Zackonomics — how green can you be? (2026)

From the March 2026 issue of the Socialist Standard

In their party political broadcast on 22 January, the Greens’ new eco-populist leader Zack Polanski ran through the various problems people face and pointed out that a lot of the wealth they create ends up in the pockets of the super-rich. But went on: ‘This isn’t just an economic failure. It’s a failure of leadership. The people we elected choose to serve the wealthy. And, yes, that is obscene. Good leaders put people before profit’.

Self-styled good leaders

So what does Polanski, as a ‘good leader’, propose that a Green Party government would do? Its manifesto for the 2024 general election promised ‘the public ownership of public services’ and talked about ‘taxing wealth fairly and borrowing to invest’, in particular ‘a Wealth Tax of 1% annually on assets above £10 million and of 2% on assets above £1bn’. This is the sort of thing the Labour Party used to advocate and will be one reason why the Greens have had some success in winning over people disillusioned with the Labour Party after Starmer (with a little help from Peter Mandelson) axed its leftwing.

In this sense, the Green Party is reviving the illusion that the Labour Party once entertained that capitalism could gradually be changed, through ‘public’ ownership, tax changes and social reforms, into a less unequal society. The only difference is that the Greens think that ‘good leaders’ should put the environment as well as people before profit (and sometimes before people). All the arguments that socialists have made against Labour Party reformism apply equally against the Greens. Capitalism is an economic system driven by firms, whether private or state (or cooperatives), seeking to make a profit and to accumulate this as more capital to be reinvested for more profit. Putting profit-making first is imposed on those making economic decisions, including governments, as an external coercive force that they ignore at their peril.

Polanski and the Greens, if ever they got to form the government and tried to put people before profit, would be ‘bad leaders’ as far as capitalism was concerned. They would put a spanner in the way capitalism works and provoke an economic downturn, forcing them into a U-turn, as has happened many times to Labour and similar governments in other parts of the world — punished for refusing to put profits before people.

What this means is that, contrary to what Polanski claims, a ‘good leader’, for capitalism, is someone who does put profits before people, someone who applies rather than challenges the economic laws of capitalism. Those individuals who workers elect to govern have no alternative. The nature of capitalism, as a profit-making system that can only work for the profit-takers, obliges them to do this on pain of provoking an economic slow-down.

Replacing them with self-styled ‘good leaders’, like he imagines himself to be, won’t change things despite good intentions. They, too, would end up having to serve the wealthy as that’s the only way that the system can work. What is needed is not a change of leaders, but a change of system. But that’s not what the Greens want.

Cranky economics

The Green Party accepts capitalism. It doesn’t challenge the ownership of the means of life by a minority nor that goods and services are produced primarily for sale on a market with a view to profit. At most, it seems to want to go back to an earlier stage of capitalism in which production was in the hands of small and medium-sized enterprises.

To tell the truth, the Green Party is all over the place when it comes to economics which, anyway, is not the primary interest of most of its members. That — and it’s a perfectly legitimate concern — is to protect and save the environment, which they imagine can be done by pursuing policies and passing laws without changing the basics of the present, capitalist economic system.

The Greens’ relative lack of interest in economics has left them open to all sorts of cranky theories. For instance, their manifesto for the 2015 general election declared that ‘the power to create money must be taken out of the hands of private banks’ and that ‘commercial banks should be no more than the custodians of publicly created money in current accounts’. This reflected a resolution on ‘monetary and financial reform’ carried at their 2013 Conference:

‘97% of the money circulating in the economy takes the form of credit that is created electronically by private banks through the accounting processes they follow when they make loans … The 1844 Bank Charter Act will be updated to prohibit banks from creating national currency in the form of electronic credit. To finance their lending, investment or proprietary trading activities, banks will have to borrow or raise the necessary national currency from savers and investors’.

This would considerably limit what banks would be able to lend, even to individuals let alone to business. But loans to profit-seeking firms are essential to the workings of capitalism as it means that capitalist entrepreneurs do not have to have accumulated all their own money before they can start a business. The role of banks is to make available money for investment that would otherwise lie idle or be scattered in small amounts.

To make up for the fall in bank lending that their scheme would bring about, the 2013 resolution proposed that ‘all national currency (both in cash and electronic form) will be created, free of any associated debt, by a National Monetary Authority (NMA) that is accountable to Parliament’ and that ‘any new money created by the NMA will be credited to the account of the Government as additional revenue, to be spent into circulation in the economy in accordance with the budget approved by Parliament’.

Imagining that banks create money out of thin air and wanting to devise a debt-free money is classic currency crankism. Banks don’t create new money when they make a loan; they lend out money that they have (from deposits and loans) or can quickly acquire (from the money market or the Bank of England) and the interest they receive comes from the future profits of loans to business and from the future wages of those to individuals. The 2013 Green Party resolution and 2015 Green Party general election manifesto were proposing an imagined solution to a false problem, a solution which if applied would lead to financial chaos and roaring inflation.

These days the Green Party does not push this policy much. It wasn’t in their 2019 or 2024 general election manifestos. However, it remains part of their official policy and is included in their Policies for a Sustainable Society. Polanski, who knows a thing or two about selling false remedies and so about what sells and what doesn’t, doesn’t mention the banking reform part and talks only about some National Monetary Authority providing the government with whatever money it needs to pay for a Green Deal and social services.

Magic Money Theory

This has led some, such as Jonathan Prynn, business editor of The Standard (formerly Evening Standard), to accuse Polanski of embracing another mistaken monetary theory  — self-styled ‘Modern Monetary Theory’, or MMT (which also, appropriately enough, stands for Magic Money Tree). This teaches that the government doesn’t need to borrow money but can simply create the money it needs and spend it; this will stimulate the economy and the government will eventually recover the money as increased tax receipts.

It is not clear that Polanski has embraced MMT. He may just be using the naive (and therefore good populist) argument that if the resources are there to save the environment or eliminate poverty (as they are) and the government has the power to create as much money as it wants (as it does), why does the government not simply create the money to use the resources? If it did this, it wouldn’t need to worry about borrowing money and so wouldn’t be in thrall to international speculators. Which is essentially what Polanski and the Greens are saying.

