Inflation and prices - Part 4 (1965)

From the October 1965 issue of the Socialist Standard

Link to Part 3.

In this last instalment it may be useful to make a few brief comments on the subject which we have been discussing.

A great many people think that higher prices are caused by higher wages; they look at what has been happening in the last 20 or 25 years and they think this proves their point. One fact is enough to dispel this belief. Between 1945 and 1951 the retail price index was more or less continually rising faster than wage rates, it was not a question of wages going up and prices following, but the reverse. Secondly, it has to be remembered that in a period of continuing inflation, when manufacturers can more or less confidently expect that there will be a steady rise of prices of, say, five per cent a year because of inflation, they would often prefer to give a wage increase when it is demanded than to risk a strike. And, of course, they never fail to represent the price rise which would take place anyway as having been due to the wage increase. They will often time their price increases to follow a wage increase to give this impression, although if market conditions are against them, they cannot put up their prices whether they want to or not and whether wages have gone up or not.

At the present time the Government in Great Britain talks in terms of having no more inflation, even if this might mean fighting the trade unions over wage claims and risking big strikes. It remains to be seen whether they will. While relatively full employment lasts, the trade unions are in a fairly strong position, rather different from the situation between the wars when there was always at least a million unemployed.

Governments do not always prefer inflation. In certain countries they carry out the reverse—a deflationary movement—as the British Government did after the First World War. On that occasion prices went down by about one-third, and wages came down with them. Russia since the Second World War has twice up-valued the rouble, replacing the old currency by a new and much reduced quantity of notes. France did the same in 1960. One of the reasons why in Great Britain the Government is unlikely to try to reduce prices to anything like their former level is that its obligation to pay hundreds of millions of pounds on the National Debt would become an enormously increased real burden, if they had to pay it in currency, the purchasing power of which was being increased by the deflationary fall of prices.

During the last 25 years the holders of Government securities have found that the real value of their holdings and the purchasing power of the interest they received on them are steadily being reduced by the falling value of the pound. This has suited the interests of the general body of capitalists in Great Britain.

When Russia in 1947 up-valued their rouble they got over that particular difficulty by simultaneously reducing the amount of bond holdings. A Russian, for example, who had Government bonds to the value of 1,000 roubles, found when the up-valuing of the rouble took place, that his holding of Government bonds was cut by one-third or one-half.

No city editor or orthodox economist accepts the Marxian view that the increase of a non-convertible note issue is a cause of inflation. Some of them, including some of the followers of the late Maynard Keynes, deny that the note issue has been excessive, and say that it has merely kept pace with the currency needs required by expanding trade. It is, however, for them to explain why it was necessary to multiply the note issue in Great Britain by nearly five times in face of the fact that the actual physical volume of production in Great Britain is now not more than about five per cent above the pre-war level. Obviously, these two facts do not square with the interpretation put on the note issue. It is a reasonable assumption that the excess issue has only been made necessary by the multiplied price level, which has itself been largely caused by the note issue. Another group of economists deny that the note issue matters any more, one way or the other. It is for them to explain why the Government troubled to multiply the note issue if it is not of sufficient importance to have any effect.

Edgar Hardcastle

(Concluded)

Capitalism v. Socialism (1935)

From the October 1935 issue of the Socialist Standard

 

Trade Union official cites Russia!

There has lately come before us a copy of The General and Municipal "Workers' Journal (June, 1935). Reminiscent of a parish magazine, its pages contain so many incorrect statements and samples of loose thinking that it would take several issues of the Socialist Standard to deal with them individually. It may, however, be of interest to deal with the “Notes” of the General Secretary, Mr. Charles Dukes, especially those under the heading of “Capitalism v. Socialism.” The United States is quoted as an example of capitalism, whilst Russia is referred to as “Socialist Russia.” The General Secretary states that the disaster of capitalism in the United States is due to the fact that they have no policy for refunding their National debt, which has increased by nearly 12,000 million dollars as a result of the “New Deal” policy. The General Secretary should know, however, that national debts are not necessarily disliked by the capitalist class—who are the only people concerned; in fact, some of them like them so well, that there is at the moment a widespread newspaper campaign for expanding armaments by means of a £250,000,000 loan, instead of by means of taxation.

A national debt is nothing more than a sum of money owed by the capitalist class as a whole to that section of the capitalist class which invests its money in war loans and other government securities. The incomes of the whole class are taxed in order to pay the interest to that section. National debts, therefore, are no indication of disaster to the capitalist class.

His remarks on Socialism show that Mr. Dukes knows not what this is. Our own definition of Socialism will be found by reference to our object on the centre page of every issue of the Socialist Standard. As it is now fairly well known that the conditions in Russia do not correspond to this definition—in particular, the means of production are controlled, not democratically, but by the controllers of the Communist Party—it will be obvious that Socialism has not been established in Russia.

Again, as under Socialism goods would be produced solely for use, the necessity of the exchange medium—money—would disappear, yet the General Secretary refers to “money,” “income,” and “expense,” as part of the Russian “Socialist” economy. Another reason given for the “success” of “Socialist” Russia is, that she “does not seek the assistance of foreign loans.” Here, again, he is wrong. Instances of foreign loans negotiated by the Bolsheviks have been recorded previously, but the following is a case in point: —

BIG LOAN TO SOVIET.

Prague, Monday.

Soviet representatives to-day signed an agreement with Czecho-Slovakian banks for a loan of £2,083,000 for five years at six per cent, to finance purchases of Czech manufactures by Russia. —British United Press.

(News Chronicle, June 4th, 1935.)

As to the nature of the “success” itself, this would appear to consist of the fact that there are insufficient workers for the available jobs, and that output in the heavy industries has increased as compared with a year ago. And this is the “success” of “Socialism”! It is, of course, simply the conditions which are regarded as successful under capitalism.

The case for Socialism as against capitalism can be put both correctly and much more simply. Briefly it is that capitalism—a system of society based upon the private ownership of the means of production—produces certain unpleasant effects upon an enslaved class called workers, viz.: poverty and insecurity most of the time, and, by way of a change, unemployment and war. It is, therefore, in the interest of the workers to completely change the basis of a society which produces such effects. As the opposite of private ownership is common ownership. Socialists advocate the replacement of the existing form of society by one based upon this common ownership of the means of production and distribution, namely, Socialism. This result can, however, only be achieved by a class-conscious working class organised for that purpose. It is for that purpose that the Socialist Party of Great Britain was formed, and it is up to all workers who agree with our position to join with us and help on with the work. Now, fellow workers, what about it?

