Finance & Industry: If only prices would come down! (1961)

The Finance and Industry Column from the January 1961 issue of the Socialist Standard

If only prices would come down! 

A woman reader of the Evening News (28/11/60) wrote referring to the old saying that what goes up must come down, and asked if this applies to the cost of living; “if so I haven’t noticed it”.

About 99 per cent. of the population would say, if asked, that they “want prices to come down”. They don’t really mean this. What they mean is that it would be very nice if the prices of the things they buy went down and the price of the thing they sell went up. The worker would like to sell his mental and physical energies to his employer at a higher price (a higher wage) and at the same time get more for each pound he spends, through lower prices in the shop. And manufacturers who sell industrial products would like to see those prices go up and all other prices (including wages) go down.

One exception to this general attitude is the common practice of trade unions of associating themselves with their employers in approving higher prices. Thus the railway unions approve higher fares and the coal miners higher prices for coal.

But coming back to the question in the Evening News, would workers be better off if prices were lower? France a few months ago and Russia this month gave one kind of answer to the question, the answer being that it did not make any difference. What happened was that France cut the face value of her currency by 100, and the Russians cut their rouble by 10. At the same time all prices, wages, fares, etc., were cut in the same proportion, so everyone was in just the same position as before.

But on some occasions prices have not been reduced by this kind of government action but have fallen under the influence of trading conditions. Did the workers gain then?

It happened in 1920-1922. Between November 1920 and December 1922 prices fell on average of 35 per cent.; like being able to buy for 13/- some article which had cost 20/-.

But in the same period wage rates fell on average by the same percentage (or perhaps a little more). So the worker who could buy articles at lower prices had fewer shillings in his wage packet to buy the articles with.

It was a time when unemployment was heavy and conditions were particularly unfavourable for trade union resistance to wage cuts.

New Russian Rouble

The declaration of the Russian government that as from 1 January 1961 the official rate of exchange of the rouble will be 2.52 to the £ which will make it of higher value than the dollar and equal to about 8/-, will not mean much in practice since (unlike the dollar) it is not tied to gold and is not freely convertible into pounds or dollars. Commentators in the newspapers mostly take the line that the aim of the Russian government is prestige, the satisfaction of having at least a nominal exchange rate greater than that of the dollar. In addition however there is already the long term purpose of making the rouble eventually a gold backed world currency acceptable in inter-national trade as the pound and dollar have been.

The Daily Worker (17/11/60) anticipates that “the new exchange rates and the change in the gold content of the rouble herald the opening up of peaceful competition between the rouble and the dollar”, and “It may not be long before the rouble begins to challenge the dollar for primacy in world trade”.

There was a time when even the Daily Worker would have recognised that the trade war between capitalist states is anything but “peaceful competition “.

Rouble Millionaires

The Daily Telegraph (6/12/60) tells of a Russian woman who got into the ranks of the rouble millionaires by a piece of private enterprise that landed her in jail for three years. She ran an organisation, complete with a lawyer as secretary, a “scientific consultant”, an accountant, and a network of agents selling cure-all herbs at 45/- a packet. When arrested she had 700,000 roubles (worth about £60,000 at the old rate of exchange) and had just bought a country house for 300,000 roubles. “Her daily earnings would sometimes amount to 5,000 roubles, or eight times a worker’s monthly wage”.

The Economic Horizon

A year ago most of the political and economic forecasters were happy about the boom time ahead and still confident that if anything went wrong the government could fairly easily take the steps that would put the economy back on expansion. Now they are not so sure. The fact that they are all asking the question is itself a pointer to growing uneasiness, made greater by the foreseeable but generally not foreseen collapse of motor exports.

Now it is accepted that America and Canada are likely to have unemployment greater than in any year since the end of the war and there is the natural fear that British export trade may fall further and the jobless increase in number.

Gone is the post-war optimism based on the belief that they could always dip into the Keynesian remedies and keep everything under control. One of the current activities is the setting up of export councils to boost the sale of British goods in overseas markets, including the Export Council for Europe set up by the Federation of British Industries and manned by “some of the most prominent men in British industry and commerce ” (Financial Times, 11/11/60).

But before anyone accepts that the export problems of British capitalism can readily be solved by pushing into other markets (and thereby crowding out some other would-be sellers) it has to be remembered that other sections of the capitalist class would have had the same idea. Canada has appointed a “super salesman” to head its export drive, in the person of a new Minister of Trade and Commerce, and the American government is trying to boost their exports. Sweden, too, is aiming to solve its problems by more exports, and their eyes are fixed on the market for their goods in Britain. And to add to the troubles of all of them Russian exports are finding their way into many of the world’s competitive markets.

Paul Bareau, the new economic editor of the Daily Mail (25/11/60) argues that the present troubles in this country are due to “the excessive optimism and rashness of the years 1958 and 1959. Restrictions on hire purchase should never have been completely removed. This freedom was abused and we are now paying the price”.

So you take your choice between those who say that there is no need to worry because the government can always take action to put things right, and those who say, like Mr. Bareau, that the government did take steps but they were the wrong ones and had the effect of making things worse.

However, Mr. Bareau is cautiously hopeful. “The coming year will provide plenty of problems; but they will not be the problems of a great slump”.

Edgar Hardcastle

Editorial: Planless Booms and Runaway Slumps (1956)

Editorial from the March 1956 issue of the Socialist Standard

Although the periodical crises under post-war Labour Government rather took the shine off the idea of planning there is still a lot of belief in it. A hundred years ago those who believed that Capitalism is the best of all possible systems had a different idea. They thought that if each individual went about the business of making money or getting a job on his own the medley of efforts and strivings would, like a mosiac, combine together to make harmony for the nation as a whole. It did not work like that and 19th century Capitalism was rent by class struggle and rocked from time to time in the cycle of boom—crisis—slump.

So the theory grew up, not only in Labour Party circles, that the remedy must lie in the direction of planning. The same idea caught on in other parts of the world and many people believe that governments, alone or in international organisations, can and do plan and control the course of economic events. That is why the “inflation” crisis of the past 12 months and the dark forebodings of another slump inspire such bewildered comments from the “experts” and the newspapers. For if everything is planned and under control then the crisis and possible slump must have been planned—which is absurd—or must be due to pure ignorance and incompetence by the Government and its advisers—which is now meat for the Opposition but poison for the Tories. Certainly the Government's defenders have much to explain away. To start with, the theory that everything is planned to run smoothly according to design, requires, not only that there shall be no crisis and no slump to come after it, but also that there shall be no bursting boom to come before it. So the boom itself proved the failure of planning, though only last year the Government spokesmen were claiming it as their own work and soliciting votes on the strength of it.