The trouble is that this ignores the way the capitalist economic system works. Wealth is produced in the profit-seeking sector of the economy in response to the prospects of making a profit. Governments as such produce no wealth; to get the money to buy what they need to carry out their activities they have to resort either to taxation of the profit-producing sector or borrow from those who have acquired money from that sector. When the government creates money it is not creating any new wealth, only claims on existing wealth. It can create as much of these claims as it likes but, if it creates more than the economy needs for its buying and selling and other monetary transactions, then the result will be a fall in the purchasing power of the claims and so a rise in the general prices level, or inflation.

If a Green government were to simply create and spend the money to protect the environment or to eliminate poverty or to improve living conditions generally, the most likely result is that there would be a one-time spurt in economic activity but in time there would be an inflation which could get of hand. Apologists for capitalism, such as Prynn, happen to be right when they point this out.

The conclusion to be drawn is not to accept that profits have to come before people, but that it is futile, and even counter-productive, to try to prevent this under capitalism. What is needed is to get rid of the profit system altogether and to use resources to simply and directly produce what people need. But this is only possible on the basis of the common ownership of the world’s productive resources. It would then no longer be a question of what should come first — profits or people? — because profits wouldn’t enter into it at all.

Adam Buick

50 Years Ago: Major Douglas and Unemployment (1986)

The 50 Years Ago column from the November 1986 issue of the Socialist Standard

Nothing shows up so clearly the failure of Major Douglas and his followers to understand the nature of capitalism as their inability to explain the ups and downs of production and trade. A case in point is their forecast of constantly increasing unemployment.

In its issue of January 25th. 1934. the Douglas journal, New English Weekly, wrote:

As technology develops, there will be a growing mass of unemployed — 20 per cent. 30 per cent. 40 per cent or more — who are deprived of all demand-power, except such as we allow them by way of the dole.

Now let us contrast that prophecy of unemployment increasing for 20 per cent to 30 per cent, 40 per cent and more, with the actual happenings, as shown in the Ministry of Labour returns as to the percentages of insured workers unemployed. 

January, 1933 23 per cent.

January, 1934 18.6 per cent.

January, 1935 17.7 per cent.

January, 1936 16.3 per cent.

June, 1936 13.1 percent.

September. 1936 12.4 per cent.

In due course capitalism will experience another crash and then the Douglasites. silent as to their past failure, will rush into print, repeating their fallacious theories and prophecies.

[From an article "Douglasites Floored by Facts'", Socialist Standard, November 1936.]

Technofeudalism – is capitalism dead? (2025)

From the November 2025 issue of the Socialist Standard

Socialists might seem a bit obsessed with how words are used, not because we consider ourselves to be the special constables of whatever language we speak, but because we are interacting with our fellow members of the working class, engaging with ideas about what words represent and defending and advancing our political tradition, in order to gain working class freedom.

So it is of some interest that we have had a globally known political individual, celebrated by many, stating in bold capital letters on the back cover of his book that ‘CAPITALISM IS DEAD WELCOME TO TECHNOFEUDALISM’.

It is this assertion, made popular by Yanis Varoufakis with his book Technofeudalism – What Killed Capitalism (2023) and its consequences that will be examined here.

Two years before the publication of Varoufakis’s book, a French academic published a book titled Technofeudalism: A Critique of the Digital Economy which argues along similar lines to Varoufakis’ book but with a more philosophical perspective. Durand puts the root of the digital economy’s structure in what he calls ‘The Californian Ideology’ – radical individualism, libertarianism, and neoliberalism emerging from Silicon Valley – but does not go as far as stating that technofeudalism has replaced capitalism. Varoufakis mentions Durand’s work in the acknowledgements of his book.

The book by Durand locates the first use of the word ‘technofeudalism’ to a science fiction role playing game manual – the GURPS (Generic Universal Role-Playing System) Cyberpunk Adventures where it is mentioned once:

‘As the world becomes tougher, the corporations adapt by becoming tougher themselves, out of necessity. This “we protect our own” attitude is sometimes called techno-feudalism. Like feudalism, it is a reaction to a chaotic environment, a promise of service and loyalty from the workers in exchange for a promise of support and protection from the corporation’.

GURPS Cyberpunk Adventures book has an interesting story in itself: the editor’s home and publisher’s office were simultaneously raided by the US Secret Service who were under the impression that the book was a computer hacking manual and confiscated the disks containing the book. The publishers got them back in the end although the hard drives no longer worked and the book had to be re-written from memory. Several of the people involved in that episode went on to become founder members of the Electronic Frontier Foundation.

Technofeudalism

In the body of Varoufakis’s book, the author makes the case for technofeudalism in the form of a conversation with his father, who had recently died. There are lots of interesting examples, anecdotes, bits of history, and the recalling of conversations about current events as they happened in the context of his father nearing the end of his life. The book has an appendix named The Political Economy of Technofeudalism, where Varoufakis lays out his case in a much more direct way.

In the main part of the book there are lots of sweeping statements made without qualification, and somewhat gross generalisations. The author makes similar statements in some of his interviews. He has said capitalism ‘is defined by profits and markets’ and left it at that, but in this appendix he shows a greater understanding:

‘Under feudalism, the power of the ruling class grew out of owning land that the majority could not own, but were bonded to. Under capitalism, power stemmed from owning capital that the majority did not own, but had to work to make a living. Under technofeudalism, a new ruling class draws power from owning cloud capital whose tentacles entangle everyone’.

‘Cloud’ here means data centres. That data may be data (information) or it may be code which enables networked software like Zoom to work. Like most resources in capitalism, the cloud is mostly owned by a few capitalists and is thus used to ration access to software and data via subscription services, such as Netflix.

Capitalism

Varoufakis states there are eight keys to understanding capitalism: commodity production; distribution of revenue into wages, interests, rents and profits; circulating money capital; capital accumulation, frequent crises; social classes (capitalist, middle class, waged labourers); extractive power (inequality and state enforcement); and a ‘techno-structure’; marketing and behavioural modification infrastructure.

Varoufakis also has a spin on the Labour Theory of Value to support his view. He states that value in capitalism has an experiential form – which seems to be synonymous with what Marx called use-value – examples given include – both commodities such as drinking water – and non-commodities like sunsets, or feeling appreciated. Exchange or commodity value, he states, is a quantity at which goods and services trade for one another. Labour is treated as a separate category but in similar terms as experiential labour and commodity labour. He states the ‘exchange value of commodity labour equals the sum of experiential labour that other workers have put into commodities that a worker’s wage can buy’.

