. 42.) And so that our masters could facilitate their business, “the rate fixed (for overdrafts) by the Commonwealth Bank had a marked effect in keeping down interest rates, to the benefit of the commercial mid business community throughout Australia." (p. 42.)

Some of the chief functions performed by the Commonwealth Bank have been Raising War Loans, Financing Naval Projects, Building Railways, Financing War Expenditure, Financing Pools for wheat, wool, etc.

Bank Loans to House Purchasers

One of the main functions of the State Savings Bank (Victoria) was the financing of home-building under what is known as the Credit Foncier system. Under the_Act of 1920, authority is given to the Commissioners to purchase and build houses for persons who have an income of not more than £400 per annum, and who do not own a house. The limit is, if the house be of wood, £1,000, and of brick, stone, or concrete, £ 1,300.

The interest charged was 6¼ per cent., and the terms of payment allowed for the paying off of the house in 26 years. The funds for this branch of the Bank's operations were raised by the issue of Credit Foncier Debentures, which were guaranteed by the Government of Victoria.

The net profit for the year 1928-29 was £34,032, and for 1929-30, £24,591. These profits are allocated for the purpose of meeting any losses that may occur. Savings Bank debentures pay 5¼ per cent. (1940) and 4½ per cent. (1936). The interest on these debentures comes out of the 6¼ per cent. paid by the workers who are purchasing their homes, and should this source fail, the Government foots the bill.

“Of the 46,100 loans in the Credit Foncier Department 58 securities were in the possession of the Bank at June 30th, 1930, on which the indebtedness was £34,183. To September 11th, 1930, 22 of these had been sold, reducing the number to 36 and the amount to £19,847. During the year, 86 properties were sold for £65,876, and resulted in a small loss (£1,412), but an amount of £1,162 which had been written off in former years, was recovered.” (Victorian Year Book, 1929-30.)

As the depression became worse, the number of houses reverting to the banks owing to the inability of the purchasers to keep up their payment increased rapidly. In 1930-31 the number in possession of the Bank at June, 1931, was 315, about seven out of every 1,000.

So great did the number of reversions to the Bank become that the figures were conveniently concealed from the public by not being published in the annual reports; Some idea of the huge increase can be gained when it is learned that a separate department was set up in the Bank to cope with it. Besides, owing to the inability of the Bank to dispose of many of the re-possessed houses, it was deemed wiser to leave the tenants in charge rather than risk the deterioration which accompanies an untenanted dwelling. Inquiries at the Bank reveal a reticent attitude with regard to particulars pertaining to this side of its activities.

In South Australia a similar position obtained.

Just prior to the depression the Board of Management of the State Bank of South Australia reported "that for the year ended June 30th, 1928, 106 houses reverted to the Bank through tenants being unable to continue payments or through their vacating premises because of inability to pay. The properties are now being sold by the Bank. The number of reverted properties for the previous year was 78.” The position in South Australia is said to be even worse than Victoria! !

In New South Wales, owing to political tactics by both State Labour Government and Federal Nationalist Government, the State Savings Bank had to close its doors altogether, and the business was taken over by the Commonwealth Bank. Pending an agreement being arrived at as to the terms of taking over, many depositors were forced on to the dole.

The foregoing facts could have been easily obtained by Mr. Johnston had he any desire to show some of the “results of the State Banks in Australia.” Mr. Johnston has a lot to learn about State Banking in so far as it affects the working class.

Let us ask Mr. Johnston a few questions. .

In what way do the floating of war loans, the financing of wheat pools, the building of State Railways, and the granting of big overdrafts at low rates of interest, improve the position of the working class ?

How much better off are those workers who began to purchase homes under the Credit Foncier System only to lose them (as they would have, had they bought them off private institutions), when the depression deprived them of their jobs?

Is not the. abolition of the Capitalist system and all its appendages more in keeping with working-class interests, and would not the Johnstons, the Coles, and others of their ilk, be better occupied in helping to establish Socialism? We know that the whole Capitalist system, including the banking system, has got to go before the workers come into their own. And with all due modesty we say to Mr. Johnston, "It's never too late to learn.”

W. J. Clarke

(Socialist Party of Australia.)

The Birkbeck collapse. (1911)

From the July 1911 issue of the Socialist Standard

We are always being told about “the savings of the working classes” and the vested interest they have in the banks and allied institutions in this country. But when the Birkbeck Building Society’s Bank closed its doors, another story was told by our good capitalist Press.

We then heard of the hundreds of pounds being lost by this investor and that one, and day by day the story was continued of 10s. in the £ amounting to one, two and three hundred pounds, being carried away.

Much was written about the struggle of this shopkeeper and that professional man, etc., to save up his little hoard.

Once for all, then, the anti-Socialists give the lie to their own cry. that it is the savings of the workers invested in these institutions. They themselves amply prove that the banks are filled with the money of others than members of the working class

Even the small savings of the working class are at the mercy of the capitalist financiers. The workers do not control the money, which comes into the hands of the capitalists, who use it to exploit the toilers.

The sequel to the bankruptcy supplied backing to the Socialist contention that the control over capital concentrates into relatively fewer hands as this system develops.