The next thing is the “inflation" from which they say we are all in dire peril. They are all now agreed. Government and Opposition alike, that “inflation” is the enemy. A year ago, in February, 1955, the Government raised the bank-rate from 3½ per cent. to 4½ per cent. This was the first step to halt that enemy, and it was followed in July by the instruction to the banks to restrict loans. These measures were supposed to be the cure. They failed, and in October came the emergency budget with more measures. Why then the need for more and still more remedies to curb demand and capital investment? The answer is in the admission in a Daily Mail editorial of 17 February, 1956, that “ inflation . . . gains momentum every day,” and in the declaration of Sir Eric Gore-Brown, chairman of Alexanders Discount Company, (a declaration endorsed by the financial editor of the Manchester Guardian 17/2/56) that “in his view monetary restraints, for example the use of the bank-rate and a credit squeeze, could not either alone or in combination, stop the spiral of wages and prices.”

The leader-writer of the Daily Mail (17/2/56) seeks to condone the failure of the Government to control this crisis with the plea that “in some ways the looming crisis is one we have not encountered before.”

This crisis, according to him, is different because unlike earlier ones, it 

“could be called a crisis of prosperity, for it is caused by the weight of earned money making undue demands on out resources.”

Far from being novel this has always been a mark of booms and crises. Every boom has the superficial appearance of “too much money chasing too few goods” as every depression has the superficial appearance of “ too many goods chased by too little money.”

But booms and slumps are not caused by monetary factors but by conditions in the field of production and marketing, basically by the class ownership of the means of production and of production for sale and profit.

When the Capitalists are convinced that they can look forward to a period of expanding sales and rising profits they rush in to enlarge their factories, buy more machinery and raw materials, and bid for more workers. They all use what money they have and try to borrow more. In these conditions prices and wages rise and the competition for loans sends up interest rates. The raising of the bank-rate a year ago only put the seal on a rise of interest rates that was already happening.

Anyone who thinks this has not happened before need only look at the situation in 1920. There was then a seemingly unlimited demand for goods and for workers. The trade unions (mainly of skilled workers) that kept an unemployment register showed unemployment of about 1 per cent., as it is now. The cost of living was rising, it jumped by 23 per cent, in the year ended November, 1920. Bankers and others were complaining of “inflation ” and the Cunliffe Committee had reported at the end of 1919 on measures to combat it.

And the bank rate was in the news as it is today. In February, 1956, it was raised from 4½ per cent, to 5½ per cent In November, 1919, it was raised from 5 per cent, to 6 per cent., and in April, 1920, to 7 per cent. Then, as now, one of its declared aims was to discourage lending by the banks. Mr. A. W. Kirkcaldy in his “British Finance” (1921, p. 55) says of the first of those two rises:—“in the main it was designed to check the speculative movement that became pronounced during the closing months of 1919, and to administer an effective check to the demand for further expansion of bank credit, if not to commence a gradual process of deflation.”

Inflation the Friend—or the Enemy ?

In 1920 and 1956 inflation is, by common consent, the enemy. It now has not a friend in the world, or at least not one who will disclose his friendship openly. It was not ever thus. In 1932 Lord Beaverbrook’s newspapers were running a great campaign for inflation! The Sunday Express (15/5/1932) had this:—

“The movement is growing and spreading. Most public men are now in favour of inflation. Practically every Member of Parliament speaking in the debates is an inflationist. Some of them are no longer even shy of the word. The movement is extended to many of the newspapers. It is even being adopted by the Times."

Prominent members of the Labour Party were rushing in to support the great new cause of inflation.

Now they have got what they asked for and they like it hardly more than they did the slump situation of 1932 from which inflation was to save them.

Many of them are fearful that this “inflation” crisis may be followed by a slump. (The 7 per cent. bank rate of 1920 preceded the over 2,000,000 unemployed of 1921).

So indeed it may. There are certainly in evidence some of the chaotic features that precede slumps and that in any event provide proof of how planless Capitalism always is and must be.

The American and other governments are embarrassed by the enormous stocks of unsaleable wheat and butter they hold. Was this planned? And the motor manufacturers here and in the U.S.A. are cutting back production “temporarily” because of stocks of unsold cars. But simultaneously all the big motor companies are going ahead with plans to expand their manufacturing capacity, amounting in the aggregate to many tens of millions of pounds. This is not planning but gambling. They all hope that demand will increase again and absorb their still further expanded production. They all fear that there is a possibility that demand may collapse instead of increasing, but they can’t be sure, and at the moment no big company dare drop out of the race to design and produce new and better cars and more of them. The company that ceases to compete fades out. And as if the car manufacturers of the Western Powers had not enough to worry about Russia too is now an exporter.

But who knows how Capitalism will run in the next five years or even one year? It may happen soon that the world’s markets will collapse as in 1921 and 1930— or it may not; or it may happen that particular countries, among them Britain, and particular industries may be hard hit while the rest may be little affected. Such things have happened before and could happen again. The evidence does not by any means all point to a serious depression. A large and rapidly growing place in production is being taken by the new atomic and electronic industries. For production and for military purposes enormous new investments are going on. and will go on even if depression does hit some established industries. A case in point is the raising of £24 million new capital by Associated Electrical Industries Ltd., only one of the many firms interested in this new and rapidly expanding field. It will, of course, seem to the men inside each of firms such as A.E.I., as to the men inside the motor firms, that they are carefully planning every move they make and with every possible effort to foresee the conditions in which their products will be coming on to the market one year or many years ahead. But this is all beside the point as far as world demand and world supply are concerned. While every British firm is planning to sell its products in the world market, so are similar firms and governments in every other country. They do not know very much about the eventual size of the potential world demand for all their products, and they know less still about the total supply there will be to satisfy the demand when all these unrelated plans for expanded production are completed and the bigger flow of products pours out. They all hope to get a large enough share of the market and all hope that the price they get will be a profitable one. They all hope, but they cannot know. They all gamble on the future. And every now and then the gamble produces chaotic conditions of such extent as to disorganise all markets and slow down all production. Capitalism is that sort of system and there is no cure except Socialism.

The ABC of Inflation (1972)

From the October 1972 issue of the Socialist Standard

The Labour Party and the Tory Party accuse each other of being responsible for the continuing rise of prices, but there is absolutely nothing to choose between the records of the two parties. Measured by the government’s own Retail Price Indexes, the Labour government 1945-51 scored a 28 per cent rise and the Labour government 1964-70 another 30 per cent (of the 1964 level); while the Tories marked up 50 per cent between 1951 and 1964 and another 17 per cent (of the 1970 level) between 1970 and June 1972. Added to the 32 per cent rise recorded between 1939 and 1945 under the National government (admitted to be an understatement), the present price level is at least four times what it was before the war.