According to Varoufakis two main forces cause capitalism to enter crises – the falling rate of profit and debt crisis (financiers going on credit strike). Rent he considers to be any price paid by a buyer above the price which most closely reflects the exchange value of the commodity. This includes ground rent, financial rent (interest), monopoly rent and brand rent (higher prices associated with in-demand brands, eg Apple computers or Nike training shoes). Varoufakis considers capitalism to be driven by profit and private debt.

Private debt he says is created by financiers from thin air – which qualifies him as a bit of a ‘currency crank’ – his note on this simply says bankers create loans from thin air by an audacious transfer of future values to the present. In the main text he states:

‘Most people think that banks take Jill’s savings and lend them to Jack. That’s not what banks do. When a bank lends Jack money, it does not go into its vault to check it has enough cash to back the loan. If it believes Jack will return the loan, plus the agreed interest, all the bank needs to do is add to Jack’s account the number of dollars it lends him. Nothing more than a typewriter or, today, a few strokes on a keyboard are necessary’.

We would disagree here and state that crises are caused by the chaotic nature of capitalist production that doesn’t know when to stop producing. Debt crises are a symptom of over-production in the real economy. The falling rate of profit is a real tendency but is generally negated by the development of new markets and labour market flexibilities. The Thin Air Theory of Debt is debunked (as detailed in the Socialist Party Pamphlet The Magic Money Myth). There is no reason to extend the concept of rent to the price pain of money loans (interest) or monopoly prices.

Cloud serfs, cloud proles and cloud fiefdoms

Varoufakis goes on to define technofeudalism. He starts with cloud capital, defined as the agglomeration of network machinery, software, AI-driven algorithms and communications hardware criss-crossing the whole planet and performing a wide variety of tasks. These include inciting billions of non-waged people (‘cloud serfs’) to work for free at replenishing cloud capital’s own stock (eg by uploading photos and videos to Instagram or TikTok, or submitting film, restaurant and book reviews, allowing their every click to be tracked across their social media use). Two further ideas central to his case are introduced here: the industrialisation of marketing to buy goods on platforms (‘cloud fiefdoms’), plus and the enhanced automation of actual physical production of goods by what he calls ‘cloud proles’.

Here the word capitalist is replaced by “cloudalist”. He states that because there are major cloud-based services (such as Twitter/X, or Uber) that have not made significant profits but managed to grow via issuing shares. He also states that Big Tech were the main effective recipients of extra currency produced by central banks in the post-2008 growth period and particularly during the pandemic. Via the money and share markets, and the inflation of the value of fictitious assets low interest loans were obtained to spend on cloud infrastructure. So profit via the direct exploitation of labour, became irrelevant for the cloudalists, instead their focus was on market dominance – the establishment of “cloud fiefdoms”. Varoufakis argues that profit is no longer the goal of the cloudalist, instead they seek “cloud rent” paid by “cloud vassals” (the “terrestrial capitalists” who now sell their goods and services via the cloudalist platforms).

Using social media services is of course not working for Big Tech for free: that is not an obligatory activity for survival based on social class like wage-labour is for most people. In fact, those who are doing the value-creating work are those collecting data – which is a whole industry: it’s the bread and butter of Google and Facebook and their thousands of workers. And almost every other firm selling on the internet is using in-house or third party SEO (search engine optimisation) software and expertise to boost sales by exploiting data about potential clients. It’s as if shopkeepers don’t rearrange their window displays to attract their customers, just because they can now do it remotely tailored for individual customers. Profit is still the driver, and movement of surplus capital from one section to another has always happened, including via the state’s capital which is sourced by skimming off capitalist production by means of taxation.

Many of the trends identified in Varoufakis’ thesis are in fact the continuation of long running trends in capitalism. Capitalists in different sectors are in constant competition for access to shares of the surplus value created by work. As the review in this journal stated: ‘What Varoufakis is analysing is not the downfall of capitalism, but its purest application’.

Critical and uncritical reception

Publicity material for the book garnered positive comments from a variety of sources: ‘The dark scary exciting song of our age’ (Irvine Welsh), ‘An urgent demand to seize the means of computation’ (Cory Doctorow), ‘Remarkable’ said the Financial Times who made it ‘Best Book of the Year’, ‘This is the world grappling with an entirely new economic system and therefore political power’ (Observer).

Several Trotskyist papers criticised the book on similar lines as this journal. Meanwhile a lengthy review in Jacobin Magazine said it was wrong about serfdom and that the economy still relies on a class of wage labourers.

However, for every review that seriously engaged with the idea and agreed that capitalism was not dead and that technofeudalism was not a new form of society, there are a multitude of newspaper reviews and blogs that just repeat the ideas in the book – trading on the excitement of something apparently new, it seems. Whilst not widespread, we have seen the term ‘technofeudalism’ spring up across social media: in posts by commentators suggesting that it is now the new social system and needs to be escaped from, in adverts for security software that will prevent cloud serfdom, for crypto-currencies, and for introductions to join slightly shady looking discussion groups on Telegram which promise to spill the beans on how to break out of the system.

Viewed generously Varoufakis’s contribution in Technofeudalism – What Killed Capitalism has put discussion of ideas about capitalism, the system we have now, into the ‘Recent Publications’ section of bookshops and libraries, both physical and in the cloud. But socialists have not been convinced that capitalism is dead. What it will take to kill capitalism is a politically organised working class that understands capitalism and wants socialism.

PDH

Blogger's Note:

There is a review of Yanis Varoufakis' book by Pik Smeet in the January 2024 issue of the Socialist Standard.

Cooking the Books: Death of a currency (2025)

The Cooking the Books column from the October 2025 issue of the Socialist Standard

‘Local currency is retired to end a notable trend’ reported the Times (1 September) about the demise of the Lewes Pound, a local currency introduced 17 years ago in the Sussex town and copied in various other towns and cities in Britain.

We mentioned its launch at the time (Socialist Standard March 2009) and the extravagant claims made for the local currency by George Monbiot: ‘It by-passes greedy banks. It recharges local economies and gives local businesses an advantage over multinationals’ .

