News in Review: The Labour Party and the Queen's Navee (1964)

The News in Review column from the April 1964 issue of the Socialist Standard

At Home

The Labour Party and the Queen's Navee

Well, in the end Mr. Wilson was able to force the Prime Minister to withdraw his allegation that the Labour leader wanted to give the Royal Navy to the United Nations which presumably made somebody, somewhere, happy.

Mr. Wilson, we may assume, loves the Navy, which is natural enough because after all perhaps no part of the British armed forces has done so much to set wider still and wider bounds of the glorious British Empire on which, once, the sun never set.

Nor was it only in the House of Commons that the Labour Party were standing up for Jolly Jack Tar. The Tory government had hatched a wicked plot to abolish the name Admiralty and to substitute the name Navy Board which as everyone knows does not summon up the vision of a blue cocked hat half as well. The government put this plot into a Bill and they pushed it through the Commons but the House of Lords was a different matter.

The Tory peers woke up when they realised what the government was up to because they thought that this was mucking about with tradition (one of them spoke about “a religious intensity”) and that when Jolly Jack Tar’s head is stuffed full of a lot of nonsense about tradition he obeys his officers more readily and is keener to die for what he thinks is his country.

Labour peers were awake too. Lord Alexander said: “Admiralty . . .  is something a little more majestic, something which . . . has left a lasting world impression" and Earl Attlee, waspish as ever, hoisted his own battle signal: “I believe in preserving things with great traditions".

Thus encouraged, the original Tory objector divided the House and Labour and Tory peers steamed in irresistible convoy into the same lobby to defeat the government by eight votes. The torpedoed government agreed to the amendment and the Commons, chastened by the Upper House’s greater reverence for the traditions of British arms, relented too. We still, therefore, call it the Admiralty.

Any Jolly Jack Tar who in future may be blown up, or drowned, or otherwise killed, in the interests of the British ruling class can take consolation from the fact that he dies under the organisation of something called the Admiralty and not something with a non-traditional name like the Navy Board and that this is all thanks to the united efforts of Tory peers and of Labour peers who, although they call themselves Socialists, were ready to fire a broadside for the glorious, blood-soaked traditions of the Queen’s Navee.

Abroad

Primaries in the States

Presidential primary elections, which were introduced into the United States about the turn of the century, were designed to prevent the big party machines foisting their own candidates onto the American electorate. The method of the elections varies widely from state to state but in all of them the voters get a chance to say, in one way or another, who they would like to see standing for President.

In fact, the men who eventually fight it out are usually those who would probably have been nominated if the primary elections had never been held. Although the candidates are formally picked at the party conventions, the men who do the picking in the smoke-filled rooms necessarily take the popular will into account, whether or not this has been sampled in the primaries.

Thus although Kennedy won the Democratic nomination in 1960 after fighting some classical political campaigns in primaries, in which he convinced his party that he was a vote winner, Stevenson got the nomination in 1952 without entering a single primary.

The conventions choose the man they think most likely to win the election. This year, it is as certain as anything can be that the Democrats will make a formality of confirming President Johnson as their man. For the Republicans, however, the choice is more complicated.

Governor Nelson Rockefeller, who flexed his political muscles in the last election when he virtually compelled Nixon to modify his platform, is a candidate who has lost some popular support because of his recent divorce—as if that affects his ability to run a great capitalist country. Senator Goldwater, who has expressed ideas so out of tune with the contemporary needs of American capitalism that it is hard to believe that if he gets the nomination he will not modify them, was strongly fancied until the accession of Johnson rallied Democratic support in the South, where Goldwater was once reported to be making inroads.

Neither of these men, at the moment, seems likely to satisfy every Republican yearning for a candidate to take them on a glorious bandwagon to the White House next November. There are others waiting to take advantage of a possible deadlock; Governors Romney and Scranton, and plain Mr. Richard Nixon, who still sourly protests that he has had enough of electoral disappointment.

Whoever the two parties pick, it is sure that their running mates for the post of Vice-President will be a vote-catching compromise, in the same way that Johnson’s Southern origin and mature political skill was designed to offset Kennedy's youthful, Northern “liberalism.”

This is how the great American political parties, just like their counterparts over here, defer to the political ignorance of the working class voters—which is what they must do of they are to have a hope of winning. And what, in the end, comes out of it all?