R. Milborne

Jottings. (1912)

The Jottings Column from the December 1912 issue of the Socialist Standard

The Dean of Lincoln (Dr. Fry), speaking at Kennington recently, gave utterance to the following characteristic remark : “I wake in the morning with a joy I have not known for years to think that we may, in a few weeks, have the Cross over St. Sophia and Constantinople.” Which means, to give it its true interpretation, that if there are any pickings to be had, they mean, vulture like, to be among the first at the feast, brazenly disregarding the fact that the history of Christianity is bloodier even than that of the Turks.

* * *

It is interesting to note with what alacrity the wealthy class have protested against the flogging clause in the White Slave Traffic Bill. One would suppose that they were actuated by motives of honest indignation against a survival of Middle Age methods of torture. To the Socialist, however, the reason is quite clear. For is not this the class from which the “White Slavers” draw most of their clientele ? And are they not responsible in a double sense, inasmuch as it is due to the exploitation of labour by this class that the degradation of women exists, thus making “white slavery” possible.

* * *

According to news from Paris, a lady has been seen in the Champs Elysees, accompanied by her dog, which was wearing india-rubber boots laced high up the legs, ear protectors, goggles to shield the eyes from cold and mud, and a Raglan overcoat lined with, thick flannel, and provided with a pocket from which projected a tiny handkerchief with a monogram on it, with which to wipe its dear little nose.

In order to more fully appreciate the above I cite another instance of riotous extravagance taken from the same paper (“The London Budget,” 27.10.12).

“An old soldier with the best of characters complained to the Westminster magistrate that everything he possessed, except a small bundle, had been taken from him for a balance of 5s. under a hire-purchase agreement and 3s. 6d. for a week’s rent, which he was unable to pay through being out of work. He showed receipts covering a period of two years for instalments amounting to £12 11s. paid for goods priced under the agreement at £12 16s.” After this who wouldn’t prefer a dog’s life ?

* * *

A circular has been going the rounds of late, issued by that confused set of scaremongers known as the Anti-Socialist Union. It is a wild appeal for “help and support,” promising that “neither the names of members nor subscriptions are published without permission.” In the course of the appeal (which is anonymous, as usual) it states that “predatory Socialism” is rampant in the House of Commons. According to the “antis” there were 40 Socialists in Parliament in 1911, and since 1897 the National Debt had risen from £545,171,525 to £733,072,610, ostensibly due to their advent in the House.

This is certainly news to me, yet I would be satisfied if the A.S.U. would furnish the name of one Socialist in Parliament, now or any other time. This sort of stuff may do to frighten the commercial and business class to whom these leeches make their appeal, but to the Socialist it is laughable.

* * *

Here is another sample : “One of the first principles of Socialism is the repudiation of the National Debt. That is why Socialists show no concern at the rapid piling up of the nation’s liabilities.” This is both right and wrong. It is wrong in so far that Socialists do not repudiate the National Debt, for the simple reason that it makes no difference to the workers of this country whether the nation has a big National Debt or none at all. The workers’ condition remains the same. They don’t make the debt, and they don’t pay the debt. Therefore the Socialist doesn’t concern himself with the National Debt, even to the extent of repudiating it. It is right in that the Socialists have no concern with the nation’s liabilities. The liabilities are not theirs, be they piled as high as that beautiful place they tell us about. On the other hand, having regard to the fact that Socialism will not be established except as a world-wide system, all national debts, liabilities, Anti-Socialist Unions, and other capitalist institutions will automatically become defunct. Meanwhile, spread the light !

* * *

Keir Hardie, “the famous British Socialist” (according to the Americans), has recently returned from a lecturing tour in that land “flowing with milk and honey.” Asked by an interviewer how he became a Socialist, Hardie (it is reported) answered : “I can’t just say how my own life turned me to Socialism, I think I got my first ideas from reading Robert Burns and Thomas Carlyle. Then came the New Testament.” Good heavens ! I have several times wondered where he got it from !

It seems that Hardie’s services had been requisitioned to give a fillip to the S.P. of America (an organisation similar to the I.L.P.), since Roosevelt had stolen all their platform, and left with them no distinguishing principles upon which to fight. It had been suggested to the party that Hyndman be asked to perform, but the offer was declined on the score of expense. Instead, Hardie was booked at £10 a lecture !—at least, so grumbles “Justice.” It would be very interesting to know what Hyndman’s figure would have been, seeing that Hardie was considered to be a cheap substitute at £10 a time.

Considering he addressed 43 meetings it cannot be said that he did badly, and yet it certainly was indiscreet of him to tell the interviewer that “the commonsense of humanity is bound to manifest itself sometime.”

Whilst agreeing that this is probable, yet, it seems to me, if its manifestation depends upon the dissemination of Carlyle and the New Testament at £10 a dose, then it is a very long way off indeed. Happily, however, there are teachers of Socialism in the field.

* * *

The Executive of the Labour Party has been wroth with Mr. J. G. Hancock, M.P., because he announced his intention of attending the meetings of the Mid Derby Liberal Association and reporting to them his work in Parliament. The Executive does not see how he can square this attitude with his pledge to support the Labour Party ‘s constitution.

To me there appears to be no difficulty whatever. Events have proved that the Liberal Party stands for all that the Labour Party stands for. Besides, was not Mr. Hancock congratulated years ago by Mr. Asquith and Mr. Lloyd George on his former successful campaigns in Mid-Derby ? Why was he not pulled up before ? Simply because the Labour Party has known all along that Mr. Hancock was a Liberal. He has never disguised the fact. Again, did not Mr. Ramsay MacDonald himself say that Socialism was to be approached, “not by a broad, ready-made road, but through morass, through forests, up hill and down dale, round this corner and that” ? (Oxford, 13.10.11.)

Numerous instances could be cited where Labour M.P.’s have admitted their identity with the Liberal Party. So why blame a member if he elects to go “round this corner and that” ?