In 1944 the three parties—Tory, Labour and Liberal—in the National government committed themselves to do what they could after the war “to stabilise prices”, and at each of the eight general elections Labour and Tories both repeated the promise —and it hasn’t meant a thing.

Individual prices can rise (or fall) for several different reasons. Good harvests will reduce prices and bad harvests will raise them. Booming trade increases demand and sends prices up, bad trade will send them down again. Even against the present trend of rising prices metal prices fell heavily last year as demand slackened off—the price of copper fell by 40 per cent. Improved methods of production, by reducing the amount of labour required, will operate to lower prices, while the exhaustion of easily accessible seams of mineral ores (coal and metals) will operate the other way because mining at greater depths or in less rich seams requires more labour to produce each ton.

During the nineteenth century when all of these price factors operated the general price levels in Britain went up in some periods and down in others, or remained nearly stationary, but the extent of the movement up and down was always within a range of about 25 per cent either way—nothing like the 300 per cent added since September 1939. Wages also rose and fell during the nineteenth century; sometimes in line with the movement of prices, sometimes by more or less, and occasionally wages moved in the opposite direction to prices.

Fallacies         

All sorts of explanations have been offered for the abnormal rise of prices since 1939 as compared with the up-and-down movements of prices in the nineteenth century. Most of the so-called explanations take the form of blaming some group or other for being “greedy”; bankers, or manufacturers, or retailers or trade unionists. It is an explanation that a glance at certain facts will show to be nonsense. Did the copper companies reduce their prices by 40 per cent in 1971 because they had suddenly become less greedy? Between 1948 and 1968 prices rose by 100 per cent in Britain, but only by half that amount in America and Switzerland: are the British twice as greedy? In the nineteenth century did the whole population go through alternating phases of being more greedy and less greedy? Between the end of 1920 and the middle of 1933 prices fell by over 50 per cent. The fall was continuous for thirteen years. What had happened to greed?

The fact is that sellers always try to get as big a price as they can, “as much as the market will bear”, and if they can get more or are forced to take less it is because external circumstances over which they have little or no control determine that it shall be so.

Two popular beliefs are that prices go up because wages go up, or vice versa. It does not occur to those who hold one or the other view that wages are prices—the price the worker gets for the sale of his labour-power, his mental and physical energies, to the employer. So, properly stated, their two propositions become the single useless assertion that prices go up because prices go up.

If they re-stated it in the form that one group of prices (wages) go up because the other group of prices go up—or vice versa—they overlook the truth that both groups of prices go up because of common external factors which affect both of them, more or less to the same extent. To illustrate this we can note that in summers when more Londoners visit the country the harvests are good. Nobody asks whether it is the London visitors who make the corn ripen, or whether it is the ripened corn which attracts the visitors. It just happens that a long hot summer both produces the good harvest and attracts visitors to the country — the sun is the common cause of both.

Paper & Prices

The new factor which has operated to push up prices abnormally since the war—the “sun” in relation to prices and wages—has been the continuous and accelerating “depreciation of the currency”. In the nineteenth century the amount of notes and coin in circulation was controlled by the device, enforced by law, that the pound sterling was a fixed weight (about a quarter of an ounce) of gold, and Bank of England notes were always convertible on demand into the corresponding weight of gold. Nowadays the pound is an inconvertible paper currency and enormous additional amounts have been printed and put into circulation. In 1939 the total of notes and coin in the hands of the public was £454 million. It is now over £3,500 million and rising steadily, an amount far in excess of whatever increase would have been necessary in line with the actual increase in production and sales of goods.

Karl Marx, whose study of the subject has never been rivalled, enunciated the economic law in the form that if the amount of inconvertible paper currency exceeds the amount of gold that would be needed if gold coins circulated, the excess simply operates to push up prices. Before Keynesian doctrines were swallowed by most of the modern economists and politicians, this relationship between excess issues of inconvertible notes and the price level was generally accepted by economists (including Keynes). In 1919 the government deliberately put a stop to the issue of additional notes and this played a large part in the subsequent fall of prices. Now the political parties and the trade unions have deceived themselves, against all past experience, into the belief that what they call increasing “money supply” leads to greater production and the maintenance of “full employment”.

Facing Facts

Not quite all of the economists and financial authorities have swallowed the “new economics”. One exception is the First National City Bank of New York which, in its Monthly Bulletin for January 1970, ridiculed the notion that rising prices are due to greed or to the wage demands of trade unions :

“Most of the blame for inflation is misplaced. For although inflation has a hundred faces, it has but one essential cause : overly expansive and erratic monetary policy that has pushed up the quantity of money more swiftly than the quantity of goods and services.”        

Governments, even if they perceived the truth of this, are afraid to repeat the restrictive policy applied in 1919 because they think it might lead to a big depression and much heavier unemployment. The economist Lord Robbins, speaking in the House of Lords on 5th July, said:

“I know of no case in history where inflation of the order of magnitude of that from which we are now suffering has been stopped by measures of this sort without that sort of effect.”

The government’s view, according to Patrick Jenkin, Chief Secretary of the Treasury, is that while curbing the money supply would affect prices it would do so only after a considerable time lag: –  “The immediate effect would be increased unemployment and reduced output. As a solution, it was politically, wholly unacceptable”. (Financial Times 17 July)

They, Lord Robbins and Jenkin, are equally afraid that continued and accelerating depreciation of the currency may end with the kind of monetary collapse that Germany experienced between the wars.

Most workers believe that if only prices came down or were at least stabilised their chief troubles would be over. They should remember that while it is true that at present hundreds of thousands of workers cannot afford to buy a house on mortgage, exactly the same was true between the wars when prices of houses and prices in general (and wages) were only a fraction of what they are now. For the workers capitalism means hardship whether prices are high or low or falling or rising.

Edgar Hardcastle

Cooking the Books: ‘Ignorant and mistaken’ (2022)

The Cooking the Books column from the November 2022 issue of the Socialist Standard

The irony of it! A government with a free-marketeer Prime Minister and Chancellor punished by ‘the markets’. This normally happens to reformist governments that have promised to spend money on improving conditions for the workers. The 1929-31 Labour government was said to have been brought down by a ‘bankers’ ramp’. In France the term used was that such governments came up against a ‘wall of money’. Harold Wilson in the 1960s blamed ‘the gnomes of Zurich’.