The business of the Birkbeck was acquired by the London County and Westminster Bank, one of the premier banks, with a capital of 14 millions. That is the usual way—the small concern dies the large one grows greater at its expense.

Adolph Kohn

Letter: Banks and Credit. (1933)

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

Banks and Credit.

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

Tottenham, N.17.

7/11/33.

Dear Comrade,

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

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

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

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

Yours fraternally,

R. Hobsbaum.

Reply.

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

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

"Well, reasonably, I think."

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

"Not from your cash, do I? "

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

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

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

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

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

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

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

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

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

B. S.

The Socialist Forum: Bank Loans and Deposits. (1931)

Letter to the Editors from the March 1931 issue of the Socialist Standard

Two readers (W. Nicholls and E. Wright) draw attention to the address delivered by Mr. McKenna at the shareholders’ meeting of the Midland Bank. In the course of the address Mr. McKenna said : “It is evident that more money was created than trade actually needed.” These two readers both ask who “created the money” if the banks did not.

What these readers have not allowed for is Mr. McKenna’s notoriously loose use of words. If we had only this phrase to go upon, we might believe (as our critics want us to) that Mr. McKenna still holds the view which he is once alleged to have expressed in the phrase, “Every bank loan creates a deposit,” i.e., the theory which. Mr. Wright puts as follows : “Banks create money and lend it, using it as capital and so get interest for nothing.”

If, however, we read the whole of the passage in which Mr. McKenna dealt with the subject, he makes it quite clear that he does not hold that absurd view. In his speech he pointed out that during 1930 the amount of loans by the Midland Bank decreased while deposits increased by many millions of pounds. (For the whole of the banks on the London Clearing House, loans and advances in 1930 decreased by £50 million, while deposits increased by £72 million.)

What Mr. McKcnna really thinks can be seen from his speech at the shareholders’ meeting on January 22nd, 1930) (see Times, January 23rd, 1930) :—

“It is a common notion to judge from speeches and letters in the Press, that the banks have an inexhaustible power of lending money to industrial enterprises, and that any industry suffering from general depression could be restored to prosperity if only what is termed a more generous policy were adopted by the banks. (Laughter!) A moment’s reflection, however, will show that the banks have no inexhaustible fund to draw upon. The sums they lend are balanced by amounts due to depositors, who would certainly not rest content unless confident that their money was being wisely used and could be repaid to them at any time.”

The reply to the question, Who did “create,” if not the banks? is that the working class produce wealth by applying their labour-power to natural resources. The wealth when produced belongs to the capitalists. In the early days of capitalism they carried on the process of exchange (i.e., buying and selling) through the medium of gold. With the rise of the banks the latter, using a relatively smaller quantity of gold, act as intermediates between capitalist owners of various kinds of goods. Bank deposits represent in money terms some of the commodities which the working class have produced for the capitalists. Purchasing power arises from the ownership of wealth and cannot be “created.” Banks act as agents for facilitating exchange between owners.

Editorial Committee.

Cooking the Books: Poor Woman’s banker (2006)

The Cooking the Books column from the December 2006 issue of the Socialist Standard

This year’s Nobel Peace Prize has been awarded to Muhammad Yunus, an economics lecturer and banker from Bangladesh. The spread of “micro-banking”, which he thought up and put into practice, was judged to have contributed to world peace.

Leaving aside whether he should have got the Economics rather than the Peace prize, what is micro-banking? Actually, it is not all that different from ordinary banking in that it is still based on a bank lending out money that has been previously deposited with it. The difference lies in who the money is lent to. The Grameen bank, which Yunus set up in 1976, lends to poor self-employed people.

The established banks in Bangladesh had shunned such people because, being so poor, they had nothing to offer as collateral for any loan and so were not considered credit-worthy. In order to start up or keep themselves in activity, poor self-employed people had to resort to local money-lenders who charged usurious rates of interest. A typical example would be the woman in the story about how bank got set up:

“In the village of Jobra, Dr Yunus met a woman who made bamboo stools. Because she had no assets and was unable to borrow from conventional sources, she had to resort to the money lenders. For each stool, she borrowed the equivalent of 15p to buy the raw bamboo. After repaying at extortionate rates of interest she made barely 1p on each stool. This woman was hard-working and talented but was being held back by a lack of access to finance. Inspired by her story, Dr Yunus started a series of experiments and lent tiny sums of his own money to villagers. They used the money to set up small businesses such as basket weaving and raising chickens. He found that his borrowers — mainly women — repaid in full and on time” (Times, 1 September).

What Yunus had shown was that the poor self-employed can be credit-worthy. Banks based on his principles lend out very small sums for a year which have to be repaid, with interest (at just above the ordinary banks’ rate), from current sales. While a means of freeing the self-employed in countries like Bangladesh from the clutches of the money-lenders, micro-banking is not a solution to global poverty. Not only because not everybody in such countries could become a basket weaver or a chicken farmer or a maker of bamboo stools, but because those the bank lends to remain poor and dependant on the vagaries of the market.