On November 3rd, the American working class will go to the polls to decide who will run capitalism in their country over the next four years. The result will not appreciably alter the conditions of the millions who cast their vote. Like Peter Simple’s Marshal Bolster, we can confidently say that whoever gets the most votes will win. But, unlike Bolster, we can also confidently say that whoever this is, it will not matter a damn.

Politics

Translation of Sir Alec

Like Bottom, Sir Alec Douglas-Home is translated—and sometimes he could almost be wearing an ass’s head, to boot.

Before he became Prime Minister, Home's image was that of an amiable, unfussy, courteous aristocrat who took to politics only because of a desire to serve us of the lower orders by being one of our political, as well as one of our economic, masters.

For somebody who owns as much as Home does that must have been a pleasant pretension. But his promotion has changed all that. The courteous aristocrat is now trying to be the tricky, funny politician.

Home has grown famous for the facetious cracks with which he evades Opposition questions in the House of Commons. (The Daily Telegraph reports these cracks as priceless gems of humour but surely even the Tories will grow tired of them?) And he has recently earned more infamy by his remarkably ill-judged attack on Harold Wilson over the latter’s alleged desire to give away the Royal Navy and by his statement that when he was ready to debate Wilson on television he would “send for” the Labour leader.

This last crack, with its implication that politicians tell the TV men what to put on, and when, upset some sections of the press and within a couple of days of each other both The Guardian and the Observer had a go at Home, warning him that in his present vein he is more likely to lose votes than to win them.

Poor Sir Alec is only doing his best and perhaps he is pleasing the Tory faithful. Doubtless, if he thought for a moment that he was losing votes he would change his line overnight.

For like all capitalist politicians the Prime Minister must know that truth and consistency are not particularly important in the great vote hunt. It may be ironical that the leader of the Gentleman’s Party, and the recent holder of an ancient title of chivalry, should descend to such methods but that, after all, is all part of the dirty game of politics.

And anyway it usually goes over with the voters. Bottom in his ass’s head was irresistible to Titania after she had been dealt a drug. At times it seems that the working class, infatuated as they are with their leaders, must themselves be under the influence of a love potion.

Business

Threat from Japan

Part of the official propaganda campaign during the last war was aimed at convincing us that the Japanese were a lot of little yellow monkeys who committed some fearful atrocities.

There was, of course, a lot of truth in the atrocity stories. But what the Allied propaganda did not publicise was the fact that the war was not being fought to stop the Japanese maltreating their prisoners.

Japan is one of the world’s great trading nations, with an economy which must export to live. In this, she is similar to Great Britain; both countries in the past were driven by their economic needs into an imperialist policy. Both, too, in their adventures to find and to hold on to foreign markets, built up powerful armed forces.

When the last war started, Japan was a monster competitor in the Far East, such as Commodore Perry could not have dreamt he was unleashing when in 1853 he first tried to open the country as a market for American exports. It was to tame the monster which Perry had all unknowingly awoken that the last war in the Far East was fought.

Since 1945 the Japanese capitalists have been progressively recovering from their defeat; although in this nuclear age they are no longer a great military power, their trade offensives are as forceful as ever. Japan is the world's greatest shipbuilding nation. Its cheap cameras, transistor radios, motor cycles and so on flood into the markets of the world. It has beaten its rivals out of one market after another in the Far East. It dominates the economy of South East Asia, exports heavily to North America ($1,750 million worth in 1963) and Europe ($880 million), and is busily expanding into Africa ($460 million).

Japan is an important trading partner to South Africa, with which she is currently running a trade deficit (1963 exports $80 million, imports $110 million). This has had an amusing political side- effect; rather than offend the Japanese trade representatives by subjecting them to the humiliations of racial discrimination, the South African government has decided that the Japanese are actually Europeans—which shows how flexible racial theories can become under the pressure of economic interests.

What all this adds up to is that Japan, despite her military defeat, is still a powerful competitor in world capitalism. At the moment the situation seems to be under control. But who, remembering Manchuria, and China, and Pearl Harbour and finally Hiroshima, would dare to say that it will remain so?

1964 Electoral Campaign (1964)

Party News from the April 1964 issue of the Socialist Standard

VERY URGENT. We wish to contest as many constituencies as we can in the next General Election. It is our hope to put at least three candidates in the field and a deposit of £150 has to be put up for each. We therefore need £450 for this alone in the next few weeks in order to be assured that, if an election takes place early this year, this sum will be in hand. In addition, we need at least another £350 to cover the cost of printing, hall hire and so on. Thus, in all, we need not less than £800. Will all those who support us and wish us well, please make a tangible gesture of such support by sending quickly as large a sum as they can to the Party Treasurer, E. Lake, 52 Clapham High Street, SW4, clearly stating that the contributions are for the Parliamentary Fund.