The aim was to encourage people to spend their money locally by using a currency that could only be spent and circulated in the town concerned. If people used the local currency to buy from a local shop, it was argued, it would stay in the town, but that if they used ordinary money to buy from a national supermarket the chances are that it would end up being spent elsewhere.

Local currencies didn’t replace ordinary money. In fact, they had to be backed pound for pound by an equivalent amount of ordinary money deposited in a bank. The Times refers to this in its report when it says that, now that the scheme is being wound up, ‘the backing money will be donated to four local charities’.

As we mentioned at the time:

‘The Lewes Pounds get into circulation by people buying them for ordinary pounds and are convertible back into pounds on demand. In answer to the question “What happens to the sterling pounds that are taken when people buy Lewes Pounds?” the organisers explain: “All Sterling pounds are held in a safe deposit box with a local bank, so that we can access them at any time should people wish to trade their Lewes Pounds back into Sterling”’.

So no by-passing of ‘greedy banks’. Nor any extra purchasing power introduced to boost the local economy. It was just one piece of paper being replaced by another of equal spending power. Since people wanting to use the local currency had to buy it, those doing this were likely to have been enthusiasts who would have bought things locally anyway using ordinary money; the same goes for those accepting it in change (which people couldn’t be obliged to do). It is unlikely, then, that local businesses benefited — except the scheme itself by selling Lewes Pounds to collectors. How multinationals lost out remains a mystery.

The scheme failed in the end due to the nationwide trend to pay by card rather than cash. In Brixton the organisers of the local currency there tried to get round this by introducing an electronic Brixton Pound  but this too was overtaken by smartphones with their electronic wallets, and the Brixton Pound too was wound up.

When the Brixton Pound was introduced in 2009 our South London branch commented in a leaflet distributed in the area:

‘What’s the point (apart from helping local shopkeepers)? What difference does it make what coloured pieces of paper we have to use to get the things we need to live? The real problem is that in present-day, capitalist society we have to use money at all to obtain these, and that the amount of money we have will always be rationed by what we get as wages or as benefits. That restricts and distorts our lives’ (Th£ Brixton Pound — What For?).

The sad fact is that all the enthusiasm, time and voluntary work that went into devising and running local currencies led nowhere. This particular ‘notable trend’ to do ‘something now’ to try make things better under capitalism made no difference whatsoever.

Major Douglas in Alberta (1935)

From the August 1935 issue of the Socialist Standard

An interesting situation has arisen in Alberta with the acceptance by Major Douglas of post as adviser to the Government. The Government in the province is in the hands of the Party known as the United Farmers of Alberta, whose hold on the electorate has been seriously undermined by the rapid growth of a local Social Credit League run by a Mr. Aberhart. Fearful of being defeated at the next elections the Government, in the words of the Canadian correspondent of the Economist, “hit upon the idea of importing Major Douglas himself, the parent of Social Credit, to confound Mr. Aberhart” (Economist, June 29th).

Major Douglas and Mr. Aberhart have said some harsh things about each other, and each claims that his particular scheme is the genuine article, so that it seems highly probable that the move of the Alberta Government will succeed in splitting the Social Credit vote. Major Douglas is not giving his aid for nothing. He is to have a “generous fee.” According to the Vanguard (Toronto, June 1st, 1935) he gets a retaining fee of 5,000 dollars and a further payment of 2,000 dollars for every visit to Alberta.

He has recommended the formation of a coalition Government which shall seek a mandate for the following four “fundamental objectives” (Economist, June 29th).

A drastic reduction of taxation, particularly upon property.

A maintenance dividend as of right, probably small at first, and graded so as to be at the maximum after middle age.

Measures designed to produce a low price level within the Province with adequate remuneration to the producer and trader.

Development of internal resources based upon “physical capacity rather than upon financial considerations.”

It will be noticed that these objectives might be accepted easily by any Liberal-Labour Party anywhere. Where they are definite they are in line with capitalism. Where they are vague they are good vote-catching devices.

What is important about the Alberta episode is that it exposes the real nature of the Douglasite gospel. Major Douglas and his followers are most emphatic that their scheme is not inflation of the currency, but that, in fact, is precisely what it is. The whole Douglas theory is based on an ancient myth about a supposed deficiency of purchasing power. There is no such deficiency, and consequently the issue of Social Credit in the form of the payment of an allowance to all citizens, since it is not to be provided by increased taxation, could only be done by inflating the currency and thus causing the price level to rise. Major Douglas is most anxious to deny this because experiences of inflation in France, Germany and elsewhere have shown how useless that is except for the problems of certain sections of the capitalist class. Now we find him acting as adviser to the United Farmers of Alberta, one of the planks of whose programme, adopted at a conference two or three years ago (see Canadian Annual Review, 1933), is inflation of the currency to bring the dollar down to the level of the wheat-producing foreign competitors of the Alberta farmers! Like certain English economists who have been prepared to give conditional support to the Douglas scheme, the Alberta farmers will be willing to do so simply because it involves currency inflation which they believe will help to reduce the burden of their indebtedness to the Canadian banks, mortgage companies and insurance companies.

Douglas – Defender of Capitalism

Before leaving Major Douglas it may be worthwhile to remind those misguided workers who support him how essentially capitalistic is his movement. He is himself an unrepentant anti-Socialist. In his Monopoly of Credit (Chapman & Hall, 1931) he describes the relationship between capitalism and workers as “a perfectly equitable arrangement” (p. 34) and in his Draft Social Credit Scheme for Scotland he emphasised that there was to be no ” interference with existing ownerships, so called,” and there would continue to be profits, wages and capitalist ownership (see appendix to Social Credit, revised edition, 1933, Eyre & Spottiswoode). He constantly puts forward the absurd theory – but a very useful one to the industrial and commercial capitalists in hoodwinking the workers – that capitalists and workers are both exploited and impoverished by their common enemy, the banker. One of the journals which espouses his cause, the New English Weekly, tells us (May 26th, 1932) that Douglasism could be introduced only under two forms of government

“A dictatorship … or a Patriotic largely and predominantly composed ‘Tory aristocrats’…”

On January 26th, 1933, the same paper had the following frank admission about the aims of the Douglas movement:

“… if by capitalism is understood the system of competitive production for profit, it can be said that the required change would not involve its destruction but only its regulation.”