* * *

If those who support a Labour policy are desirous of doing a little house-cleaning, they have set themselves a huge task, for upon observation we find the same treachery throughout the movement. On the occasion of the conference of the freedom of the City of Liverpool upon Lord Derby, we find Mr. “Jim” Sexton present on the platform in spite of the resolution passed by his Trades Council, forbidding members to take part in the ceremony. Not satisfied with this, he needs must inform his audience that he “regarded it as a very considerable privilege to be there.” I can quite believe it, and hope Lord Derby will duly appreciate his services. “A small section of the community,” said Sexton, “have expressed, their disapproval, and whilst I do not doubt their sincerity, I cannot appreciate their motives.”

After this is there any doubt as to which class Mr. Sexton is serving ? Of course, nothing will happen. The only difference is that on this occasion a Tory was supported, whereas it is usually the right thing to support a Liberal.

As Mr. W. C. Anderson, the Chairman of the I.L.P., says in the Liberal “Daily Citizen” (13.10.12): “Some would argue that the Labour Party must prove its independence of the Liberals by voting against the Government, even when the Government are supporting some useful (!) reform. But that is not independence: it is much nearer being an advanced stage of political lunacy. On a number of political questions—Lords’ Veto, Plural Votes, and Home Rule—the Liberals are certainly more advanced than the Tories. On all such questions Labour will go into the same lobby with the Liberals without the slightest sacrifice of independence.” Which is quite true. It would be difficult indeed for them to sacrifice something which, for them, does not exist.

At Manchester last month, during the municipal elections, both Labour and B.S.P. candidates signified their willingness, if elected, “to work for the unification of Rates” and “the transference of Rates from property to site values,” for which they were promised the support “by word, deed and vote” of the League of Young Liberals. These are issues, be it noted that are of no import to the workers, but are intended solely to benefit one section of the capitalist class by shifting the rates burden onto the shoulders of another section, incidentally using the worker as a mug in order to accomplish it.

* * *

According to Lady Aberconway, there are “only two ways for a woman of the upper classes to obtain money ; one by inheriting from the dead, and the other by begging from the living.” I venture to affirm that this is not quite correct. There are three ways of getting a living : by working for it, by begging, and by stealing. Knowing that the “upper” class neither work nor beg for their living, there is no other conclusion left us than that they get it by stealing—from the workers.

* * *

Robert Blatchford has recanted on the question of compulsory military service, of which he was such a strenuous advocate. He admits that “universal military service under the control of the ruling ‘classes’ would result in slavery : it would undoubtedly lead to the enslavement of the workers.” (“Clarion,” 1.11.12.) Which is an admission on the part of R.B. that his position, after all his protestations to the contrary, was the wrong one. It has taken him a long time to find it out, which, in itself betrays the fact that he has not devoted much time to the study of Socialism. Seemingly it requires concrete instances, such as the employment of troops as blacklegs in the recent strikes, to force home to him the absurdity of his position. The point is, what becomes now of his “Britain for the British,” seeing that one position conditions the other ?

Tom Sala

Cooking the Books: Axe the rich (2025)

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

One of the measures being urged on the government to solve its ‘fiscal problem’ is ‘tax the rich’ by means of a levy on the personal wealth of some capitalists.

‘Advocates of a UK wealth tax, including Lord Kinnock, have proposed an annual 2% tax on wealth above £10m. Wealth tax campaign group Tax Justice UK has calculated this would affect about 20,000 people — fewer than 0.04% of the population — and raise £24bn a year’ (Sky News).

According to the latest figures (for the period 2020 to 2022) from the Office for National Statistics, ‘The wealthiest 1% of households had wealth of at least £3,121,500’.

So, the proposal would only affect some of the super-rich, not even all of the ‘top 1 percent’, let alone the whole of the capitalist class.

The ‘fiscal problem’ facing the British capitalist state, which Labour currently has responsibility for running, is how to pay for its essential spending on such things as the military, education and health for the working class, ‘benefits’ for those not in work, as well as its own administration. This can only be covered by money raised from taxes or through borrowing. The government doesn’t want to borrow more since this risks raising the rate of interest it has to pay lenders; which in turn increases the amount of tax it would need to raise, since taxation is the only source it has of money to pay the interest on its debts (the so-called ‘National Debt’).

The irony is that all taxes already fall in the end on property and property income, irrespective of who pays them in the first instance. Obviously corporation tax, income tax on dividends, capital gains tax, inheritance tax, and employers’ national insurance do so directly. But other taxes do so indirectly.

To be able to work efficiently workers require a given standard of living and an adequate money income to pay for this. By and large, though not automatically, what workers are paid goes up in line with the cost of living. If this rises, so sooner or later will wages. Taxes such as VAT on what workers need to buy to maintain their working skills are in effect passed on to employers. Similarly with a direct tax on wages; this too gets passed on. In fact, with PAYE, workers never even see the tax part of their nominal wages; what counts in terms of maintaining a standard of living appropriate to their working skills is their take-home pay and what it will buy.

Arguments about taxation are essentially arguments about how much in taxes particular sections of the property-owning class should pay. Taxes on wages and on what workers consume fall on employers. A wealth tax would be a tax on what capitalists consume in extravagant living and would enable part of the burden of taxation to be shifted from employers on to the super-rich. It wouldn’t make any difference to workers.

A wealth tax also implies the continued existence of the super-rich. One of their arguments against it is precisely that one effect of such a tax would be to drive some of them out of the jurisdiction of the British capitalist state.

Socialists don’t want to maintain the rich so that the state can milk them. Nor do we want to redistribute their wealth amongst the rest of the population so as to try to achieve a more equal society contrary to capitalism’s nature. We want the means for producing wealth to be commonly owned by society as a whole so that they can be used, under democratic control, to directly provide what people need. We don’t want to tax the rich. We want to abolish the division of society into the rich and the rest.

The state of the state’s finances (2025)

From the August 2025 issue of the Socialist Standard

Politicians love talking big numbers: ‘We’re spending £5 million to stop The Thing.’ Or ‘We will spend an additional £20 million to increase The Pittance by a penny.’ When Starmer and his chums came into office they mummered and howled over discovering the astronomical £22 billion ‘fiscal black hole’ left in the public accounts by the Tories. Of course, for the majority of people living on pennies at a time, such figures represent unimaginable amounts. Eking out a few quid from week to week and making every pound work is the lot of most people, so such sums seem like an unforgivable profligacy.