Nor is there anything anti-capitalist about the scheme. The Times described Yunus in an editorial (14 October) as “the Adam Smith of the Poor” and their correspondent in Dhaka reported:

“Professor Yunus insisted that he was not against the free market, but that he wanted the market to be free for everyone. ‘I am a free-market guy and even the poor should be part of the free market’, he said. ‘Two thirds of the population of the world are not able to participate, so it is not free’”.

The way the Grameen bank works also confirms the Marxian view that banks cannot create credit out of nothing. Like other banks it can only lend what has been deposited with it. If certain banking theories were correct — that if you deposit £1 in a bank, it can then lend out £9 rather than only 90p — then Professor Yunus would have been able to help the poor self-employed of Bangladesh by a mere stroke of the pen. But if he had tried to run his bank on this theory it would have rapidly gone bankrupt, and the only prize he would have got would have been a booby prize for either stupidity or naivety.

Voice From The Back: An oil business (2004)

The Voice From The Back Column from the September 2004 issue of the Socialist Standard

An oil business 

It is not just socialists who point out that the present conflict in the Middle East has a basis in the need for oil in modern capitalism. John Chapman, who was a former assistant secretary in the British civil service from 1963-96, expressed similar views in the Guardian (28 July). “Saddam controlled a country at the centre of the Gulf, a region with a quarter of world oil production in 2003, and containing more than 60 percent of the world’s known reserves. With 115bn barrels of of oil reserves, and perhaps as much again in the 90 percent of the country not explored, Iraq has capacity second only to Saudi Arabia. The US in contrast, is the world’s largest net importer of oil. Last year the US Department of energy forecast that imports will cover 70 percent of domestic demand by 2025. By invading Iraq, Bush has taken over the Iraq oil fields, and persuaded the UN to lift production limits imposed after the Kuwait war. Production may rise to 3m barrels and about double 2002 levels.” It is surely no accident that the Bush administration is heavily backed by western oil giants, is it?

 

Another Labour triumph

“The gap between rich and poor has widened since Tony Blair took office, and social class and ethnic background still influence heavily an individuals life chances, a report by the Institute of Public Policy Research, a centre-left think-tank, says” Times (2 August). Is there anybody out there who still imagines that the Labour Party has got anything to do with socialism?

 

A wake up call

The news that HSBC, Britain’s largest bank, rang up record six-month profits of £5.2bn at the same time that they are in the process of cutting 7,500 jobs, of which 4,000 are being transferred to low-wage call and processing centres in Asia brought forth a burst of righteous indignation from a top bank trade union official. “Yesterday’s figures drew condemnation from unions representing HSBC’s employees. Rob O’Neill, Unifi’s National Secretary, said: “We don’t know how HSBC’s directors can sleep at night. Instead of rewarding staff for their part in making HSBC as profitable as it is, the bank is slashing jobs in the UK and exporting more and more work to Asia in an attempt to cut costs” Independent (3 August). We imagine the directors and shareholders will sleep just fine, it is O’Neill who should wake up. The purpose of all capitalist concerns is to make as big a  profit as possible, one of the ways they do that is by cutting costs. If O’Neill imagines the purpose of capitalism is to reward workers he is living in cloud cuckoo land.

 

Crime and punishment (1)

A piece of summary “justice” that even Labour’s tough guy David Blunkett might balk at occurred recently in Russia. “A passenger riding the Moscow Metro without a 20p ticket has been shot by a policeman. The unnamed 29-year-old has been charged with attempted murder. Labourer Rustam Balbekov was shot in the mouth and doctors say he is lucky to be alive . . . The bullet smashed his jaw and went through his neck. Witnesses heard the sergeant say: ‘Do you want to get shot?’ before he opened fire after getting no response” Sky News (4 August). Capitalism just gets madder and madder!

 

Crime and punishment (2)

The dreadful carnage keeps increasing in Britain’s women prisons. “Officers in Holloway prison are cutting down five women a day from nooses, the Guardian has learned, and recently saved one inmate six times in a single night. But these women are the lucky ones. Already this year 11 female prisoners in English and Welsh prisons have apparently taken their own lives and campaigners fear that this year will see the greatest number of female jail deaths since records began . . . At the heart of the problem is overcrowding. The female prison population, like that of men, has soared in the past 10 years from 1,811 in 1994 to 4,475 at the start of last month” Guardian (9 August). What a society capitalism has become. Shoplifters committing suicide!

Cooking the Books: The papers learn how banks work (2023)

The Cooking the Books column from the August 2023 issue of the Socialist Standard

Over the weekend of 17/18 June two national newspapers ran the same story. ‘Banks rake in £4.8bn extra profits in “appalling rip-off”’, said the i paper. ‘Britain’s biggest lenders rake in £44BILLION as interest rates rise while hard-hit families suffer from rising mortgage costs’ said the Mail on Sunday. They were criticising the banks for being quick – when the Bank Rate goes up – to put up the rate of interest they charge those with a mortgage but much slower to put up the rate they pay to those who have savings with them.

Both pointed out that this leads to an increased ‘net interest income’ for banks which the i paper said was ‘the profit made by banks from charging higher borrowing costs on mortgages and loans, compared to what they pay out in savings accounts.’ The Mail on Sunday defined it as ‘the difference between what the companies charge borrowers for loans and mortgages and what is paid to savers in interest’. Theirs was the more accurate description as it’s the banks’ income. Only a part of this will be their profits as out of it the banks have to pay their costs such as buildings, computer systems and wages. Banks also have other sources of income which are not banking, for example fees from financial advice and management.