Edgar Hardcastle

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

Letter: Not obscure nit-picking (2025)

Letter to the Editors from the April 2025 issue of the Socialist Standard

Not obscure nit-picking

Thank you for publishing a review of my pamphlet entitled Time to Get Rid of Money (as are the Old Moles Collective as a whole for the various reviews of our books that you have published).

However I do find it sad that the SPGB needs to criticise in such a petty way. Why cannot you engage in a serious discussion? After all, as the review seems to grudgingly accept, we do both believe that class society and a society based on money must be eliminated. One would think this would be a basis for a more in depth review and some serious analysis and discussion of a complex money system and the way it works eg, its impact on the poor under capitalism, the wealth pyramid, the anarchy of the market, the increase of working class debt and debt generally, let alone the fact that money is purely electronic and that today gold is not used to backup currency.

But no, ALB ignores all these issues to perpetuate a traditional weakness of discussion by the leading figures of the SPGB in favour of the need to score cheap jibes through a mixture of false representation of ideas and a lack of effort. I don’t pretend to have expert, detailed workings of today’s complex financial systems at my fingertips but at least I am trying to explain the essentials and engage in discussion about what it really is. The Old Moles know that we will not convince everybody instantaneously of the absolute correctness of our political positions, so discussion is what we primarily aim to develop with our books.

First of all let us take note of some brief but important facts:

The level of world debt in 2024 is approx $300 trillion yet the level of world GDP for 2023 only equals approx $100 trillion dollars. The total value of gold in mines to 2024 is much less than this and equals only $18.07 trillion (212,582 tonnes of gold have been mined to date at a market price of $85 per gram at end of 2024).

For the UK the economy’s net worth is about £11 trillion (2020) and the level of UK GDP equals £2.5 trillion (2022). Nevertheless, the level of debt in the UK is approximately £5 trillion (2024) and, according to the Bank of England, the level of bank deposits in the UK come to £1.5 trillion (2023). However the amount of actual sterling available comes to only £94b (2022)

Did ALB make any real effort to understand such figures? They are easy enough to find and check online and clearly show that the money in circulation is much less than deposits in the banks and especially of the value of debt that exists. Furthermore, bank reserves are restricted to a small proportion of the deposits held by banks. Where then is the real money that ALB has so much trust in? ALB’s faith in the capitalist banking system is touching but that is what the financial system depends on ie faith and it is sadly misplaced in a socialist.

ALB blithely dismisses the evidence from the Bank of England and the former head of the US Federal Reserve and tries to devise his own better explanation of loans that use reserves and bank deposits, but fails to realise that only 4 percent of deposits is kept as cash by bank, the remaining deposits and reserves are entirely electronic!

Yes, the idea of creating currency ‘out of thin air’ is hyperbole and yes the banks need to make a profit on this activity which may well limit the amount they can create at any given time, but this electronic money is created by computer and cash is printed to maintain this system. This is the money system in today’s capitalist economy.

In every economy, the level of currency is only sufficient to facilitate the circulation of commodities so it does not cover total deposits let alone total GDP and the deposits and reserves held by banks. Moreover there is the fact that the valuation of a currency can change and even collapse — as recently in Argentina.

Any rational interpretation of this situation can only say the money is not worth actually anything. It is backed only by other coins and notes or by electronic records. All currency physical and electronic is only valuable and only works because the state backs it with promises and relies on the population keeping its faith in the money system — and ALB, I’m afraid, does his bit to support that system.

Debt is not the main problem, capitalism and its shit financial system is and perhaps SPGB needs to investigate and discuss how capitalism really works instead of scoring debating points.

Phil Sutton

Reply:

It was the title of your pamphlet and your political background that led us to read and review it. We had expected ‘some serious analysis and discussion of a complex money system’ from a Marxian point of view but were disappointed to find that it endorsed a mistaken theory of the nature of banking that we had been combating for years, viz., that banks can create money ‘by a stroke of the pen’ (as it was put in the 1920s) and generate an income for themselves from the interest they charge for lending it — ‘an electronic data entry costs virtually nothing but earns interest for the bank!’, as you put it.

If this was the case, a bank would be a very special capitalist enterprise, one that could create a part of its capital out of thin air and obtain a profit from it. Every capitalist would want to be a banker. Actually, a bank’s business model is to borrow money at one rate of interest, whether from savers or the money market, and to re-lend it at a higher rate. This ‘spread’ is the source of its income; what is left after paying its costs in terms of buildings, computers and staff is its profit.

You claimed the authority of an article in a Bank of England publication for your view. Nearly one third of our review was taken up with an extensive quote from the article in question which showed that it did not support your view. What you call our ‘own better explanation of loans that use reserves and bank deposits’ was in fact that of the Bank of England article. You now concede their point that the need to make a profit ‘may well’ limit the amount of money banks can lend at any one time. But ‘may well’ is too weak; a bank will stop lending at the point where it costs it more in interest to cover its loans than the rate it could charge borrowers.

You also concede that to say that banks can create money out of thin air is ‘hyperbole’. If banks really did have that power then the labour theory of value would be invalid.

Value is only created in production by workers exercising their physical and mental energies to transform materials that originally came from nature into goods and services for sale. Initially it is divided into wages and surplus value, generating purchasing power. Money measures and circulates value. Originally money was a product of labour with its own value. The precious metals ceased to function as cash ages ago and, since 1971 when the US cut the link between the dollar and a fixed amount of gold, ceased to be the general standard of value as well (even if they remain with other things a store of value). Nowadays what is popularly called ‘money’ are tokens for it, electronic as well the more traditional pieces of coloured paper and metal disks, all of which are, as you point out, intrinsically worthless.

Money has various functions and you are confusing money as a means of payment with money as a unit of account. The fact that GDP (what is produced in a year) is expressed in units of money does not mean that an equivalent amount of money is required to buy it. Money circulates, ie, can be used in any number of transactions. Similarly, it is not a problem in itself that total debt (what businesses, governments and people owe each other), expressed in units of money, is greater than GDP, if only because the same sum of money can be used to make and settle more than one debt. Again, there is no need for a bank to hold the full cash equivalent of what it lends. That would undermine the whole idea of banking which is based on the assumption that those who have lent it money will only want to withdraw an average amount of it at any one time (4 percent seems to be the current norm in Britain), meaning that the rest can safely be loaned out. Thus, the total amount a bank lends is greater than the amount it needs to hold as cash, even if it can’t be greater than the amount the bank originally borrowed or borrows.