Everyone in politics knew there was a gap in spending plans, and that Labour, despite all its promises not to increase taxation, would have to find a way to close this spending gap. The Tories had arguably laid a trap for Labour, in the form of the Office for Budget Responsibility (OBR), a supposedly apolitical authority that marks the UK government’s financial homework. The problem is, if politicians and press just ignore it, it doesn’t do much good.

It does provide useful data, though. Its Brief Guide to the Public Finances provides a lot of the clarity regarding government spending that is missing from much of the daily rhetoric. The key piece of data is the total spend by the government: ‘In 2024-25, we expect it to spend £1,278.6 billion, equivalent to around £45,000 per household or 44.4 per cent of national income.’ Against that background, £22 billion is a rounding error that could easily be sorted by knocking a few invoices into the next financial year.

The issue is that the income for the state is expected to be ‘£1,141.2 billion, equivalent to around £40,000 per household or 39.7 per cent of national income.’ This is the infamous deficit of £137.3 billion. This means adding to a rising national debt: ‘in 2024-25, we expect debt to be equivalent to 95.9 per cent of national income. It is equivalent to around £2.8 trillion or £98,000 per household’. This is significant, because the government has to pay interest on that debt: ‘Net interest payments on the national debt are expected to cost £105.2 billion in 2024-25’.

To put that in perspective: ‘The biggest items [of public spending] are health £193.3 billion, education £89.2 billion and defence £37.6 billion.’ Whilst, in theory, the state is immortal and need never pay back its total debts (when particular debts fall due, it can just roll them over and borrow more money to pay its creditors), servicing the interest bill can become expensive, especially if confidence in any particular government falls and creditors demand higher interest rates to cover their risks. This means the government has to manage the size of its debt: this is why deficits become such an all-consuming obsession.

Politicians, however, point to the difference between capital spending and current spending. The government invests ‘£146.1 billion – 11 per cent of the total – on capital investment such as roads and buildings and on loans to businesses and individuals’. This spending is backed by physical infrastructure and leads to ownership of assets. On top of that it spends ‘£450.7 billion on the day-to-day ‘current’ running costs of public services, grants and administration. This is 35 per cent of public spending’. Additionally, the government spends £313.0 billion on welfare payments (£150.7 billion of which is pensions).

The government thus prefers to look at the current deficit which: ‘counts all receipts and all current spending, but excludes spending on net investment’. The current deficit stands at £60.7 billion.

This accounts for why Labour made politically disastrous decisions, such as freezing winter fuel payments and cutting Personal Independence Payments (for a paltry £5 billion in savings, which is tiny compared to overall spending, but one twelfth of the current deficit).

They can, if they are lucky, rely on economic growth (which raises tax receipts, and lowers welfare costs) to cover much of the gap: but the plan is to have a current surplus, which gives the Chancellor of the Exchequer space to either cut taxes or increase spending in fresh areas. The expectation is to have £9.9 billion of such headroom by the next election: so the strategy is pain today and jam tomorrow.

As the OBR notes in its Economic and Fiscal Outlook – March 2025:: ‘The tax-to-GDP ratio is forecast to increase to a post-war high of 37.7 per cent of GDP in 2027-28. Part of this increase is driven by the policies announced at the previous Budget, including the increase in employer National Insurance Contributions and increases to capital taxes’. From the point of view of the capitalist class, in general, that money going to taxation comes from their available profits and lowers the amount of money available for their profitable capital investment. A record high tax rate, especially one fuelled by an effective employee tax (National Insurance employers’ contributions) will be concerning for them in terms of international competitiveness.

In their eyes, then, government indebtedness is preferable, as it forms a means of funding the state under the control and discretion of the rich, with interest rates being a kind of vote of confidence in the way a government handles the debt. The money from interest payments is also welcome to those of them who lend the government money.

The March report also notes that the government is committed to ‘increase defence spending to 3 per cent of GDP over the next Parliament, which would be equivalent to £17.3 billion in 2029-30’. This would in part be paid for by a £6.8 billion cut in overseas development spending (this simply represents a change from soft to hard power). This unplanned shift in spending priorities shows how the government’s carefully laid plans to generate a current surplus can easily be thrown off course.

All this wealth, though, was originally produced by the efforts of the working class. How much better and more efficient would it be if that effort was directly focused on human needs, instead of producing taxable money?

Pik Smeet

State Banking in Australia (1934)

From the July 1934 issue of the Socialist Standard

Another Quack Remedy 

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

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

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

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

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

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

    Total                              £10,054,017    2    8

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

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

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

Rural Bank Reserve . . . 164,039 5 7

Savings Bank Reserve . . . 658,382 3 10

National Debt Sinking Fund 2,660,975 14 5

      Total                                 £10,054,017       2    8

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

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

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

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

Bank Loans to House Purchasers

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

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

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

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

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

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

In South Australia a similar position obtained.

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

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

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

Let us ask Mr. Johnston a few questions. .

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

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

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

W. J. Clarke

(Socialist Party of Australia.)

Letter: Debt (2010)

Letter to the Editors from the January 2010 issue of the Socialist Standard

Dear Editors,

The prophetic words that capitalism would create its own gravediggers can be interpreted in many ways. It may be understood to mean that, as a result of exclusion from the enjoyment of the fruits of their labour, a growing number of the population will rise up, enlightened and intellectualised, and revolutionise its dynamics to alter our direction, aims and desires; we hope towards socialism.

It could also be interpreted to mean that through its failings, inefficiencies and uneconomical ways, that it may self-destruct, that it becomes apparent to all, impossibly illogical even, that it must without doubt be surpassed in face of any remnant of opposition that may linger in the nooks and crannies of its many alleyways.

It may be bits of both of these. It is probable that it is bits drawn from the many other facets of life within capitalism. No doubt.

What is becoming increasingly apparent is that its very ‘rules’ if we may call them that, are losing the ability to defend and provide justification for its continuance. One such that has been discussed at great length, possibly more so than at any other time, is that of debt. We are told that our nation’s debt is of such magnitude that we should all prepare for many hard years ahead. That we will prevail over this debt but only by taking hard choices, there will be no easy option and many may suffer, but together we will defeat debt.

Now, if we can just for the moment try not to conjure up the image and inevitable analysis of ‘debt’ becoming an outside ‘alien’ thing, out of our sphere of control – rather absurdly in much the same way that wars or terrorists are often spoke of – and consider their grand solution to it by seeking to increase its availability, we may welcome its arrival and the simple opportunity that it provides.