The villains in question are international speculators – sometimes politely called ‘international investors’ – who buy and sell the bonds issued by different governments. Governments borrow money by selling bonds. These have a face-value and a rate of interest fixed as a percentage of this. Say, £100 at 5 percent. However, while the amount of interest payable remains the same (in the example, £5), the price at which the bonds are bought and sold on the bond market varies. So, if the price falls to £90 the interest is still £5, but 5/90 is 5.56 percent. If the price rises to £110, this ‘yield’ (interest/selling price) is 4.5 percent. When the government sells new bonds it has to take into account the yield on existing bonds and offer that as the rate of interest.

When on 23 September Kwarteng announced tax cuts to be funded by borrowing, the speculators perceived the new government as behaving like a reformist one. Cutting taxes without reducing government spending and covering the extra deficit by borrowing was seen as no different from increasing government spending by extra borrowing. So they sold UK government bonds. With more sellers than buyers, the price of these fell and the ‘yield’ went up, meaning that government has to pay a higher rate of interest to borrow.

This had an unintended side-effect. Some pension fund managers had been persuaded by clever City financiers to borrow money by effectively betting on the price of government bonds they hold not falling significantly. They lost the bet and were required to pay cash to settle. This they could only get by selling some of their bonds, so driving their price further down. To prevent the pension funds becoming insolvent and the risk of this leading to a wider financial crash, the Bank of England stepped in to buy bonds and keep their price up.

This was a classic case of how a central bank has to deal with a dash for cash – it makes more cash available to prevent the whole financial system clogging up. Marx came across this in his time. Under the 1844 Bank Charter Act, the Bank of England was allowed to issue money not backed by gold in its vaults only up to a certain amount. However, in the financial crises of 1857 and 1866 the Act had to be suspended to permit the Bank to make more cash available. Gordon Brown thought he had invented the wheel – and saved the world – when he followed this long-established practice during the Crash of 2008.

Marx’s comment was:

‘Ignorant and mistaken bank legislation, such as that of 1844-45, can intensify this money crisis. But no kind of bank legislation can eliminate a crisis’ (Capital, Vol 3, ch. 30).

Governments can’t make things better but they can make things worse, as we have just seen. Starmer tweeted that ‘the government has lost control of the economy’ (2.02pm, 28 September). But governments don’t control the economy. It’s the other way around, as he will find out if ever he gets the chance to have a go.

Cooking the Books: Debts and Doubts (2011)

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

The public sector union UNISON has provided its activists with briefing notes on the economic crisis, based on the illustrations used in a talk by Barry Kushner that can be found on YouTube.

 

He shares the illusion that the economy is a tool which governments can manipulate to ensure growth or more equality (or less equality) or whatever. In other words, he ignores the fact that the profit-motivated market economy that is capitalism is governed by economic laws which governments have to accept and apply if they don’t want to provoke an economic crisis.

 

This said, he does make some valid points about the scare stories about the National Debt put out by the present government to justify its austerity programme.

 

The National Debt is the government’s debt and has nothing to do with the debt of the individuals who make up the supposed “nation” (it is not the total of private debts). As such, it is better called the Government Debt (its official name is “Public Sector Net Debt”). Similarly, the Deficit is the government’s. It’s the difference between what it raises through taxes and what it spends, which it has to cover by borrowing. What it spends includes the interest it has to pay on the Government Debt.

 

“We are told,” says Kushner, “that our country was nearly bankrupt, that our debt payments are £120 million per day, that our debt is nearly £1 trillion” and quotes George Osborne as saying on the Andrew Marr show that “we were on the brink of bankruptcy” and another government statement that “our debt is higher than it’s ever been.”

 

The Government (not “our”) Debt is only higher than it’s ever been in nominal (face value) terms, only because £1 trillion today is not the same as £1 trillion in the past. Kushner points out that the usual way of measuring the level of the Debt is to compare it with Gross Domestic Product (basically the value of new wealth created in a year). At the moment, this ratio is around 60 percent. One of Kushner’s graphs shows Government Debt as a percentage of GDP from 1900 to 2010. From 1920 to 1960 it was consistently well over 100 percent; just after WW2 in 1945 it was 261 percent. In other countries it is much higher: 100 percent in the US, 200 percent in Japan

 

The government does not need to be in a position to pay off the whole Government Debt in one go. Since about 80 percent of GDP is made up of what people consume and what the government spends on essential services, 60 percent could not be devoted to repaying the Debt in one year without mass starvation. Most of the Debt is continually renewed as those lending the money to the government want to keep on receiving the interest.

 

Interest payments on the Government Debt are £120 million a day but, at £43.3 billion a year, this is less than 3 percent of GDP, which is easily affordable. Kushner points out that in 1981, under Thatcher, interest payments were in today’s money £174 million a day or over 5 percent of GDP, adding that we “didn’t hear talk of bankruptcy then”.  According to www.ukpublicspending.co.uk/uk_debt, “experts say that when interest payments reach about 12% of GDP then a government will likely default on its debt”. As just seen, the British government’s payments are nowhere near this figure. 

 

There never was any danger of bankruptcy. Osborne was just scaremongering to justify cutting government spending for other reasons. The cuts are being made to try to restore profitability. It’s because saying this openly would not go down well that the government has resorted to the scarce stories and lies about bankruptcy, unsustainable interest payments and the like.

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

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

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

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

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

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

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

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

Editorial: The American Loan and the Gold Standard (1946)

Editorial from the February 1946 issue of the Socialist Standard

Much ado about very little

Most people are frankly mystified about the intricate details of currency, banking, credit and international trade and consequently do not understand the issues involved in the controversy about the American loan and the gold standard. This includes many of the politicians who speak on the subject so that those who support one side or the other frequently cannot even agree about the facts let alone the desirability of taking one or the other course of action. The members of the Labour Party and the Conservative Party are divided among themselves. Even those in both parties who supported the American loan arrangements admit that they do so with great misgivings and without any assurance that things will work out as planned. Many who support the loan would like to join Lord Beaverbrook’s group in opposition but cannot convince themselves that his case for the British Empire to stand as a unit more or less independent of U.S.A. is practicable. They therefore take the view that no other course is open than to accept the loan and with it the conditions laid down by American capitalism. The Manchester Guardian puts it thus:—

   "The plain case in favour of the American loan is that we cannot do without it. We have got into a position . . . from which we cannot escape without hardships which would rend the political fabric of this country. . . . The idea that we cap turn down the American offer because we are shocked at the conditions they have extorted is simply childish." (12 Dec., 1945.) 