Fundamentally, the main point at issue here is not just some academic disagreement about how banks work, but that this has important political implications. It’s not obscure nit-picking. Those who believe that banks have the power to create money by a keystroke (formerly stroke of the pen) advocate that this supposed power should be taken from banks and used by some public body either to finance better social amenities or to pay everyone a ‘social dividend’. It is the theory behind a specious form of reformism. Socialists need to be able to refute it as part of our case that capitalism cannot be reformed to work in the interest of the majority. How can we do this convincingly if we share the same mistaken premise as them?

Editors.

Cooking the Books: Blowing bubbles (2025)

The Cooking The Books column from the April 2025 issue of the Socialist Standard

In a Communist Party of Britain supplement in the Morning Star (18/19 January) one of its leaders, Alex Gordon, ex-president of the RMT, set out its theory of economic crises:

‘Beyond profits extracted from surplus value, capitalists amass capital via bank credit and stock markets. Fractional reserve banking creates new credit many times the original deposits. Stock markets likewise multiply the value of the original means of production. Marx called this fictitious capital, since it separates from and achieves value far beyond the original productive capital. Fictitious capital feeds the economy and finances debt out of all proportion to the means of production it is based on. When this bubble bursts this is a crisis’.

The first sentence is correct. Capitalist firms acquire additional money-capital to invest in production for profit by borrowing from banks and/or selling new shares on the stock market.

The second sentence is incorrect. Banks can’t lend more than they have as their own capital, deposits and what they themselves borrow, so they cannot — and so do not —artificially inflate credit in the way Gordon suggests. It’s a bit surprising that the Communist Party should have fallen for that old currency crank myth.

The third and fourth sentences are incorrect. Stock markets do not ‘multiply the value of the original means of production’.

The fifth sentence is incorrect. ‘Fictitious capital’ does not ‘feed the economy’ in the sense of providing more money-capital that can be invested in production. If anything, it feeds off the economy.

By ‘fictitious capital’ Marx simply meant what actuaries call ‘capitalisation’, or the conversion of an income stream into a notional capital sum which, if loaned, would yield over a given period of time interest of the same amount.

Shares are a form of fictitious capital calculated from the expected future stream of income coming from the profits made by a capitalist firm and entitle their owners to a share in these profits. They are subsequently traded in their own right independently of the capital originally invested in production, whether to share in the profits or to sell later at a higher price. But, as Marx noted:

‘The independent movement of these ownership titles’ values, not only those of government bonds, but also of shares, strengthens the illusion that they constitute real capital besides the capital or claim to which they may give title …. In so far as the rise or fall in value of these securities is independent of the movement of the real capital that they represent, the wealth of the nation is just as great afterwards as before’ (Capital, vol. 3, ch. 29, Penguin, pp. 598-9).

A recent example is ‘China’s cheap AI chatbox wipes billions off Silicon Valley shares’ (Times, 28 January) where a part of the fictitious capital was wiped out without affecting value of the real capital invested in the corporations’ tangible assets. Conversely, contrary to Gordon’s claim, an increase in share prices is not an increase in real capital (though it may reflect this).

Gordon is offering an essentially financial theory of crises, based on a boom in stock exchange prices (and on banks supposedly creating credit by a stroke of the pen) generating additional money-capital that is invested in expanding productive capacity; eventually too much in relation to paying demand is produced and the bubble bursts.

The stock exchange crash is indeed a consequence of such overproduction. It’s when stock market traders realise that the fictitious capital represented by shares is over-priced due to the future income stream of profits on which it is based becoming less than anticipated. But the question is: what causes the overproduction? Marx looked for the explanation in the ‘movement of real capital’ not in what happens in the world of finance.

Left currency crankism (2025)

Book Review from the February 2025 issue of the Socialist Standard

Time to Get Rid of Money. It’s just not worth it. By Phillip Sutton. Old Moles Collective. 60 pages.

This booklet is a classic example of being right for the wrong reason. It starts off well enough by saying that ‘it has been said that money is the root of all evil but this is wrong; it is class society’ and that ‘getting rid of money can only happen when the working class takes power and gets rid of capitalism’. After that, it’s downhill all the way as the author, strangely from someone who has emerged from the Left Communist milieu, embraces a currency crank theory of banking and money.

We are told that:

‘It is a total myth that banks need or use savings in order to lend out money. This monetary system is what Aaron Sahr has called “Keystroke Capitalism” ie, money is quite simply a product of using a keyboard as the banks create money by making and recording loans on their computer!!’ (his emphasis).

and that:

‘… the whole financial system is based on creating money out of thin air … The whole financial industry really is just based on creating electronic assets (ie, virtual money) that are loans on which interest can be charged. What a system — an electronic data entry costs virtually nothing but earns interest for the bank!’

To back up this incredible view Sutton cites a 2014 article from the Bank of England Quarterly Bulletin. Although this does state that banks create money when they make a loan, this is just a definition and does not imply that they do this from thin air. This said, the article’s authors have only themselves to blame when ignorant or naive people take their words literally.

Sutton writes that:

‘In modern capitalism it appears that in the money creation process, it is the borrowers that determine the money supply, and the only restriction on this credit is the ability, or perhaps the willingness, of borrowers to put forward existing assets as collateral against a loan’.

If you think that banks can simply create money to lend at interest by a few keyboard strokes, this is a logical deduction — the only limit to what banks could lend would be the amount requested by credit-worthy borrowers.

In an appendix Sutton reproduces a long section from that Bank of England article which includes this passage which contradicts his claim above:

‘Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system’.

If he read, beyond the introductory summary, the part where the authors expand on this he would find it is not ‘a total myth’ that banks need funds to back up a loan. The article explains what happens after a bank has used its keyboard to record a loan when the borrower then begins to spend the money.