‘Net interest income’ is the key to understanding how banks work as it shows that they are financial intermediaries making money by borrowing at one rate of interest and lending at a higher rate. Others have suggested a different model, arguing that banks simply create the money they lend by a few keyboard strokes. In that case banks would not be financial intermediaries but money creators. Their income would be ‘gross interest income’ and their profits greater by the amount they currently pay savers (and others who lend them money). Populist journalists could be even shriller in denouncing them as greedy.

But the papers confined themselves to examining the ‘net interest income’ that shows that banks are financial intermediaries rather than money creators. The money they lend — the credit they extend — comes from money they themselves borrow. They compete against each other to attract savings in order to get money to lend. Which they wouldn’t need to if they could simply create it.

Banks don’t borrow just from savers. They also borrow from the money market, where the lenders are other financial institutions and banks, and, unlike building societies (which are essentially specialised banks), they don’t just lend money to buy houses.

The high street banks are not the only financial intermediaries. There are other financial institutions which borrow money to re-lend; in fact, there is a whole ‘shadow banking’ sector involved in this, less regulated and more risky and dodgy. At the other end are credit unions which nobody dares claim create the money they lend.

There is nothing special about banking. It is just one field of profit-seeking capitalist business enterprise. As their trade association, UK Finance, told the Mail on Sunday:

‘Banks are commercial organisations and therefore seek to offer the best possible value to customers while also making a profit. This allows them to invest in their business and deliver shareholders a return on their investment.’

Bankers don’t control the economy. Banks don’t make bigger profits than other capitalist enterprises and don’t need to be singled out as ‘finance capital’ as something worse than industrial capital. There is one difference, though. While the physical assets of industrial capital will be taken over in socialism and used to produce directly to satisfy people’s needs rather than for profit, banks will have no place.

Cooking the Books: Collapse of a banking theory (2023)

The Cooking The Books column from the April 2023 issue of the Socialist Standard

It’s happened again. A bank has collapsed. And not just any bank but the 16th largest in the US. Yet there are still people who argue that banks can create ‘out of thin air’ the money they lend (and others who give the idea credence by using the phrase even though they accept that it couldn’t apply to an individual bank).

According to the thin-air school of banking, a bank’s business model is to lend money it simply creates and gets its income as the interest it charges on the loans.

This is only half the story. A bank’s income does consist of interest. However, unless it is a private bank — a polite, modern word for money-lender — and is lending its own money, it has to obtain money to lend from somewhere. One source is depositors but to attract savers a bank has to pay them interest. Banks also borrow money from other financial institutions on which they have to pay interest too.

In other words, a bank has to pay interest as well as receiving it. A bank’s actual business model is to obtain income from borrowing at one rate of interest and lending at a higher rate. Banks are financial intermediaries, not financial magicians.

The Silicon Valley Bank (SVB) was, as its name suggests, a bank based on accepting deposits from tech companies starting up. These would get money from some venture capitalist taking a punt on their success. The new company would deposit this in the SVB before spending it and topping it up with the next tranche of money from a venture capitalist. The SVB paid them interest on this and used the money to make loans, including to other tech companies, at a higher rate. They also held some of it as government and other bonds which could be converted into cash when needed.

The Federal Reserve, the US central bank, has, for various reasons, been putting up short-term interest rates. This had an effect on the SVB banking activities:

‘Silicon Valley Bank has been bleeding deposits as the Federal Reserve has aggressively raised borrowing costs to fight inflation. Higher interest rates bludgeoned many of the tech businesses that had deposited their money with the bank. As venture capitalists retreated from offering companies fresh infusions of capital to sustain their businesses, start-ups needed to burn through the cash in their accounts to stay afloat. Deposits the bank had on hand have fallen steadily over the last several months, according to S&P Global Ratings. Higher rates also meant more investments offered an attractive yield, leading some clients to pull out their deposits and put them elsewhere’ (politi.co/3yCOgtX).

With reduced deposits, the SVB no longer had enough money to honour all of its loans. It thought of raising the money to do this by selling off its government and other bonds. Unfortunately for it, one effect of rising short-term interest rates is to lower the price of bonds:

‘When banks run into trouble, they can be forced to sell off investment assets, typically US government debt and mortgage-backed securities, that they purchased to earn a return on their customers’ deposits. As interest rates climb, the price of those older securities fall — which means the banks sell those investments at a loss’.

The money raised from SVB’s sale of its bonds wouldn’t have raised enough. It was insolvent.

Its failure is a classic demonstration that banks cannot create money out of thin air. Otherwise why would losing deposits make any difference? If a bank was short of money, all it would have to do would be to conjure some more out of thin air, lend it and pocket the interest. No bank would need to fail. But they do.

Sting in the Tail: Who are the crazies? (1995)

The Sting in the Tail column from the April 1995 issue of the Socialist Standard

Who are the crazies?