The immediate factors that determined the offer and the acceptance of the loan of £1,100,000,000, to be repaid at 2 per cent. over fifty years beginning in 1952, are the following. On the one side British Capitalists, during the war, lost the bulk of their export trade and foreign investments (the latter had to be realised to pay for imported food and war supplies) and are now so denuded of certain goods that they must get a loan from U.S.A. in order to pay for needed imports, pending the turnover to full-time peace production and the export not merely of the pre-war volumes of goods but a greatly increased volume. On the other side the loan was offered not on philanthropic grounds but because American industry is producing at such a rate that big business is already scared at the thought of the slump that will occur if markets cannot be found. Much of the loan will be used to buy American goods for shipment to the British Empire and the Continent. As The Times says, "The current objectives of the United States are not disguised. Like greyhounds in the slips their salesmen are ready. . . . American productive capacity has been much multiplied by the war. When civilian demand replaces military, there will be surpluses—and the prospect of considerable unemployment. The accepted solution is to employ the workers and dispose of the surpluses on oversea orders.' (Times, 7 Dec., 1945.)

Apart from repayment of the loan and payment of interest the American authorities imposed other conditions, in particular that the pound sterling shall remain at the present exchange rate with the dollar (4.03 dollars to the pound) and that the British Government shall enter into world banking and trading arrangements proposed by the U.S.A., the declared object of which is to get all the Powers to agree to establish "freer trade relations" unfettered by tariffs and preferences, import restrictions. State subsidies. State trading cartels and other types of trade barriers—in short, to make the world a vast market open for American exports.

The attempt to keep the paper pound at a fixed relationship to the dollar is a roundabout way of keeping it at a fixed relationship to gold, though the Labour defenders of the agreement point to the provisions which will enable the British Government to alter the relationship in certain circumstances, i.e., to fix it at, say, 3 dollars to the pound. Because of this “escape clause" the Labour Party maintains that it is not committed to being "on the gold standard." The difference is, however, only one of degree and of form. Before 1914 and from 1925 to 1931 the sovereign was by law fixed at a certain weight of gold, and corresponding to that relationship it was worth 4.86 dollars. Under present arrangements the paper pound, in effect, is equivalent to a smaller amount of gold than before 1914 and also the way is made easier to reduce that amount still more, within the limits of the agreement with U.S.A.; in other words the present arrangements are more elastic than before 1911 and the relationship between the pound and gold is altered.

The controversy about the amount of gold to which the paper pound (or the currency of any other country) should be related largely represents the rivalry of different sections of the capitalist class. A British firm engaged on the production for export of articles made out of home-produced raw materials has an interest in reducing the gold equivalent. This is because the foreign buyer, e.g., an American who at the old rate had to pay 20 dollars for £5 can at a reduced rate get £5 for, say, 16 dollars. This encourages exports from Britain; but at the same time it discourages imports to Britain. The British importer of foreign raw materials or finished products has an opposite interest, since he must now pay more paper pounds than before for an article costing 20 dollars.

It should, however, be noticed firstly that the effect of any change in the relationship of the paper pound to gold or to the dollar is only temporary since costs and prices adjust themselves; secondly, it helps one capitalist group at the expense of another without increasing total production even in the country concerned; and thirdly, all countries can play the same game—as for example, the recent devaluation of the French franc.

Overriding all these purely currency questions, which are of secondary importance; is the major fact that there is no solution—short of abolishing capitalism—for the endless crises and depressions, unemployment and trade rivalries of the system. Those who take the superficial view can state what looks like a convincing case whichever side they support in the controversy. The Labour Party, which opposes having the pound rigidly fixed to gold by Act of Parliament, can point to the poverty, unemployment and trade depressions that existed before 1914 and between 1925 and 1931. This, they say, proves that the rigid gold standard is bad. Likewise their opponents can point to exactly the same evils that existed after 1931. Both are right in saying that the evils exist, because they always and necessarily will under capitalism, whether adherence to the gold standard is rigid or elastic, at one ratio to gold or to a higher or lower ratio. They are also both wrong in thinking that currency factors are the cause of the evils or that, the evils can be remedied by currency manipulation. The Times, for example, holds out the hope that international agreement may lead to “ the restoration of the system of world trade which prevailed in the heyday of British free trade a generation ago." (Times, 7 Dec.) That "heyday" was, for the workers, a time of poverty, insecurity and unemployment just like the subsequent period. All through the 19th century, when the gold standard was said to be functioning well, crises and working class misery were in evidence. The "over-production" of capitalism, meaning the production of vast quantities of goods for which the workers lacked purchasing power is a result of the private ownership of the means of production and the resulting fact that the goods produced belong to the capitalist class and that class can and does curtail production when the goods cannot be disposed of at a profit.

One point, for the benefit of those who cherish the illusion that the gold standard has ceased to exist, is the recent heavy buying of shares in gold mining companies. The City Editor of the Daily Telegraph (24 Dec.) commenting on this, writes : 

  ". . .  the acceptance of Bretton Woods has removed any nervousness there may have been as to the status of gold in post-war international monetary arrangements. The metal remains the world standard of value, and those who produce it will be marketing a universally acceptable commodity."

In conclusion, it is a safe forecast that the agreements with U.S.A. will not work well for the working class. Nor would any alternative arrangement within the capitalist system. W. J. Bryan's declaration that mankind is crucified on a cross of gold, a flamboyant fallacy that still finds credence in Labour circles, should be re-written: the working class are crucified on a cross of capitalism; which is just as true though the cross now bears the Labour Party label, " Nationalisation.”

The madness of John Bull (1996)

From the May 1996 issue of the Socialist Standard

The roast beef of Old England is a central component of the myths that go to build the image of John Bull, the phlegmatic, bulldog character, the epitome of British ‘virtues'.

This sturdy icon of strength and resilience owes it all to eating beef, unlike Pop-Eye who did it more economically on spinach. That these ideas were first promoted at a time when the average Englishman saw beef about once a year, and the penalty for poaching the lord's deer was hanging or transportation; that when meat did become accessible to the industrial working class on a regular basis it was more likely to be the frozen Argentinean variety, and that now the most popular meals for eating out are most likely to be an ‘Indian’ or a 'Chinese' is by the way. It is a myth that has done good service to the British ruling class in creating a nationalist consciousness.

British beef has now suffered a severe knock due to increased concerns about BSE. Bovine Spongiform Encephalopathy or "Mad Cow Disease’.

This disease has been prevalent in Britain for a number of years, but not really endemic Not too much concern was shown by the authorities because it was not believed to be ‘species transferable', i.e. that humans could get it from eating cattle meat. It is similar to a disease present in sheep called "Scrapie", which has been known for some two hundred years but no-one has contracted dementia from eating sheep. Cattle have been grazed for years on grass infected with Scrapie and seemed unaffected.