When the borrower does this, most of it is likely to go to people who bank with other banks; so the lending bank will have to transfer money to another bank (if some of the recipients bank with the same bank that will go towards reducing its outgoings). What happens is that at the end of the day (literally) banks clear what they owe each other. If a bank has more money going out than coming in it covers this by drawing on its reserves. But this cannot continue indefinitely as at some point its reserves would be exhausted. The article goes on:

‘Banks therefore try to attract or retain additional liabilities to accompany their new loans. In practice other banks would also be making new loans and creating new deposits, so one way they can do this is to try and attract some of these newly created deposits. In a competitive banking sector, that may involve increasing the rate they offer to households on their savings accounts. By attracting new deposits, the bank can increase its lending without running down its reserves. Alternatively, a bank can borrow from other banks or attract other forms of liabilities, at least temporarily. But whether through deposits or other liabilities, the bank would need to make sure it was attracting and retaining some kind of funds in order to keep expanding lending’ (their emphasis ).

So much, then, for the idea that banks don’t need to fund the loans they make. The article then explains what does limit bank lending:

‘And the cost of that [attracting funds] needs to be measured against the interest the bank expects to earn on the loans it is making, which in turn depends on the level of Bank Rate set by the Bank of England. For example, if a bank continued to attract new borrowers and increase lending by reducing mortgage rates, and sought to attract some new deposits by increasing the rates it was paying its customers on their deposits, it might soon find it unprofitable to keep expanding its lending. Competition for loans and deposits, and the desire to make a profit, therefore limit money creation by banks’.

Sutton’s misunderstanding of the nature of money and banking leads him down the same road as other adherents of the Thin Air School of Banking — that debt is the problem.

‘… it is the super-rich which owns the majority of debt in the world whereas the working class, which suffers most from the burden of debt, actually owns very little of that debt … Given the level of debt today, it would have to be one of the first tasks of the working class to cancel all debts even if it cannot completely eliminate money quite so easily’.

This makes the booklet a curious combination of Left Communism and currency crankism. But, to be fair, the author does want to see the working class eventually establish ‘a society of abundance in which people are rewarded for their contributions by the free provision of their personal needs’.

Adam Buick

Letter: Meeting each others needs (1995)

Letter to the Editors from the February 1995 issue of the Socialist Standard

Meeting each others needs

Dear Editors,

As I run a LETSystem in Canterbury I was amused to read Adam Buick’s article "LETS Abolish Money" in your December issue.

Despite Mr Buick’s evident dismissal of the very concept of LETSystem I was amused rather than perturbed, because even with the research that he had evidently undertaken it is clear that Mr Buick simply fails to understand either their ethos or their future potential. This is not at all unusual. LETSystems are so simple that a great many people have difficulty in understanding them.

Mr Buick dismisses LETSystems for being small, or rather for the twin reasons that they are small and that the range of goods and services that they offer is limited. That they are is undoubtedly true, but there is a very good reason for this. LETSystems are a new phenomenon. most individual ones are very young, even the oldest in Britain is no more than four or five years old. I don’t suppose that even Mr Buick was a towering and influential socialist intellectual at the age of five.

Having grown to a membership of 200 in less than twelve months the Canterbury LETSystem is beginning to attract the interest of "high street" businesses whose own involvement is likely to increase the system’s appeal, even to ordinary people (i.e. other than middle-class hobbyists and New Age dreamers).

As the system grows in size it will become more rather than  less able to pay people to run it and still be far more efficient than the conventional, money economy which requires approximately 10 percent of its workforce to be employed in "financial services".

There may well be an optimum size for any given LETSystem, the bigger they are the more services they are likely to offer and the stronger and more credible they are likely to be perceived, the smaller they are the more intimate they are and the quicker will a person's spending come back to them as earnings. But we do not need to arbitrarily impose limitations upon a system, its natural dynamics will enable each system to find its own optimum size, which may number in the hundreds, the thousands or even the millions.

Beyond these matters, which essentially pertain to the practical aspects of establishing and running a system. Mr Buick's most striking failure is his inability to understand the long-term potential that LETSystems have for converting the present-day market-dominated society into an egalitarian one where everyone’s needs can be met, their dignity maintained and where the environment can be protected. Trading with a LETSystem is not barter, Indeed, use of cash is actually closer to barter than is use of a LETSystem. The Pound Sterling is derived from an entity of intrinsic value — a pound of Sterling silver. So when you use cash you are exchanging one item of intrinsic value (or rather a paper representation of it) for another, which is precisely what bartering involves. By contrast, the credits that one earns or spends in a LETSystem are purely abstract measurements. That they are given a nominal value, usually in relation to the Pound Sterling, is solely to enable everyone to share a common valuation.

This purely abstract nature of their units of currency underlies one of the great advantages of LETSystems. Whereas if you are exchanging cash for goods or goods for cash you have to have one or the other with LETSystems you don’t. You can spend LETS units before you earn them, even before you are able to earn them. Given the strongly inculcated resistance that most people have towards going "into the red" new members of the Canterbury LETSystem are positively encouraged to spend, spend, spend!, for by doing so they are putting credits into other people's accounts which will further encourage them to spend and so increase everyone's opportunities to earn.

Within a LETSystem the sum total of everyone’s accounts at any one moment will always be 0. So for some people to be in credit it is necessary for others to be "in commitment", this differs from debt within the conventional economy because it is not seen as being irresponsible, it is necessary if trading is to take place.

It is this feature of LETSystems that will enable the market economy to continue to meet people's needs (or rather be the means by which people will continue to meet each other's needs) whilst causing it to cease to be a means by which some people can attain power over others.

Mr Buick’s statement that "A hoard of cash is no more useful than a large LETS credit balance" is an extraordinary one to come from anyone other than a contrite capitalist apologist, if some people have a large hoard of conventional money (in whatever form), given that there is a finite amount of it, other people must have little or none, and given that one must have it even to meet one's basic material needs, clearly those who have the stuff in large quantities have enormous power over those who haven’t. By contrast, given that LETS credits are purely abstract measurements with no limit and given that one can spend freely even with a “negative" balance no one with a large LETS credit has any power over someone else who might, at a given moment, be in commitment.

If, as Mr Buick proposes, the elimination of want is to be achieved by the elimination of the market system whereby people exchange goods and services to meet their needs, how will these needs be met? By a central economic authority with complete power over everyone's lives? Mr Adam Buick?

We can retain the benefits of a market economy whilst removing its current absolute dominance and less benign aspects, we can enable individuals and their local communities to secure greater power and responsibility for their own lives, we can remove the inefficiencies and environmental destructiveness of an excessively competitive society and so achieve the type of society that is the dream of many, whether socialists or not. by the very simple idea that is the LETSystem.