Capitalism is a crazy social system. It takes food out of production to keep up prices, while people go hungry. A recent example of this market madness appeared in the Observer (5 February):

"Every morning, farmer Brian Nicholas carefully collects 800 litres of milk—fresh, creamy and frothing—and then tips it all into his muck spreader. . . Mr Nicholas, a small dairy farmer is one of hundreds of producers forced by European Union milk quotas to throwaway his produce this year, following deregulation of the milk industry in November."

Defenders of capitalism are always telling socialists that production for profit is the only sane way to run society. Are we crazy because we think milk should be produced to satisfy human needs?

Sense about race

The racist ideas currently coming out of America are being countered by American scientists. An article in the Independent (21 February) reports that ‘‘the concept of race is out of date and has no biological basis, according to scientists”.

Professor of anthropology Loring Brace told the annual meeting of the American Association for the Advancement of Science in Atlanta that the division of people into separate races was “an historical hangover from the days of colonial conquest”. Indeed:

"There was no race concept prior to the Renaissance. There is no race concept in the Bible or other writings of antiquity. The best way to refer to people is to use geographical designations. Thus people can be identified as African, or Australian, or European. and the like."

And another anthropologist, Professor Kay, summed it up:

"There is just no valid reason for using existing racial terms. This isn't politically correct, it's scientifically correct. "

The back scratchers

After Labour’s 1945 election victory, the Tories bitterly attacked its policy of wholesale nationalisation. They soon came to accept that, however distasteful, a greater degree of state ownership did have widespread public support and probably was necessary to set post-war British capitalism back on its feet.

Thus Labour did the Tories’ dirty work for them, but see what is happening now. Following the Tory victory in 1979, Labour threatened to return each privatised industry to state ownership, but because this was now a vote-loser and had (as we always said it would) proved to be a flop anyway, these threats have been dropped one-by-one. Now, even water and coal are to stay privatised.

So history is repeating itself: just as Labour after 1945 took the steps which the Tories shrank from taking themselves, the Tories are returning the favour for a future Labour government.

NatWest’s dodgy future

NatWest Bank's 61 percent increase in pretax profits in 1994—up from £989 million to £1.6 billion—was less than well received by the bank's workers. They were furious because the directors will cop huge bonuses, shareholders pocket bigger dividends, while staff get rises averaging 3 percent.

But the City of London wasn’t happy either as the big jump in profits wasn’t due to an improved performance by the bank. Income was down and costs were up while UK banking profits actually fell by £109 million despite savage staff cuts and branch closures.

In fact, the increased profits were almost entirely down to the big drop in bad debt from £1.25 billion to £616 million and is probably a one-off.

The City knows that ever-increasing competition, plus limits to what can be saved by cost-cutting, mean that NatWest’s future profits growth is under threat. Banking is not, as many people imagine, a licence to print money.

Nothing is forever

After World War Two that grand old British institution, the small shopkeeper who was “open all hours”, was decimated by the High Street chainstores which were cheaper and provided greater choice.

The High Street in turn became an institution but is now in trouble. Many of its shops lie empty and Rumbelows entire chain is to close shortly. The recession and high prime-site rents are among the reasons for this, but the main one is the growth of Shopping Malls and edge-of-town Superstores which offer even greater choice plus easy parking.

But nothing is forever. Already Malls and Superstores in America are being challenged by TV shopping which means shoppers don’t even have to leave their homes.

So everything that appears to be stable and permanent is merely in a state of temporary equilibrium and is in the process of becoming something else. This applies not just to capitalism’s hallowed institutions but to the very system itself.

Madras madness

In the Calcutta newspaper, The Telegraph (5th March) we read of the booming trade in kidney selling down in Madras. Like every other market in capitalism, when there is an increase in supply there is a fall in price, in this case from 80,000 rupees to 30,000 rupees. This is approximately from £1,600 to £600.

This macabre trade is defended by a local leading nephrologist. K.C. Reddy is quoted as saying:

"We have a group of people dying and desperate for a kidney. Then there is a group, much below the poverty line, willing to sell anything for some money. For them, selling a kidney is a more altruistic option — at least they are saving, not harming anyone. There is no question of exploitation here."

The newspaper reports that most of the kidneys are going to patients in Germany, Japan and the Gulf. One recipient from Yemen is reported to have paid $10,000 for his transplant.

The whole sordid business is typical of capitalism. Wherever there is human misery there is always “entrepreneurs” quick to cash in. Only in socialism will the best possible medical and health care be free to the whole of the world’s population. 

Machines in Office. A Call to Clerical Workers. (1931)

From the April 1931 issue of the Socialist Standard

Office staffs in all branches of commerce and industry are now finding themselves faced with reductions in pay. In nearly every instance the employers, when “informing” the staff of salary revisions (as the General Manager of the Midland Bank told the Royal Commission on the Civil Service, the Bank Board does not discuss wages with the staff, it “informs them of its decision”), give the excuse that the reductions are only reasonable adjustments to a lower cost of living, so that the real standard of salaries is not being impaired. Clerical workers, while far from satisfied that a reduced salary in 1931 will go as far as a larger salary in 1929, with the docility for which they are infamous, and with a fatalistic resignation, assume that perhaps there has to be a reduction in their pay it trade is to improve. Does it ever occur to them to consider whether the “reduction-to-meet-the-fall-in-prices” sauce that is served for the goose, salaries, is also served for the gander, dividends ? In the world of banking, at any rate, it is not.