All that changed when in the unceasing drive to reduce costs of production imposed by the economic laws of capitalism, someone came up with the bright idea of feeding animal protein to cattle for the purpose of fattening them more quickly. Scientists warned the government of the risks of transmitting disease—bearing pathogens to stock and thence to humans, but the Ministry of Agriculture chose to ignore these findings and rejecting a tight licensing scheme, allowed the meat industry to determine its own standards.

Some five years later there were alarming reports of cases of Creutzfeld-Jakob Disease (CJD) in humans, attributed to eating beef. It was considered at that time that only the brain and spinal cord was suspect, but opinion is now coming round to the idea that other parts might be too. It now seems that the disease producing pathogens can cross the species barrier, and this raised horrific potentialities. CJD is an intense form of dementia invariably culminating in death in three months to a year.

This is a major crisis for British capitalism, striking on several levels—economic, credibility of Ministers and government, mythology, the soundness of British agriculture, and the future of McDonalds.

While the government at first under-reacted they are now probably over-reacting with the talk of killing of at least four million cattle. However, they see this as the only way to restore the most important item, confidence, so that they can go on selling British beef and continue to make profits. The immensity of the task of killing four million cattle in sheer logistic terms is horrendous, quite apart from the further pollution the incineration will cause. Since the infective agent now thought to be a prion— a form of protein—is highly resistant to destruction, including by heat it is by no means certain that incineration will be sufficiently effective.

Of course the principal reason why the government is taking drastic action is not because of fears for the health of the British public. It is because of their fears for the health of the British export trade and the huge sums of money involved. When Germany banned British beef two years ago it was condemned as arrogant German nationalism. When the whole of Europe joined in and the facts could hardly be denied, something had to be done or at least it had to look as though something was being done.

It will be instructive to see how long the present crisis lasts and whether they will be able to wriggle out of it. But don't think that contamination of food is confined to beef. Food has been contaminated, adulterated and manipulated since the early days of capitalism and the situation continues today.

The working class can draw two lessons from this sorry spectacle. First, that any trust given to either political leader or to business is totally misplaced. In the running of the capitalist system only one criterion can count the need to make a profit What other reason could there possibly be for feeding processed sheep meat and chicken droppings to vegetarian cows?

The other lesson is that capitalism in the midst of its seeming indestructibility is in fact very vulnerable. At any time a crisis of this nature, a Chernobyl, an oil slick, a stock market panic can cause big problems to the poor idiots who by to make it run smoothly. And whoever else suffers in the process, workers always suffer too.

Cyril Evans

Editorial: The Masters' New Offensive. (1921)

Editorial from the January 1921 issue of the Socialist Standard

It is symptomatic of the pressure which the gradual awakening of the workers is putting on the master class that the latter is adopting a policy of systematic anti-Socialist propaganda and education in political economy among the workers. For generations the capitalists have been content to leave the doping of their slaves to the parson, the novelist, and the prostitute of the Press, all of whom worked by the general distortion of the vision, and generally left economics alone. But to-day we find all and sundry among capitalist agents developing into professors of social science for the benefit of the working class, and, more significant than all the rest put together, the great capitalists are making it a personal matter, and, probably counting upon the glamour of their names to cover the weakness of their arguments, have essayed to teach the workers the kind of economics they would like them to know.

The late Andrew Carnegie was a notable case in point; later Lord Leverhulme addresses working class audiences all over the country, and tries to tell the proletarians "What is Capital" in a ludicrous pamphlet of that title, and so we could go on.

Well, we welcome these pamphleteers and platform pounders with open arms. If you pitch a roped ring and put one human fighting cock in it no one takes much notice; but directly you put a second man in the ring the town flocks to see. We have been the lonely figure in the ring years enough—is it possible that at last our enemy is coming out to fight ?

A few days ago the editorial in the "Daily Chronicle" tried to show the workers that low production means high prices, high prices mean smaller purchasing power, smaller purchasing power means lessened demand, which completes the circle with increased unemployment—a plausible enough tale if one forgets that, in spite of all arguments, and regardless of high prices or low, it is the surplus-value, the difference between what the workers are paid (and therefore are able to consume) and what they produce, that causes unemployment, a fundamental fact that the capitalist sophists have never been able to dispose of and never will.

In "Lloyd's Sunday News" of Jan. 9,1921, the Right Hon. C. A. McCurdy, K.C., M.P., Food Controller, tries to do his little bit toward the general bamboozling of the workers in an article entitled: "Your Food Prices in 1921." He strikes the right note at the commencement when he says "The people of Great Britain, I think, deserve some word of recognition, if not of thanks, for the progress which has been made in this country towards restoration of commercial prosperity . . ."

"Commercial prosperity," mark you, in the face of a million hungry unemployed! One would have thought this touched the limit, but the [editor] of the same paper, in the same issue, goes one better. "Our money is going to be worth more this year than last, and it is going to be easier to make ends meet," he says. It is pretty evident that the writer of that optimistic passage is not unduly oppressed by the flood of unemployment which, even his own leaders recognise, is about to sweep down upon the working class of this country.

Mr. McCurdy, of course, takes up the old cry beloved of capitalist papers, capitalist statesmen, and those capitalist henchmen, the labour leaders (who are strangely quiet upon the point now that the inevitable result we prophesied has been arrived at). He declares, "The price the British housewife will be called upon to pay in 1921 for many commodities will depend in part, of course, upon the continued progress of our own people in increasing production . . ." A little later he says: "Europe wants the goods, we want the wages; why is it, then, that an exchange cannot be made which would be so profitable to both ? The answer is that the war . . . has also dislocated and choked the rivers and channels through which international trade flowed freely in time of peace."

With channels and rivers dislocated and choked the way to avoid floods is not to clear the channels, but to pray Gord to increase the output of rain !

We hope to have an article shortly dealing at length with this subject.

That Sinking Feeling (1998)

From the January 1998 issue of the Socialist Standard

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

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

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

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

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

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

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

Prices

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

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

Unemployment rates

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

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

Paper tiger

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

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

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

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

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

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

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

Dave Perrin

No Deal Brexit: Parasitical Fisticuffs (2019)

From the October 2019 issue of the Socialist Standard

Who would benefit from a no deal Brexit?

The British state risks subordination like never before to the interests of global capitalism. If the UK were to have a ‘no-deal’ or ‘hard’ Brexit, it would change the face of British capitalism.

But the question does remain an ‘if’. As we go to press attempts are still being made to leave with a deal, especially after the opposition parties got together, just before Boris Johnson’s suspension of parliament/, to pass a law to block no-deal. Even so Michael Gove, the minister in charge of Brexit arrangements, has made it clear that the British government is operating under the assumption that a deal will not be struck.