50 Years Ago: It is different in the USA (1964)

The 50 Years Ago column from the April 1964 issue of the Socialist Standard

Father Bernard Vaughan has been through the United States on a tour. As is usual with people who pay flying visits to other countries, he has come back equipped with a complete knowledge of the conditions obtaining there, ranging from the hobble skirt to the delightful methods of the industrial system. He told his audience, when lecturing on his experiences at the Free Trade Hall, Manchester, recently, that he knew of no country in the world where a man could be more sure of a living wage for an honest day’s work than the States. “I found in the States that the employers generally got into closer touch with their employees than anywhere else. They seem to 'pal' with their servants instead of patronising them. The employers consider their servants, they study them, they try to give them a co-partnership, a personal interest in their work. I was much impressed by the relations between capital and labour. They are drawn closely together and those impersonal terms of industry have been exchanged for real personal relations.”

Now that’s refreshing! Ever since I heard this I have been disgusted with my little lot. Oh! why wasn’t I born in America! I’ve had lots of bosses, but never one that I could “pal" with. Comrades in America, I envy you! I’ve read a lot about America, too, but never saw it in this light before. So far as my investigations into American industrial conditions go, the only ‘‘personal relations” in which the close “touch" is manifested I have been able to discover, are those in which the policeman’s is used as the medium. It would be interesting to know what our fellow-workers in the U.S.A. think of Vaughan's analysis!

From the Socialist Standard, April 1914.

Unbalanced exports and experts (1964)

From the April 1964 issue of the Socialist Standard

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ivan

Finance and Industry: Three cheers for enterprise (1964)

The Finance and Industry Column from the April 1964 issue of the Socialist Standard

Three cheers for enterprise

We are constantly being lectured on the virtues of private enterprise. Our capitalists, we are told, are justified in taking their profits because of the skill and foresight they put into their businesses and of the way they generally plan and run them. But just how enterprising are we supposed to get? At what point does the enterprising deteriorate into the shady?

Last month saw the end of the mail train trial. So enterprising are the chief robbers that they have apparently managed to get clear away with most of the loot—to the tune of a couple of million pounds. The operation was certainly well planned, the execution faultless, and both skill and foresight amply displayed. Such results in a company balance sheet would lead to the most fulsome tributes from the shareholders.

Again last month, we were regaled with all the details of the great air ticket swindle. Once more some enterprising characters have been at work, this time getting away with something like a million pounds by selling airline tickets at a discount and conveniently omitting to pay for them or paying for them with dud cheques. And the great joke is that there are apparently quite a lot of eminent and respectable businessmen prepared to “shop around" for this dubious merchandise. It has almost become a status symbol to get a "ticket at a rebate," said Coloney Ford of B.O.A.C. to the Observer. Carrying enterprise to the lengths of making robbery and fraud tempting to the respectable—what could be more enterprising than that?

And at just about the same time, to give us three examples in a week, H.M. Customs published their report on smuggling during 1963. They seized goods to the value of about £120,000, of which one-half was accounted for by watches. But it is apparently common knowledge in the trade that for every watch that is seized by the Customs, at least fifty others are successfully smuggled through; perhaps as many as two million smuggled watches circulate in this country each year compared with "legitimate” sales of about five millions. One smuggler was recently convicted for concealing 700 watches in his waistcoat, with the option of 12 months imprisonment or a fine of £6,500; the fine was paid the next day. You have to be a very enterprising operator to stand overheads like that!

Three fine illustrations, in short, of how to succeed in business. And just in case someone is all ready to protest about the difference between the straight and the crooked, let him pause a moment. Is there all that difference? The shoddy goods and poor workmanship, the slick advertising and the glib sales talk, the tax evasion and the expense accounts, the cut-throat competition and the take-over bids, the short weight and the wrong change, the cartel and the monopoly, the "loss leader" and the big, plain foot in the door—what is so respectable about all these?

And what is so respectable about the greatest fraud of all the exploitation of the many by the few?


Oil under the sea

The scramble for oil now goes on under the water as well as over the land. The big companies vie with each other to explore the sea bed in more than a dozen parts of the world and are actively prospecting for more.