We can now talk of debt as a bad thing – as a sign of failure. All of us wish we had less of it. Yet it remains of central importance to us; we are told the system cannot do without it, and it cannot. We can explore the idea that as it fails, inevitably and repeatedly, that debt can no longer provide a means to progress. We could say that its day has come and it has had its day. It would appear an easy argument to win: debt is bad therefore do not enter into it. Would this argument be entered into it would surely prove difficult to disprove. If debt, as it surely does, represents in their language a ‘fault’ of capitalism then let us explore it further. In no time at all it would lead into a cul de sac for it seems in their own words as far as debt is concerned ‘There Is No Alternative’. So what – we might then ask – is on offer?

Damian  McCarthy (by email)

Reply:

It is true that defenders of capitalism get themselves into a glaring contradiction over debt, blaming the crisis on too much debt and then advocating creating more debt to try to get out of it. But a distinction needs to be drawn between the “National Debt” and the personal debts of individual workers. The so-called “national” debt is what the capitalist state owes its creditors, who are mainly other capitalist institutions of one kind or another. As you point out, its size is now being bandied about as an excuse to justify even more austerity for the working class. But this is only an excuse for what they always want to do anyway. If it didn’t exist, they’d find some other excuse. Its size is their problem, not ours. We can, however, use it, as you suggest, to bring out the contradictions of capitalism. If all capitalism has to offer is more austerity in a world of potential plenty, let’s get rid of it.

Editors.

Cooking the Books: The National Debt: whose debt? (2020)

The Cooking the Books column from the November 2020 issue of the Socialist Standard

‘The UK’s national debt hit a record £2.024 trillion at the end of August, £249.5 billion more than the same time last year’, reported the Evening Standard (25 September). Presumably seeking to be helpful but actually confusing the picture, the report went on:

‘To put the figures in some perspective, the debt level works out at roughly £30,000 per person living in the UK’.

So we are all on average £30,000 in debt, are we? No, it’s the government’s debt not ours. What is popularly called the ‘national debt’ is the outstanding debt, accumulated over the years, of the capitalist state and so is no concern of ours. To be fair to the statisticians at the Office for National Statistics (ONS) who compile the figures, their official name for it is the ‘General Government Gross Debt’. The total debt owed by persons is called ‘Household Debt’. At the end of March 2018 this totalled £1.28 trillion, most of which was mortgages. The two statistics are quite different.

Note that since 1974 a ‘trillion’ means only a thousand billion (not the billion billion it used to be). But it makes a more sensational headline to say that the government’s debt is £2.024 (with a full stop) trillion rather than £2,024 billion (with a comma).

Governments (unless they are directly involved in capitalist production themselves) generate no income of their own. The money they spend comes from two main sources, mostly taxes. If a government wants to spend more than what this brings in it has to resort to borrowing. This is normally done by selling short-term (Treasury) bills or longer-term bonds (gilts). The interest on these has to be paid from tax revenue.

Another statistic we are urged to get worked up about (but needn’t) is the ‘General Government Deficit’. This is the difference between what the government spends and what it raises through taxes and which has to be made up by borrowing. At the end of June it was £128.8 billion. If, on the other hand, a government’s income from taxes is greater than what it borrows, then there is a surplus which can be used to pay off a part of its debt.

Marx had something to say on the origin and consequences of the ‘National Debt’:

‘The state’s creditors actually give nothing away, for the sum lent is transformed into public bonds, easily negotiable, which go on functioning in their hands just as so much hard cash would. But furthermore, and quite apart from the class of idle rentiers thus created, the improvised wealth of the financiers who play the role of middlemen between the government and the nation, and the tax-farmers, merchants and private manufacturers, for whom a good part of every national loan renders the service of a capital fallen from heaven, apart from all these people, the national debt has given rise to joint-stock companies, to dealings in negotiable effects of all kinds, and to speculation, in a word to stock-exchange gambling and the modern bankocracy.’ (Capital, Penguin edition, Volume I, Chapter 31).

This is a fair description which still applies today but, unfortunately, is a source of many currency crank theories. Marx was aware of this and warned:

‘The great part that the public debt and the fiscal system corresponding with it have played in the capitalization of wealth and the expropriation of the masses, has led many writers, like Cobbett, Doubleday and others, to seek here, incorrectly, the fundamental cause of the misery of the people in modern times.’

The fundamental cause of this misery is not the financial system but the class ownership of the means of life and production for profit. What is required to remove it is not monetary reform but common ownership and production directly to satisfy people’s need.

50 Years Ago: The Capital Levy (1973)

The 50 Years Ago column from the August 1973 issue of the Socialist Standard 

In the “Forward” (Saturday, May 5th, 1923), Mr. F. W. Pethick Lawrence, a Labour candidate and prominent advocate, sets out what he calls “The Case for the Capital Levy,” with the sub-title, “Lift the Burden of Debt from Industry and Labour.”

★

If the burden rested on the backs of the workers it might be worth while trying to throw it off. But if the workers have no surplus, then they cannot be robbed of what they don’t possess; and, in spite of apparent objections, the workers as a whole do not suffer from high, nor benefit from low taxation. They suffer because they are robbed, and they are robbed whether taxes are high or low, and the degree of the robbery has, over a period, no direct or indirect relation to taxation. As we have seen, the workers receive all the wealth they possess from the capitalist owners, and, further, these owners control at present the machinery by means of which taxes are levied.

Now, the workers either receive a surplus over their minimum needs or they do not. If they don’t, then they cannot be robbed of that non-existent surplus afterwards. If they do, then the capitalists will have given the surplus either because they are philanthropists or because they are compelled by economic forces. If they are philanthropists, then they will not take back the gift they gave; and if they were compelled to give, then the same forces will prevent them from taking it back.

★

The pertinent question Lawrence might answer is this : Would the capitalists, if there were no taxation at all, give the workers a larger share of the wealth produced, and, if so, why?