It is worth asking, then, who actually wants no-deal?

Corbyn, in an article for the Independent (26 August), described no-deal as a ‘bankers’ Brexit’, serving the interests of this powerful group primarily. This isn’t to say that no-deal would benefit the capitalist class as such – no-deal is more likely to be driven by nationalism than simple economic gain. The Daily Telegraph and other mainstream media outlets condemned this as just left-wing ideology, noting that bankers were originally in favour of remaining in the EU. However, other publications, such as the Financial Times, have reported some recent shift of bankers’ views to favour a no-deal Brexit, and more so since Johnson’s premiership.

The potential effects on the economy are worth considering.

No-deal would, if Bank of England reports are to be believed, risk recession. This might, in a way, favour some sections of the capitalist class – regulations could be dismantled and business take the helm more firmly, as is the inevitable to-ing and fro-ing in a capitalist economy.

On the other hand, some businesses have already started asking for handouts from the government, such as the food and finance industries. The food industries are going further, demanding exemption from competition laws so that they may collude. In all likelihood, the capitalist principle of ‘privatise profits, socialise losses’ will prevail.

There are also numerous other consequences to no-deal, leaving aside the domestic affairs. America has been the most forthcoming in stating its willingness to make a deal with the UK: President Trump has repeatedly expressed his enthusiasm about the current government. He has maintained that the UK may have to leave without a deal, saying ‘the European Union is very tough to make a deal with – just ask Theresa May.’ Johnson has said that he looks to make a ‘comprehensive deal with the US’. Other potential trade partners include Brazil, currently the site of major ecological damage. The British government is still, however, vying for the EU’s favour. British-European trade may carry on despite tariffs (most likely dictated by the EU, not the UK).

In this case, the UK would be jumping from the frying pan into the fire. All its trade deals would no longer be made through the EU, but based on World Trade Organisation rules. No-deal is also sometimes called ‘leaving on WTO rules.’. This would mean drawing up individual ‘schedules’ (lists of quotas, tariffs, and concessions for goods and services) for every WTO member the UK trades with. Britain would have to negotiate any trade deals on its own. As Britain would not have the bargaining power of the EU, British capitalism, under these circumstances, would most likely take on a much more American face. The interests of star-spangled industry would be catered to by British government more attentively.

No-deal has, however, been criticised by both right and left. The former Chancellor of the Exchequer, Philip Hammond, has said that there was no mandate for leaving the European Union without a deal. The previous Prime Minister, Theresa May, attempted to get a deal approved three times, each attempt ending in failure. Some people argue that leaving the EU without a deal is an expression of the democratic will expressed in 2016. Often, these people are supporters of the party which has stymied parliament.

Global capitalism is strengthening its hold on British society, seemingly subverting systems of democracy to do so. The government will probably drift further into right-wing populism. It is unclear what the precise effects on the electorate will be, but disillusionment with the liberal order is more likely than ever.

Economic and political strife can be the spur to consciousness, if the moment is seized. Marx’s old mole of revolution burrows close to the surface once more. The opportunity to make the case for the socialist alternative is clear.

M. P. Shah

Unbalanced exports and experts (1964)

From the April 1964 issue of the Socialist Standard

One of the toughest problems which faced the Attlee government when it took over in 1945 was the deficit in Britain’s balance of trade. The six years of war had cost this country a great deal, apart from the bloodshed and the suffering which the working class had endured. Britain's capitalist class had lost a lot of their overseas investments, they had been forced out of several spheres of influence and had seen many of their traditional markets fall under the sway of their wartime allies. The Imperial Preference system, by which they had once set so much store, had lost a lot of its power as a tight trading club.

As the world turned from the production of munitions, attention was focused upon the markets offered by the rebuilding of the countries which had suffered in the war. There was a frantic rush to get into these markets; almost anything could be sold there, provided it got there quickly. The Labour government launched its famous export drive, sending its Ministers around the country to draw homely analogies between the world market and Mrs. Smith's housekeeping, and sticking up its “Work Or Want” posters. The more we exported, and the less we imported, went the story, the better off we would be.

Some of this propaganda went home. Many workers actually worried about the trade gap and as each set of figures came out, showing how large the gap was, they sank into gloom. It was useless to tell them that the trade gap was a problem for the people who owned the goods which were going in and out of the country and that workers should concern themselves only with their own economic interests. They were convinced that the bigger the gap the more everyone would suffer and perhaps, as well, they thought that the “lousy foreigners” were getting one over on poor, simple, honest John Bull. Amid the gloom, their blood boiled.

The Tories, of course, made a lot of hay while this particular sun shone. The trade gap, they said, was caused by the amateurish methods of the Labour government; there were too many controls, too much nationalisation, it was all something to do with Socialism. Just let a businessman’s government take over and in no time at all the trade gap would disappear.

Well that was a long time ago and it is time now to draw attention to one or two facts. First of all, the trade deficit has not disappeared under Conservative government; it has, in fact, remained as stubbornly as ever. Secondly, the fact that the Tories used to say in the days of Labour government that the gap inevitably meant poverty has not stopped them claiming that we are all having it good—although the gap is still there. And thirdly, the Tories have notched up the biggest trade deficit ever to be recorded for one month. All of which indicates that, however baffling the Labour government found the problems of running British capitalism, the Tories have not found the going much easier.

It was in last January that the trade gap reached its peak. Imports reached a new high of £457 million, while exports fell to £326 million which, taking into account £11 million worth of re-exports, left a “crude" trade gap of £120 million. This figure was especially impressive when compared to the monthly average gap of £45 million for 1962 and £49 million for last year.

By all the standards which the newspapers, the politicians and the city editors have used in the past, this was a crisis for British capitalism. But some of them, when the January figures were announced, revealed that they had adopted new standards, or had at any rate modified the old ones. The Daily Telegraph headlined a gap of only £72 million, without mentioning the fact that this lower figure was arrived at after using a method of calculation which had not been used before. In the Sunday Times, economic editor William Rees Mogg was saying “By this weekend . . . no one doubts that there is a serious balance of trade problem to be contended with," although The Guardian a couple of days later had it that “People can talk themselves into a financial crisis. But at the moment there is none in sight." Sir Alec Douglas-Home was keeping his eye firmly fixed on the next election: “Do not let us,” he said, “Talk ourselves into a crisis or write ourselves into one on the basis of one set of monthly figures.” And in this he was supported by Samuel Brittan in The Observer ". . . a crisis is a psychological phenomenon that exists when people think it does.’’