Recently there has been much talk of the need to reduce the pay of bank clerks “in order to meet changed conditions.” The lead has been taken by the Midland Bank, Ltd., which has revised its scales of pay for new entrants. Formerly a clerk in London after ten years’ service received £240 a year if he was on the maximum scale. By the fifteenth year his pay had risen automatically to £370. Beyond that point further increases were at the discretion of the directors. Under the new scale a new entrant will receive, at the most, only £205 after ten years, and at this point automatic rises cease. Other banks are following suit.

Now what about dividends? Here directors and their Press are strangely silent about falling costs of living. All of the “Big Five” banks (except Lloyds, which reduced dividends from 16 ⅔ per cent. to 15 per cent.) paid the same dividend in 1930 as in 1929. But, according to Mr. McKenna, of the Midland Bank, the purchasing power of money in 1930 was 19 per cent. higher than in 1929, owing to the fall in prices. From which it follows that the shareholders received a 19 per cent. increase in real dividends in 1930, and even Lloyds’ shareholders were 2 per cent. better off than in the previous year. To this maintenance of dividends, side by side with a reduction in salaries to meet lower prices, the remark of Sir Frederick Lewis, Bt., when proposing a hearty vole of thanks to the staff of Barclays Bank, comes as a nicely ironic pendant. Sir Frederick, who, by the way, manages to direct the affairs of a mere 32 companies, was filled with love and admiration for the staff, but unfortunately “the only method they had of recording their appreciation was the passing of the resolution he had the honour to propose” (Times, January 21st, 1931). Needless to say, as votes of thanks, be they never so hearty, do not cut into profits, the shareholders passed the vote with enthusiasm.

On the face of it, the reduction in pay of clerical workers may look like an adjustment to lower price levels, as the employers say that it is. In fact, it is something much more important. It is an attack on standards of living and a revelation of a weakening in bargaining power of the workers. It is the first of the consequences of the mechanisation of office work that has been proceeding apace since the end of the war. Machines in offices are producing the same results as are produced by machines in industry. Unemployment, formerly of fairly small proportions so far as clerical workers were concerned, is increasing and wages are falling. Before the war the typewriter was the chief piece of office machinery. To-day it is only one of many. Calculating machines, ledger posting machines, addressographs, mechanical sorters, copying machines, automatic switchboards are but a few of the mechanical devices that are supplanting labour in offices and, by simplifying processes, increasing competition. Before the calculating machine was used, a certain proficiency in arithmetic was essential for a clerk ; now it is not at all necessary. Consequently, employers are able to recruit their staff from a lower educational grade, and to utilise women instead of men. In other words, the supply of clerical workers is being extended while the demand is diminishing. It is this that leads to increased unemployment and enables attacks on wage standards to be successfully launched. The talk of reducing pay in order to help trade recovery is a mere subterfuge. Clerical workers should not blind themselves to the real economic forces at work. As was stated by a writer in the Journal of the Institute of Bankers in Ireland (October, 19291, the changes resulting from the introduction of machines into offices are “analogous in some respects to the industrial revolution of a century ago.” According to this writer, office machines give three times the output possible by hand, with less and cheaper labour. Other conclusive evidence to this same effect is abundant. Mr. H. L. Rouse, Assistant Chief Accountant of the Midland Bank, Ltd., wrote in The Banker (November, 1930) : “Two ledger posting machines should enable two male clerks 10 be released (!) and should necessitate the engagement of one new female operator.” In a debate reported in the Journal of the Institute of Bankers (January, 1930), Mr. Rouse, discussing the installation of machinery at 73 branches of the Midland, said : “The net saving of salary to these branches is approximately £85,000 per annum against a capital outlay of £150,000; but as the life of these machines may be fairly regarded as ten years, it is obvious that the economy effected is a very substantial one.”

He went on to point out that at these branches 311 men were withdrawn consequent on the introduction of the machines, and 86 women engaged, and that new entrants to the bank had been considerably curtailed, so that juniors already in the service would have to mark time for a period until the process of mechanisation had reached its economic limit. Mr. F. Hyde, General Manager of the Midland Bank, told the Civil Service Royal Commission, on Monday, February 23rd, 1931, that the machines had enabled his bank to cut down their intake of young male clerks from between 400 and 500 a year to about 200 a year.

It is interesting, in passing, to notice that the same problem arose in the Post Office Saving’s Bank before it arose in the non-Government banks. It is claimed by high Savings Bank officials that the Post Office led the way in introducing machines and is already saving £40,000 a year by employing lower-paid women machine operators in place of men clerks. One witness at the Civil Service Commission, Sir Alfred Woodgate, went so far as to suggest the replacement of the great bulk of men clerks in the Civil Service by women at lower pay.