Mr. Lawrence says : “The main principle of the levy is simplicity itself. It is to pay off debt out of wealth. The wealth of the country as a whole is the wealth of its citizens.” This, as I have already explained, is quite untrue. The wealth of the country as a whole is the private property of the capitalist class. Only the owners of property can suffer the burden of taxation, and only the owners do suffer. Some of them want you, the propertyless workers, to pull their chestnuts out of the fire, and Mr. Lawrence and the Labour Party are making a bid for office on the strength of offering to do the necessary publicity work.

★

While the capitalists will on the one hand be relieved from the burden of paying the debt interest, they will also, on the other hand, be deprived of the present means of paying that interest. Some will gain by reduced taxation what others lose by the paying off by the State of their quota of the debt and their consequent loss of interest on their bonds. The money paid out will, in its turn, be reinvested in industry, and we shall be as we were.

(From an article by E. Hardy in the Socialist Standard for August 1923.)

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.

Letter: This Money Business (1963)

Letter to the Editors from the April 1963 issue of the Socialist Standard

This Money Business

Sir,

Socialists must be “suckers” if they swallow the half-baked stuff written by Dick Jacobs in the December "SS”.

Money is indispensable in a complex industrial society such as ours. It represents a claim on society, which should be everyone's right. In a society that genuinely believed in the brotherhood of man. this would be recognised.

What is wrong is that anyone should have to work for money in order to live, for this today turns him into a slave. It is unnecessary. Today, with mass-production and technology, fewer and fewer people are actually needed to do the necessary work of society. The rest have to find unnecessary work through industries designed to induce people (with or without money) to acquire unnecessary wants, or in expensive war preparations etc.

Dick Jacobs definition of money—a "'medium of exchange and measure of value” is only something he has read out of a book! Money—whatever its form—is the country’s credit.

Today, this is mostly manipulated by the Joint Stock banks for their own profit, when this function should belong to society. Hence, what should be free, accumulates as debt, with interest. This, with our huge National Debt, leads to inflation.

While shells, gold, or anything else that is scarce, can be used as currency—in Europe in 1945 cigarettes filled the role—paper does just as well if there is confidence in it. It is costless, and in a properly organised society it can be scientifically adjusted to society’s actual needs.

Common ownership of wealth doesn’t touch the problem, let alone solve it! That way can only lead to another tyranny! It is society's control over its own credit that matters. For then, but only then, will it be possible to make everyone, unconditionally, and as by right, a shareholder in Great Britain Ltd. And whether we call that “Capitalism” or “Socialism ” won’t matter two hoots!

This is neither more nor less than practical Christianity.

L. Knight

Guernsey, C.I.

Reply:

You criticise the article in the Socialist Standard for December, 1962, and attempt to show why money will continue to be necessary.

Both on grounds of historical accuracy and of theory your arguments are quite unconvincing.

Your first contention is that money is indispensable because we live in a “complex industrial society.” You omit to say which complexities you mean. They are of two kinds (a) the technical complexities of production and transport and (b) the financial and commercial complexities of capitalist private property.

Of course, money is indispensable to the latter. But equally the existence of money is not related to the complexities or absence of complexities of production and transport. This you know very well because you accept that money functioned in primitive communities where there were no such complexities.

Your second line is that “money—whatever its form—is the country’s credit yet, as you know, it functioned when and where there was no credit system and no banks.

As a side line you link up inflation causally with the existence of a huge national debt. It is no more true than its converse. The currency deflation in Britain in the nineteen twenties was carried out alongside a huge national debt.

We accept (we have been saying it for half a century) that with capitalism removed the production of socially useful articles and services could be vastly increased, so that a Socialist world, with people taking freely what they need, is a practical proposition. But you, without giving any reason whatever, still want the consumption of these articles to be dependant on the possession of money.

You actually use the phrase that living by right should be “unconditional,” yet you want it to be conditional on the possession of money.

You manage to discuss the existing social system without mentioning its fundamental basis, that the means of production and distribution are privately owned and concentrated in the hands of a small minority. It is precisely because you turn a blind eye on this basic fact of capitalism that you can pretend that the difference between capitalism and socialism is a mere matter of words.

It also leads you into the absurdity of supposing that armaments exist to provide work for redundant workers. The armed forces exist for the purpose, very necessary to the capitalists, of protecting their ownership against the dispossessed class at home and foreign capitalist groups abroad.

Our contributor was quite right; and it is not Socialists who are (to use your word) “suckers” but those who cannot see the realities of capitalism.

Editorial Committee.

Balancing the books (1989)

From the January 1989 issue of the Socialist Standard

President Reagan came under continuous criticism from Mrs. Thatcher and the heads of governments in several other countries because, for some years, the American Federal Government has been running a large budget deficit; that is to say it nas been spending more each year than its ordinary revenue from taxation and other sources, and making up the deficit by borrowing and thus adding to the national debt.

A second criticism levelled at Reagan was that America has a huge adverse trade balance, exports being insufficient to pay for imports, the deficit being met by loans from abroad. It is not intended to deal with this except to point to a difference between the two kinds of deficit. While it is possible for all governments in the world to run a budget surplus at the same time, it is not possible for all governments simultaneously to run a favourable trade balance. World imports and world exports are the same, one country's exports being another country's imports. The relative position of countries constantly alters: Japan now leads in respect of the size of its favourable balance: some twenty years ago it was the United States, with Japan showing a big trade deficit.

As regards criticism of the American budget deficit by the British and other governments. Tim Congdon in an article "Do these debts really matter?" (Times, November 1988) showed that many of the critics are not in a position to object, in view of the state of their own budgets. The American budget deficit in 1988 was an amount equal to 2.3 per cent of annual national income (Gross Domestic Product), which is less than the deficit in France (2.5 per cent), Germany (2.6 per cent), Canada (3.3 per cent) and Italy (10.2 per cent). The British government, too, has been running a budget deficit for many years, although the amount is less then the American 2.3 per cent of GDP and there is now a commitment to run a balanced budget or even a surplus in future.

The new President, George Bush, turns a deaf ear to the criticisms and intends, it appears, simply to wait in the hope that increased government revenue will wipe out the deficit by 1993, without any increase of taxes. The American House of Representatives' Budget Committee does not believe this and forecasts that the deficit will continue to increase and reach 50 billion dollars by that date (Times, 22 November).