As long ago as 1937 the Americans were drawing up oil from the Louisiana seaboard, though the amounts were small. But within the last few years, offshore output has gone up considerably and the search has spread to California and Alaska, Mexico and Venezuela, the Middle East and Egypt, West Africa, the Mediterranean, and now the North Sea. Spurred on by the recent huge natural gas find in Holland, British, Dutch and German interests are already struggling hard for concessions. The French and Belgians are showing similar concern for their own coastal areas.

Why such a sudden, spurt of interest in the oil under the sea? First, because the need for more and more oil is unceasing (reserves in 1939 were estimated at 40 years’ supply, today they are reckoned at' 30). Second, because even if this were not the case, no oil company can afford to let its rivals steal a march on it—this is a law of capitalism stark and simple.

The chances of finding oil under the sea are good, especially when the prospective deposits lie close to oil-bearing land areas. But the expense gives the oil companies the shivers—it is between three and nine times as costly as land prospecting and, of course, the question of coastal water limits immediately becomes an added problem. 21 countries have already signed the proposed Geneva convention on these and Germany, which has hitherto had nothing to do with it, has suddenly decided it might be a good idea to sign it after all. The convention proposes to calculate the national limit as far out as the 100 fathom line and this could cause enormous trouble since in some parts of the world the sea bottom is fairly shallow for many miles; the Straits of Dover, for example, are nowhere near this depth so that both France and Britain could technically lay claim to the entire width of the strait.

All in all, the proverb about pouring oil on troubled waters could hardly be less appropriate.


Exports—or dumping?

The recently published report by the Richardson Committee turned down the idea of introducing the turnover tax as a method of stimulating exports. The decision, was not unexpected, but one of the reasons for it certainly was.

This was that very few of the exporting firms consulted by the Committee thought they would benefit from the system because, they alleged, they generally made little or no profit from their exports anyway. Commented the Guardian, “Does the bulk of our export trade really depend on practices which verge on dumping, as this implies? ”

Perhaps it does, when you come to think of it. Competition in many industries is now fierce indeed, and exporting is made even more difficult when there are tariff barriers to be overcome. Britain is already meeting problems in getting goods into the Common Market because the tariff is getting progressively stiffer, and the Six are having similar troubles with exports to the EFTA bloc.

It is well known that many British cars are going to countries such as France at prices which can at the most cover cost and may be less; French manufacturers are using the same discount methods to send cars to Britain. There is lots of evidence to show that refrigerators, ships, steel products, chemicals of various kinds, agricultural produce, are being similarly marketed, often with government aid to cover the deficit.

It would be really interesting to know, in fact, just what proportion of international trade is taking the form of dumping, or something extremely close to it.


An excess of eggs

With the high point of the production year yet to come, there are all the signs of an egg glut extending not only to this country but over the whole of Europe. Germany has already tried to close the door to imports but has had to open it again following protests from her partners in the Six. In Britain, farmers have been warned of the approach of serious over-production, the intention being presumably to get them to cut down their laying flocks.

But such warnings are a waste of time. The small farmer cannot afford to do it anyway and the first reaction of the big producer is to step up the size of his flock so as to get more efficient output! The real irony, however, is that with a government subsidy of 5½d. a dozen, the big man cannot go wrong.

About £30 million of state aid has been paid to egg producers this year. Its intention was to help the small man to survive, but its main effect has been to make the big farmer bigger. This is the inexorable development of capitalism, we know, but it is ironic to see a capitalist government paying out such vast sums so gratuitously to assist the process.

Stan Hampson

Voice From the Back: A Suicidal System (2012)

The Voice From the Back column from the October 2012 issue of the Socialist Standard

A Suicidal System
A growing number of global and European health bodies are warning that the introduction and intensification of austerity measures has led to a sharp rise in mental health problems with suicide rates, alcohol abuse and requests for anti-depressants increasing as people struggle with the psychological cost of living through a European-wide recession. “No one should be surprised that factors such as unemployment, debt and relationship breakdowns can cause bouts of mental illness and may push people who are already vulnerable to take their own lives,” Richard Colwill, of the British mental health charity Sane, told CNBC. “There does appear to be a connection between unemployment rates and suicide for example,” he said, referring to a recent study in the British Medical Journal that stated that more than 1,000 people in the U.K. may have killed themselves because of the impacts of the recession.” (CNBC, 4 September) Capitalism not only exploits and degrades members of the working class it can often lead them to suicide.