After a myriad of Utopian dreams have come to nought down the centuries we now have the means of creating a just and egalitarian society.

Anne Belsey, 

Faversham, Kent

Reply:

Your letter illustrates perfectly the point we were trying to make: the exaggerated claims of the benefits and possibilities of LETS made by some of its enthusiasts. You see LETS as a means towards creating "an egalitarian society where everyone’s needs can be met. their dignity maintained and where the environment can be protected". We are all for creating such a society, but say that LETS schemes will only ever play a marginal economic role.

For LETS to replace "the present-day market-dominated society” they would have to spread out of their present field of personal services, repairs, home cooking and gardening into, and the list is not exhaustive, farming, the generation of electricity. the provision of water, gas. sewage and telephone services. the manufacture of the cookers, fridges, heaters, cars, bikes. TVs. radios, computers (that LETS members merely repair not produce), not to mention the manufacture of the machines and equipment to make these consumer goods and the maintenance of a transport system to move them. They've got to take on and beat economically the public utility companies, the supermarkets, the multinationals and Big Business generally. We are sorry to have to break the bad news to you, but LETS schemes are not going to do this. They are never going to spread outside their present restricted field and even there they are never going to predominate.

This is because LETS are essentially an arrangement for conducting multi-sided barter amongst self-employed individuals. This means they are going to be restricted to the sort of things an individual can do. It also means that they have little interest for those in full-time employment with an adequate wage or salary. (For such people it is always going to be more convenient to pay someone to repair their TV out of the money they have earned than to commit themselves to a couple of hours extra work to exchange for this.) In addition, as the article stated, above a certain size LETS schemes become more cumbersome than resorting to ordinary money. This is not a defence of conventional money, merely recognition of a fact of life within "the present- day market-dominated economy”.

Our answer to the market economy is not to reform it as you want but to abolish the market. No, this does not mean some central economic authority deciding what people need. We envisage a self-regulating system of production for use. in accordance with the principle “from each according to their abilities, to each according to their needs", with individuals deciding what their needs are. On the basis of the common ownership and democratic control of all land and industry, individuals would set the productive system in operation by what they actually took from the common stores to satisfy their needs under conditions of free access; this would then be transmitted to the stores' suppliers and from them to their suppliers and so on down the line and throughout the whole network of productive units.

Finally, don't get us wrong. We are not saying people shouldn’t join LETS schemes, nor that they are a complete waste of time within the present economic system. What we are saying is that they are merely one mechanism for surviving within the present system, on a par with housing associations, coops, building societies. Christmas Clubs, etc. People can join them if they want, but they should be under no illusion that they contain the germ for the transformation of society.

For this to happen, the large-scale socially-operated industry where the bulk of the wealth of society is produced today must first be taken into common ownership and democratic control. And this requires society-wide political action, not what our next correspondent calls "practical small-scale change” which leaves the commanding heights the economy in capitalist hands. - Editors.

Letter: Simply a knocking job? (1995)

Letter to the Editors from the February 1995 issue of the Socialist Standard

Simply a knocking job?

Dear Editors,

Debate is useful and I accept that it is wrong simply to accept new ideas uncritically. However, Adam Buick’s contribution on LETS is simply a knocking job. He makes a number of errors in his description of LETS — for examples the recording of transactions is typically already paid (in local currency) not just "voluntary" — but these are secondary in importance. His real concern is to brand LETS activists as “currency cranks".

Adam Buick's own vision of a non-exchange economy is described in one closing sentence. Could he write as much on this in terms of practicalities as he did in criticism of LETS? I look forward to reading it. The idea of a non-exchange economy has in the past been based on the abolition of the concept of property or on the common ownership of property. Both ideas have a history.but neither have established any convincing vision of what the pattern of social relations, the model of social institutions and the organisation of production would instead be in such a world.

However, there isn't a lot of point in dialogue if you're going to be dismissed a crank. Yes. Fritz Schumacher, among others. said that a crank is a small, metal tooth that makes revolutions but this wasn't what was meant.

Get your facts right on LETS. Accept that the mainstream will regard both of us as cranks. Explain your own ideas rather than leave them to the last sentence. Decide whether you are interested in practical, small-scale change as a seedbed for wider transformation. And then we can have a useful discussion.

Ed Mayo, 

New Economics Foundation.

Reply:

We did get our facts right.

Your “correction" — to the effect that LETS members normally have to contribute to the scheme’s running costs — strengthens not weakens our argument that such schemes are strictly limited as to the size they can attain without becoming too costly to run.

We never said that members of LETS schemes were "cranks", only that currency reformers of one kind or another had latched on to these schemes as a way of promoting their cranky ideas, in particular that of a new kind of money that can’t be accumulated and can’t yield interest.

In response to your request for more information on how a society of common ownership and production directly for use without buying and selling could work we are sending you a copy of the new edition of our Socialism As A Practical Alternative pamphlet. Hopefully, after you have read it the dialogue can begin. — Editors.

Letter: LETS all not get excited! (1995)

Letter to the Editors from the February 1995 issue of the Socialist Standard

LETS all not get excited!

Dear Editors,

I read with interest your article on the LETS scheme. This was first brought to my attention several years ago when, as I understand it. the system was in its infancy. (It would seem, incidentally. that it has done little growing up since.) I was attending a dinner party of sorts with a group of friends who do their views and ideas no justice by clinging to their '60s hippie image whilst expecting to be taken seriously as local and national political figures (Green Party, etc.).

Anyhow, they were raving about this revolutionary “no money scheme". Obviously I listened with anticipation. My heart sank, and they could not understand when I said simply “For LETS read pounds sterling". They had convinced themselves of the wondrous nature of the system and seemed under the delusion that, although accumulation of credit, book-keeping and cheque books were all relevant factors, by changing the name of the currency they had abolished money. The final shot in the foot for them after several hours of debate was that in order to initially join the scheme you paid a fee in sterling. This was to cover costs of operation of the scheme.

So intense was their belief in the system that they could not understand my scepticism. It is sometimes upsetting that the indoctrination of society is so deep that even those with good and honest intent cannot throw away the shackles of capitalism.

Neil Pettitt, 

Bristol

Reply:

Thanks. We were beginning to need a bit of support.  - Editors