The attitude of governments and economists to budget deficits has undergone a big change since last century both in the United States and Britain, partly because of the different view taken of borrowing. In the nineteenth century and the first half of the present century workers were strongly urged never to get into debt. It is all different today. The workers are under ceaseless pressure to “borrow now, pay later”. This changed attitude has helped to weaken the earlier attachment to the idea that normally Government budgets should be balanced and recourse to borrowing exceptional, as during war or for some large, longer-term government expenditure like expanding the navy.

In recent years, before Reagan's presidency, the tradition of a balanced budget had been re-established in the United States but it was certainly not observed by President Roosevelt during the depression of the 1930s. His government ran a huge deficit from 1933 to 1939 and continued to do so during the war. The Roosevelt “New Deal” signalled the conversion of most economists to the doctrines of J.M. Keynes, involving as it did a new look at budget deficits.

Before Keynes the usual reaction of governments to the onset of a depression was to meet the fall of tax revenue due to reduced incomes from profits and wages by cutting government expenditure and increasing the rates of tax — the aim being to maintain a balance between government revenue and expenditure without borrowing. The Keynesian remedy in a depression was the reverse — cut taxes, increase government expenditure by borrowing and run a big budget deficit.

Under Reagan's presidency unemployment has fallen below 6 per cent, the lowest for 14 years, and there are more workers in work than ever before in American history. As might be expected the Keynesians claim that this is proof that if the government spends more by borrowing and runs a budget deficit this will create more jobs and maintain full employment. It is wrong in theory and is not supported by experience. If a government spends more, whether it gets the additional money by taxation or by borrowing from investors, the inevitable consequence is that the taxpayer and investor spend correspondingly less. The true picture is that capitalism goes through a continuing cycle of depression, expansion, overproduction and depression irrespective of the budget or other policies of different governments. The abnormally low unemployment under the Attlee Labour Government 1945-1951 could not have been due to a Keynesian budget deficit policy because the government was running a budget surplus.

The best example of the irrelevance of Keynesian doctrine is to compare the Roosevelt “New Deal” with the way the British government dealt with the depression in the same years. Roosevelt's policy was Keynesian. The British government's policy was the reverse, that of cutting government expenditure and increasing taxation to aim at a balanced budget. In spite of opposite financial policies unemployment took much the same course in both countries. In the United States it rose from 8.9 per cent in 1930 to a peak of 25 per cent in 1933, and in 1938 — five years after Roosevelt became President — was still 19 per cent. In Britain it reached a peak of 22 per cent in 1932, and in 1938 was still 13.5 per cent.

The Labour Party's view of budget deficits is particularly interesting. They are committed to a big increase of government expenditure and a budget deficit in the belief that it will wipe out unemployment. Yet the last Labour Government, 1974-79, ran a big deficit and saw unemployment go up from about 600,000 to 1,300,000. Labour Party policy, laid down in a Report to 1944 conference had this to say: “If trade is bad or even showing signs of turning bad, then is the time for a budget deficit". In 1976 the Callaghan Labour Government threw the Keynesian doctrine overboard because he said it would cause inflation:

Continued inflation in the UK would lead to further hardship and unemployment. Therefore the Government rejected the panacea of pumping more funds into the consumers' hands so that the internal economy could be expanded (Times, November 1976).

What caused this repudiation was that two different Keynesian policies presented the government with an inescapable dilemma. One Keynesian doctrine is that the cure for inflation is to run a large budget surplus (see Harold Wilson's Remedies for Inflation, 1957. page 11). The other is that the cure for unemployment is a large budget deficit. But under the Labour Government between 1974 and 1976 unemployment and prices were both shooting up rapidly and there is no way in which the budget can be in surplus and deficit at the same time.

While governments have no control over unemployment — it takes its own course — they do have control over the general price level and can stabilise prices if they so decide, as in the nineteenth century up to 1914; or reduce them as in 1920 —1925: or push them up as Labour and Tory governments have chosen to do in the last half century. Why they have chosen to do this (or have slipped into it out of total ignorance of the monetary theories known to governments in the nineteenth century and in 1920-1925) is something of a mystery.

Reverting to the criticism made by other governments about the American budget deficit, the Times (8 November) says that their specific accusation is that it is "the prime cause of continuing international financial instability". We have news for them. As Marx showed, capitalism is an inherently unstable economic system and there is nothing governments can do to make it stable.

Edgar Hardcastle

Economic nonsense (1971)

Book Review from the June 1971 issue of the Socialist Standard

What Economics is About, by Michael Barratt Brown. Weidenfeld and Nicolson. Paperback. £1.

Michael Barratt Brown has written a textbook on economics mainly for the trade unionists he teaches in the Extramural Department of Sheffield University. Brown is a frequent contributor to Tribune and claims that his book “can be distinguished from most economic textbooks by its inclusion of Marx’s economics in the main stream of economic thought”. If it is to be judged on this basis, the book fails since Brown has no understanding even of so elementary a concept in Marxian economics as the distinction between use-value and exchange-value. But to be fair he only follows the Russian and East European economists (and especially the exiled Czech Ota Sik) who have twisted Marx’s Labour Theory of Value into a theory of pricing for “socialist" (read “state capitalist”) society.

Brown believes that production for the market is compatible with Socialism, an idea Marx rejected as absurd. Socialist production would be solely for use. In other words, products of labour would not be commodities with an exchange-value or price. They would simply be use-values, useful things produced by human beings to satisfy their wants.

Apart from this false claim to be partly Marxist, Brown’s book is not a bad introduction to the sort of economics that is taught today. It has a good criticism of the usual assumption that under capitalism the consumer is king:

   What then is left of the economist’s model of the market economy under conditions of large-scale modern industry? Wants are not apparently given but created by those who supply them; incomes are distributed as much according to inheritance as according to performance, and wealth and poverty tend steadily to polarize; free competition is replaced by monopolistic positions at home and cartels abroad; prices are fixed rather than emerging from the free play of market forces; profit results from monopoly as much as efficiency; capital is concentrated in giant international companies which themselves determine the allocation of the world’s resources; labour follows the concentrations of capital as best it can. In this crude and summary picture precious little is left of the market as the reconciler of consumers’ needs and producers’ power.

It also has some useful facts and figures. In 1966 the value of property vested in the State was £34,000m, but the National Debt was £31,000m. which means that most State property is mortgaged to private capitalists. Again, “not much more than 5 per cent of the adult population own capital from which they can derive a current income” (“the richest 5 per cent of the population owned in 1960 about 75 per cent of the total personal wealth and drew 92 per cent of all property income”), and about 10 per cent of adults in Britain own all property

Another 45 per cent own some capital which consists usually of a house and some small savings for the future in an insurance policy or a savings bank. The standard of living for most people therefore is based on their weekly or monthly wage or salary.