The Profit Motive In Action
It is now two years since  the horrific explosion that led to the deaths of 11 oil rig workers in the Gulf of Mexico and the largest oil spill in US history but it is still being fought over in US courts. “The Department of Justice filed a sharply worded brief with a court in New Orleans yesterday that accused BP of systematic management failures and a “corporate-driven, profit over safety” culture.” (Times, 6 September) There is a lot at stake in this legal battle. If the events of the oil spill are judged to be an accident BP could be fined £4.5 billion but if its employees are found guilty of gross negligence BP could be fined £21 billion, followed by almost unlimited punitive damages. Behind the niceties of the legal struggle one thing should be apparent though. Every company inside capitalism has a “corporate-driven, profit over safety” culture.


Double Standards
One of the constant themes pursued by the owning class is that workers should be proud of “their” country and if necessary from time to time take part in wars to protect it. However a recent example of this patriotism not necessarily extending to the owning class was recently revealed. France’s richest man Bernard Arnault (reputed to be worth £32 billion) has applied for Belgian citizenship. “He says the switch is for personal reasons. But few doubt that the ‘personal reasons’ amount to a desire to insulate his wealth from the punitive taxes being threatened by Francois Hollande, France’s new Socialist president. These taxes include a promised 75 per cent super-levy on annual incomes over 1 million euros.” (Times, 11 September) When it comes to protecting their immense wealth the owning class have little time for patriotism.


This Sporting Life
Sport according to most dictionaries is usually defined as “to amuse, recreate, to take one’s pleasure”, but we live in capitalism and it should probably be more accurately defined as a “business opportunity”. When Andy Murray, the tennis player won a tournament in New York the press and TV speculated on how much it was worth. “Scott Barclay, a lecturer in sport business and management at the University of the West of Scotland, predicted that Murray will enter the Forbes rich list next year and that the win moved him “away from the celebrity clutter”.  … “Without a doubt, next year he’ll appear in the Forbes rich list, among the likes of [Roger] Federer, [Maria] Sharapova, [Cristiano] Ronaldo, [Lionel] Messi, [Rafael] Nadal.” (Daily Telegraph, 12 September) Murray, 25, who already has lucrative contracts with Adidas, Royal Bank of Scotland and Jaguar, may also sign deals with other companies. His five-year contract with Adidas, signed three years ago, was worth as much as $5 million (£3.2 million), pushing his earnings last year both on and off the court to $12 million (£7.4 million), according to Forbes. Capitalism distorts everything and it should come as no surprise that a university has a subject entitled “Sport business and management”.


Upper Class Arrogance
Gina Rineheart, the Australian billionaire said to be worth A$29 bn. is not shy about boasting about her wealth. She is said to make nearly A$600 (£393) a second and blames Australian workers poverty on too much drinking and smoking. “Australian mining magnate Gina Rineheart has criticised her country’s economic performance and said Africans willing to work for $2 a day should be an inspiration.” (BBC News, 5 September) The news that a useless parasite such as Rineheart has an income of £393 a second should inspire workers throughout the world to get rid of the capitalist system.

Fractional Reserve Banking Refuted (2012)

From the October 2012 issue of the Socialist Standard

Since the financial crisis first erupted in the summer of 2007, there has been a renewed interest in what is now commonly called ‘fractional reserve banking’. This is mainly from those who contend that it is the root cause of the problems besetting the world economy. But is this idea really plausible? Both logic and the available evidence would indicate not.

Fractional reserve banking (the idea that the banking system can lend out vast multiples of what has been deposited with it) is not a new theory. It is also – and perhaps more accurately – sometimes called ‘credit creationism’ as it assumes banks can create almost endless amounts of credit from what has been deposited with them by savers. Ever since the MacMillan Report into Finance and Industry in the UK in 1931 gave it credence, variants of this theory have been taught to students in universities and colleges across much of the world.

In truth, there are two versions of the theory –the initial crude one, and a more sophisticated version which on some readings isn’t really credit creationism at all, even if it uses some of the same terminology. We will examine both versions, starting with the original, crude one.