The obvious comment on this latter kind of optimism is that, if it is possible to talk ourselves into a crisis then all that is needed to remedy the situation is to talk ourselves out of it. (Sir Stafford Cripps, when he was Labour’s Chancellor, made a similar statement about a crisis in 1949 but the economic problems of British capitalism, beat him in the end—and no one could accuse Cripps of not being able to talk.) And if crises are only, after all these years, psychological phenomena, why, what the Treasury needs are not economists but psychiatrists, and Mr. Brittan's column should not be written by a financial wizard like himself but by an expert in mental disorders. What a pity nobody thought of it in the ’thirties! It would have saved the government such a lot of dole money.

This was not the end of the confusion. If the experts could not agree on whether there was a crisis, neither could they agree on what was needed to get rid of it. The National Institute of Economic and Social Research advised the government, in an article written a few days before the January trade figures were published, to increase personal taxation by about £200 million. Three days later the Federation of British Industries was recommending a decrease in income tax and an increase in indirect taxation. Mr. Rees Mogg declared himself ". . . opposed to import controls" — something which, said The Guardian, “. . . is beginning to be talked about again by economists in responsible places . . ." In the end, Mr. Maudling increased the Bank Rate, which some of the pundits had advised him to do but which the National Institute had described as “. . . not likely to be effective.’’

It is easy enough to pick out these contradictions. Whenever British capitalism finds itself in some sort of difficulty there is no lack of inconsistent advice from the experts. Whenever a Chancellor announces a measure which is supposed to relieve a crisis there are plenty of the same experts to crow that the measure is too little or too late, too large or too early, or that anyway they thought of it first. It does not seem to occur to them that, if they cannot agree upon the nature of a crisis, or upon the solution to it, or indeed upon whether there is a crisis at all, the chances of them ever being able to solve the economic maladies of capitalism are just about non-existent.

What the experts never tell us is that the trade gap is a problem which only capitalism can produce. Most of the world's developed countries are exporters—and even the undeveloped lands have some sort of export trade, if only in some primary crop like cocoa or sugar. But exports do not simply go off into the blue—every one of them is an import into some other country. The £457 million worth of goods which came into this country during January were worth about that much to the countries which sent them here. Sometimes a nation’s exports depend upon its imports; goods which are sent abroad are made by machinery which has been imported or include a vital component which, because it is made more cheaply in a foreign country, has been bought from there in preference to home produce. And with so many countries in this struggle, each of them fighting to get on top, it is impossible for them all exactly to balance their trade with each other. Even if they wanted to, that is; for if they were to try to keep their imports precisely level with their exports, capitalism's international trade would collapse and many of its industries with it.

This fact, naturally, is ignored by the government, who tell us what all good, docile patriots want to hear—that it is best for our country to be on top, for our country’s trade balance to be in credit and to hell with the rest. At the same time governments abroad, who are competing with British industry in the world’s markets, are telling their workers the same story and the workers are swallowing it and so the whole sorry mess goes on. While the people are busily swallowing the official propaganda, few of them are realising that the crises are interminable, that the experts and the Ministers are unable to deal with them and that in any case the state of their country's trading accounts has no appreciable effect upon their welfare.

Neither are they realising that it is capitalism itself which creates the balance of payments problem. Why, in the name of sanity, should one area of the world not import more than it exports? Why should the Americas not send out a lot of cereals? Or Africa a lot of raw minerals? Or Australasia a lot of dairy produce? Why should not the world’s wealth be produced in the areas where this can be done most efficiently and easily and sent to the areas where it is needed?

Why? Because at present the world is divided into opposing nations and groups of nations, who unite their interests, often temporarily, against the rest. Because the world is now split into rival trading groups who fight bitter economic wars against each other. Because the world produces its wealth to be sold so that the class which owns the machines and the materials which go into the wealth can make a profit on their investments.

We are now at the very root of the trouble. Until we deal with it the crises, of many kinds, will continue. But whoever may lose his job in a crisis, there is one type of person who will not be unemployed—the person who owes his position to his professed ability to do something about the uncontrollable ups and downs, stops and starts, which are an inevitable part of capitalism all over the world.

Ivan

Cooking the Books: A History of Slumps (2013)

The Cooking the Books column from the August 2013 issue of the Socialist Standard

To mark the 50th anniversary of the publication of its Quarterly Bulletin the Bank of England published an article in the June issue entitled ‘The UK Recession in context – what do three centuries of data tell us?’ This took a look at the booms and slumps since 1701.

Actually, the terms used are ‘upturns’ and ‘downturns’. A downturn is defined as the period between the highest point production reached and the lowest point it falls to before it starts to rise again, i. e., from peak to trough. An upturn is the opposite, the period from trough to the next peak. A cycle is defined as the period from peak to peak or from trough to trough.

A table gives the average length of cycles for various historical periods:

The inclusion of data from the 18th century is interesting but doesn’t tell us much about cycles of capitalist production. Not that the economy of the period could not be described in a sense as capitalist, but because the upturns and downturns were caused not so much by the workings of the economy itself as by the outside factors of war (in this century Britain was frequently at war) and bad harvests (agriculture then accounted for 30 per cent of GDP).

It is the later periods that are more relevant for the study of the capitalist production cycle.

1831-1871 was the period Marx studied in Capital and his other economic writings, though he identified the first crisis of industrial capitalism as occurring in 1825 (which can been seen in Chart 1 in the article). He suggested a cycle of about 10 years, not too far from the 8-year cycle the article identifies. At 2.21 per cent a year, this was a period of relatively rapid growth with the short downturns, a period of confident capitalist expansion.

On the other hand, 1871-1913 was a period of slower growth, with the downturns lasting just as long as the upturns and which misled Engels into thinking that capitalism had entered a period of permanent stagnation.

It is perhaps surprising to learn that the period 1921-1938 was also a period of relatively rapid growth with only short downturns but, apart from the severe but short-lived slumps of 1921 and the early 1930s, in Britain this was a period of growth in output, even if mainly confined to the South East and the Midlands. In the rest of the country unemployment remained high and shaped the popular perception of the 1930s as one big Great Depression.

The authors do not explain why they lumped together 1952-1992 as a single period when it would have been more historically useful to have broken it in the mid-1970s when the biggest downturn since 1945 occurred (as can also be seen in Chart 1). Even so, during both parts of this period the cycles were shorter with fewer deep troughs than in the previous historical periods.

According to the article’s definition, as output is up on the trough of 2008 we are now in the upturn phase of the cycle even though, five years later, production is still nowhere near the 2007 level. It looks as if the current cycle is going to be longer than in the recent past. In fact it looks more like what happened in the period 1871-1913.