Adam Buick

Letter: The Capital Levy (1923)

Letter to the Editors from the November 1923 issue of the Socialist Standard

To the Editor of the Socialist Standard.

Dear Sir,

With regard to the article on the Capital Levy, I would like you to answer the following questions :—

I agree that all taxes are paid by the rich, and come out of surplus value. The robber pays taxes with the wealth he has robbed. But if taxes go to pay for working-class education, old age pensions, etc., then it is the robbers who are made to pay for services rendered to the workers. So that taxation may be used as a lever by the workers to recover some of the wealth taken from them.

Now again, if the Capital Levy, instead of being used to relieve taxation, is used to pay for more and better social services—then the Capital Levy will help the workers.

It is surer to help the workers than higher wages, because the sliding scale—the fodder basis—neutralises higher wages; while social services cannot be neutralised so easily.

The Capital Levy can be used to pay for the land, and instruments of distribution and exchange socialised. To pay means with the money levied from the whole of the capitalist class—the only class that can be levied.

Thanking you,

Yours, etc.,

R. Nelt.

Reply to Mr. Nelt.

Mr. Nelt sets out to explain how taxation (or a special form of it, the Capital Levy) “may be used as a lever by the workers to recover some of the wealth taken from them.” He is, however, not logical in his argument. He says quite correctly that the capitalist class pay for education, old age pensions, etc. Then, without any explanation, he alters “pay” into “are made to pay.” The latter, if it were true, would support his argument, the former, which is true, does not. The capitalist class levy themselves to pay for social services, and being in control of the political machinery they decide the form and the amount of the taxation, and the objects to which the revenue shall be devoted. While the workers continue their present attitude of indifference and actual opposition to their own interests, the capitalists will have just that amount of freedom they now possess to order their affairs as they choose. They will tax themselves as they like, and spend their money on whatever object seems good to them. If the workers had the will and the power to destroy capitalism it would be silly to waste that power on the minor reforms Mr. Nelt proposes; while both will and power are lacking it is impossible to “make” the capitalists do even these small things.

Let me also remind Mr. Nelt that the primary object of the Levy, as advocated by Mr. Pethick Lawrence and the Labour Party generally, is not to increase, but to lower taxation. “It could not be justified except for the purpose of debt reduction.” (Mr. Snowden, Morning Post, 28th June, 1923.) Perhaps Mr. Nelt may imagine that after the advent of a Labour Government taxes really would be levied with the deliberate intention of plundering the capitalist on behalf of the workers. Mr. Snowden disposes of that also, and at the same time supports our view that the capitalist system will be as strong and as safe after a Labour victory as before.

  “If, of course, the commercial classes and those who would have to contribute to a Capital Levy will not have it, but prefer to go on paying a high income tax without any hope of any substantial reduction, they must bear it, and a Labour Government would have to look in other directions than the Capital Levy for revenue to enable the food taxes to be removed, the income tax on moderate incomes to be reduced and to finance schemes of social reform.”

It is obvious, too, that if capitalist opposition will be able to make the Labour Government give up the Capital Levy, the capitalist will then, as now, dictate their own programme of social reform.

Edgar Hardcastle

Letter: The Capital Levy (1923)

Letter to the Editors from the November 1923 issue of the Socialist Standard

To the Editor of the Socialist Standard.

Sir,

In response to your invitation to continue the discussion, it seems to me that there are three fundamental differences between us.

Firstly I hold that among the “economic forces” which under a capitalist system determine real net wages (i.e. the purchasing power of money wages) must be included the power exerted by capitalists through their possession of war loan. You apparently exclude this factor.

Secondly I hold that a levy on capital is a step towards ending the present system of wealth distribution which enables some individuals to live in idleness on the fruits of others’ exertions. You apparently think, either that it would not be a step at all, or that it would be so small as not to be worth taking.

Thirdly I envisage the capital levy as one of the several reforms which will not only improve the immediate position of the workers, but will at the same time help to build up the new order of society necessary to take the place of the decaying capitalist system. You, I gather, regard such efforts at best as futile, and at worst as buttressing up the capitalist system and delaying its overthrow.

If I have correctly stated our respective standpoints there is nothing further to be said.

Yours, etc.,

F. W. Pethick Lawrence.

Reply.

Mr. Pethick Lawrence says that “the power exerted by capitalists through their possession of war loan” is apparently excluded by me from the economic forces which determine real net wages. Now I readily agree that within the framework of the State, and subordinate to political control, which is the ultimate source of power, the accumulated wealth of the capitalists is an important factor in the struggle about the level of wages. But I do not see that it matters one jot whether that wealth exists as war loan, or whether it take some other form.

Lest it be said that this huge debt is the cause of present unemployment, let me recall two things : (1) that before the war we had some permanent unemployment, as well as protracted periods when it was acute; and (2) that France, with a like indebtedness, and a much worse financial position generally, has no unemployment.

If the Capital Levy meant a real appropriation of a large part of the wealth of the capitalists, there might be something in the argument, but in Mr. Pethick Lawrence’s own words, “Payment of the levy will, in effect, be carried out by means of a reshuffling of the title deed’s of wealth among-wealthy persons. …” (Forward, May 5th,. 1923).

This brings me to his second point. I still fail to see how this “reshuffling,” which leaves the total wealth of the capitalist class untouched, and merely changes the form of some of it from war loan to industrial capital, can at the same time be a step towards the ending of the present system of wealth distribution. If the capitalists lose nothing, from what source do the workers, gain ?

As for the last point, Mr. Pethick Lawrence has not yet answered the charge that the levy, if successful, would buttress up the capitalist system. Assuming that a capitalist state were in dire need of some measure to re-establish its financial stability, then it seems obvious to me that a capital levy which served this purpose would strengthen the hands of the capitalist class, and give new life to the system on whose continuance their privileged position depends.

Actually I think that it is unlikely that the British capitalists can now have any use for the levy. At the time, just after the war, when it might have proved very useful to them, they were not ready to accept it, and now the need has largely passed.

Edgar Hardcastle