This general tendency to employ women on machine operating intensifies the downward tendency of wages. The male clerical worker hopes to rise to a certain salary, say, in 15 years, and to receive at least that salary for the rest of his working life, say for 30 years. But women workers’ salaries do not rise to the same levels, and as women retire earlier than men, they receive the highest rates of pay in fewer instances and for a shorter period. On this point Mr. Rouse, in the debate already referred to, was quite definite, his evidence being to the effect that “the female staff are more subject to change than the male staff; in fact, 15 per cent. to 20 per cent. of the females resign every year and are replaced by new entrants at the lowest salary.”

This is sufficient to show how machinery causes workers to be dismissed, the substitution of cheaper labour, and a contraction in the demand for labour.

The introduction of mechanical appliances has already gone far, but the process is only in its infancy. As the City Editor of The Times states : “The mechanisation of banking is likely to increase considerably during the next few years in order to reduce labour costs” (Times, December 22nd, 1930). This remark can safely be extended to apply to all other branches of clerical employment.

So far as Socialists are concerned, we have dealt with this mechanisation of clerical work because it bears out two points we have always made.

Firstly, it shows that, under capitalism, machines arc additional weapons in the hands of the employers, creating unemployment and lowering wages. Secondly, clerical workers must ultimately realise that they are not a class apart in society, a “middle class,” but that, economically considered, their position is identical with that of the so-called manual workers. They are, like navvies, dependent for their living on being able to sell their labour-power. They are propertyless individuals working for wages for the benefit of the property-owning-class. They are members of the working class. Until they act politically in the light of that fact, they will continue to find that machinery is of no benefit to them.

“BANK CLERK”

By The Way: Canadians on Germany (1945)

The By The Way Column from the February 1945 issue of the Socialist Standard

Canadians on Germany

The Canadian Army newspaper, The Maple Leaf, has conducted a poll among Canadian troops now fighting, on post-war treatment of Germany.

“Less than ten per cent, suggested the partition of Germany, and less than ten per cent, the separation of Prussia from Germany”.—(Daily Herald, January 3rd, 1915.)

The Maple Leaf’s comment was: —

“The whole wipe-out-the-German-nation idea is knocked on the head by these men. Many even mentioned this idea and pointed out that they considered it absurd and impossible. . . . There is a general impression among these fighting men that any term of war debt in money or any partition of Germany is very likely to lead to another war !”

Everybody who does a job of work for a living knows how quickly one’s pre-conceived notions of a particular job vanish when you come up against the job itself.

Perhaps if Lord Vansittart and one or two others (Pollitt & Co., etc.) had a few weeks fighting at the front, it might alter their ideas.

* * *

More Belt Tightening

“Two of our large banks, Barclays and the District, report larger profits in 1944 than in 1943. Barclays’ net. figure has improved from £1,584,000 to £1,673.000, and the District Bank from £434,000 to £449,000. In each case the dividends remain unchanged. Barclays Bank are paying 10 per cent. on the ‘A’ and 14 per cent, on the ‘B’ and ‘C’ stocks, and the District Bank 18⅓ per cent. on the ‘A’ and ‘C’ shares and 10 per cent. on the ‘B’ shares.”(News-Chronicle, January 5th, 1945.)

“Midland Bank profits for 1944 have passed the Two million mark for the first time since 1939. The figure is £2,038,274, against £1,984,396 for 1943. Dividend is maintained at 10 per cent.

“Westminster Bank profits are up. Dividend remains 18 per cent. on the £4 shares, and 12½ per cent. on the stock.

“‘Big Five’ aggregate profits for the year are 4.1 per cent. higher—£8,004,602—a new war peak.”—(Herald, January 10th.)

“Lend to the End” (18 per cent.)

* * *

Can We (?) Afford It?

A spate of writings on this theme is now filling the columns of the public press.

The end of the European war is alleged to be in sight, though some of the optimists (as usual) seem to be equipped with conveniently powerful telescopes.

We are approaching the period when the rosy promises of the early days—”jobs, homes, security,” etc.—made to induce war-enthusiasm, are beginning to fall due.

It’s the “morning after the night before.” The first ominous grey shadows of a frigid winter’s morning to dispel the romantic illusions of Churchillian radio rhetoric.

Members of Parliament, professors and “experts” are vieing in the attempt to calm the people down. “Don’t expect too much !” The things we want have got to be paid for! “There isn’t the money!” “How can we do it? Can we afford it? ” is their monotonous refrain.

Imposing arrays of figures are cited showing how poor WE (?) really are.

“By a great act of faith, we have mortgaged our, as yet, non-existent national income with colossal charges for education and social services. . . . Two questions at once arise. Can we stand this staggering expenditure? Will we stand it?” asks Captain Gammans, Tory M.P. for Hornsey.— (Evening News, December 27th, 1944.)

The “staggering expenditure” referred to is Two thousand millions a year. The current expenditure for 1944, according to Capt. Gammans himself, is Three thousand millions.

The plain simple man might well ask, “If we can stand it in 1944, why not 1947 or 8?”

But, no! it’s not so simple. You see, war-time is “abnormal.’

“What are the things on which we have set our hearts? They are social security, a greatly improved medical service, an educational system which will enable a poor child to enjoy the same advantages as a rich one. family allowances, good houses for everyone at rents they can afford, and on top of all these, and other things I have not mentioned, we are to achieve a rising standard of living”.—(B. Seebohm Rowntree,  Evening Standard, November 30th.)

“Economists tell us that to pay for them we must increase our exports by 50 per cent, above the pre-war figure, but we can only do this if we can sell our goods in the world markets at competitive prices.”— (B. Seebohm Rowntree.)

“The first is that we succeed in restoring a sufficient volume of export trade to provide for the essential imports, without which we do not eat or remain an industrial power at all. The second is that our industry and agriculture are efficient”—(Capt. Gammans.)

Our readers will see at once that we have two bright new boys for the “Export or Bust” chorus, now being produced at colossal expense, in inglorious Technicolour, by the British capitalist class.

They are bright new boys—both of them—because they have thought up one or two new ghost stories to curdle the blood of the British working man.

First, Mr. Rowntree (we’re glad his cocoa is a bit more nourishing than his arguments) : —

“Let us make no mistake. We cannot get these things merely by a redistribution of existing wealth; a little may be possibly got that way, but by far the greater part of the cost involved, which may run into hundreds of millions of pounds a year, can only be met bv increasing the total amount of wealth produced.”

Now Capt. Gammans : —

“If we were to confiscate every income of over £1,000 a year and distribute it among the rest of the community, each person in this country would benefit to the extent of only about 3s. 9d. a week.”

This is a perfectly simple straightforward proposition as old as the hills. It will be found in “Value, Price and Profit,” by Marx, published seventy years ago. It was the argument of Citizen Weston. He said, as Marx graphically put it, that “what prevented working men getting more out of the bowl (of soup) was its smallness.” Marx called this argument “rather spoony.” Interestingly enough, F. A. Ridley in the New Leader and Michael Foot in the Daily Herald say the same thing.

Ridley is supposed to be writing about Socialism and Equality. He actually writes: “Under Socialism everyone would get exactly the same.” (New Leader, September 2nd, 1944.) This is nonsense. Ridley goes on : —

“The extreme left—anarchists, S.P.G.B., etc.—will demand the application of the classic formula, ‘From each according to his ability, to each according to his needs.’ . . . ‘To each according to his needs’ is an Utopian formula … it outstrips the present capacity of society.”

In other words, workers go short because there’s not enough. By the way, the S.P.G.B. is not the “left,” extreme or otherwise, but THE Socialist Party.

Lastly, Michael Foot (Daily Herald, January 9, 1945) :

“Now the subtle point about all this propaganda is that part of it is true. It is true that many British industries are hopelessly inefficient. It is true that an increase in production per man hour could, under certain other conditions, greatly increase the wealth of the community.”

So, according to Ridley, industry has not the “capacity”; to Foot, it is “inefficient.”

The bowl is too small. Seventy years ago Marx said that it was not the “narrowness of the bowl nor the scantiness of its contents” (“Value, Price and Profit,” Chap. II.), but the smallness of their spoons which prevented working men getting a larger portion.

The Government has now published figures of war-time production. The increase in production of wealth, despite war difficulties, is simply staggering. Despite the fact that some things (aeroplanes, e.g.) are produced in quantities for which no pre-war criterion exists—it is not unfair to say that, generally speaking, production has more than doubled, while workers’ consumption has been more than halved. (“Statistics relating to the War Effort of the United Kingdom,” Stationery Office.) It has never been the Socialist case that a redistribution of existing wealth would solve the poverty problem under capitalism.

Reference to our pamphlet “Socialism” (page 9) shows that:—

“Even with the present wasteful use of the productive forces there is enough wealth produced to raise the standard of living of the great mass of the population. Mr. Colin Clark, M.A., in his recent book, “The National Income, 1924-31,” estimates that if the total national income were equally distributed, every family mould have received about £349 during 1929, £311 during 1930, and £298 during 1931. These amounts are equal to about £6 14s. a week, £6 11s. a week, and £5 13s. a week for the years in question. In point of fact, they got about half this sum.”

Now, with production more than doubled, despite the absence’ of millions of the most fit, we’re told we are not producing enough to go round.

“The great inequality of income is, moreover, only one aspect of the poverty problem. Capitalism not only bestows on the rich a large share of the wealth produced, but—even more important—it keeps the total amount of wealth produced far below the possible total.”— (“Socialism,” page 10.)

This is the answer to Capt. Gammans (Tory), Seebohm Rowntree (Liberal), Michael Foot (Labour), F. A. Ridley (I.L.P.).

The abolition of capitalist ownership of the means of wealth production will remove the “chocks” from under the landing wheels of the productive system.

What has happened during this war, where the amazing capacity of a modern working class has been demonstrated, due to temporary, insatiable military demand, is a slight indication of what that working class can do, relieved of exploitation, and with the end of futile occupations like advertising, and fighting for and waiting on parasites.

We Socialists are not to be frightened by horror stories about whether WE can afford it.

We shall not be led up the garden path of renewed fierce competition and rivalry to export more than our American and German brothers, leading to a new war.

To-day we can make our bowl of soup as large as we like—once we’ve knocked the shovels out of the capitalists’ hands by intelligent political action—and issued everybody with a spoon.

Horatio.