Magic money?
This version of the theory was the one put forward in the MacMillan Report itself and is based on a simplified ‘one bank’ model of the banking system. The MacMillan Committee assumed that this bank would hold a cash reserve of 10 per cent of their deposits to meet any likely withdrawals from customers (today the cash reserve held by banks is a lot less, usually 2-3 per cent). Into this bank a customer places a deposit of £1,000 in cash. Operating with the 10 per cent cash reserve, the bank would then be able to lend out £900 to another customer which is withdrawn by cheque before being returned to the bank as a new deposit. So in this way the initial £1,000 had grown to £1,900 (the initial £1,000 cash plus the cheque that had been deposited for £900 from the loan granted). This is a process the MacMillan Committee argued could then be repeated nine more times assuming the 10 per cent cash reserve, with the bank therefore lending out £900 to each of ten customers in total. It would lead to a situation after all these transactions had been completed whereby £10,000 in deposits was balanced by £1,000 in cash plus £9,000 in loans owed by borrowers. So, as if by magic, an initial £1,000 deposit had become £10,000.

This type of credit creation theory has been put forward by many modern critics of capitalism (including Zeitgeist and some in and around the Occupy movement) who claim society is being enslaved by bankers and the ‘debt-money’they create. It is used to illustrate the view that banks have special powers to create wealth and that the banking system is inherently fraudulent and corrupt. This outlook also has its echoes on the political right, such as in the views of Representative Ron Paul in the US. Shorn of its overtly political implications, it gets an airing in some standard economics textbooks too. For instance, a typical textbook aimed at undergraduate university students like An Introduction to Modern Economics by Hardwick, Langmead and Khan describes a similar, crude credit creation process as if it were fact. Imagining a one-bank economy where the bank operates a 10 per cent cash reserve, with £10,000 in deposits and £1,000 of this in cash, they say:

  ‘suppose now a customer deposits an extra £2,000 in cash . . . Notice now that the ratio of cash to deposits is no longer 10%, but is now as high as 25% [i.e. £3,000 out of £12,000]. Given that the bank’s desired cash ratio is 10% and that the bank wishes to maximize its profits [by making  loans at interest], it will increase its total deposits to £30,000 so as to restore the desired ratio. The bank does this by granting new loans amounting to £18,000 . . . the cash deposit of £2,000 has led to an increase in loans and investments of £18,000 so that total deposits have risen by £20,000 –that is, by ten times the amount of the cash deposit’. (5th edition, pp.439-440).

In this way banks are allegedly able to magic up money they don’t really have, by either the stroke of a pen or push of a button.

Logic deficit

There are a number of reasons why this one-bank model of credit creation is flawed, both theoretically and empirically. The main ones are these:

• Just because a theory is explained or advocated in some economics textbook doesn’t mean it carries any weight. Economists famously cannot agree amongst themselves and economics isn’t called ‘the dismal science’ without reason. Conventional economics has consistently failed to explain all sorts of contemporary phenomena within the market economy (unemployment, recessions, inflation, etc) and there is no reason to suppose it has it right about banks and credit. Furthermore, as we shall see, most modern economics textbooks have moved away from the crude credit creationist views outlined above as they know they are intellectually indefensible. Why might this be so . . . ?
• The model assumes a certain cash reserve (10 per cent in the examples quoted, though a lower cash reserve makes the potential for banks to ‘create credit’ even greater). But is also assumes something else. It assumes that this cash reserve is never actually accessed by anyone in the entire series of transactions, and so is totally unrealistic. In other words, taking the example used by the MacMillan Committee, the initial £1,000 cash is completely untouched throughout. This is interesting, because if credit creation can multiply £1,000 into £10,000 at a stroke of a pen, the equal but opposite effect would come into play if anyone actually withdrew any cash! It would only need one of the borrowers to access their new deposit by demanding cash rather than a cheque to blow the model apart. So the model is not only unrealistic but logically flawed.
•  The model also confuses the apparent ‘creation’ of credit or money with what is merely standard double-entry book-keeping. If someone withdrew £10,000 from their bank and lent it to a business associate with an account at the same bank, the total amount of deposits held by the bank would be unaffected –£10,000 would merely go out of one account and into another. However, if the bank, when acting as an intermediary, did the same thing (i.e. the person concerned left the £10,000 on deposit and then the bank took £10,000 from its deposits to lend to the businessman) then in this instance the bank deposits and loans recorded by the bank would have increased by £10,000. Yet the only difference is that the bank has lent the same amount of money itself. Nothing else has materially altered and the bank hasn’t ‘created’ anything –the apparent difference is merely the product of the way balance-sheet records are kept.
• If banks really could create multiples of credit from a given deposit base then no bank would ever go bust. If a borrower failed to repay a loan, they could merely write this off and create more credit from their deposit base to make another one. Or, more directly still, the credit ‘created’ in this way could be used to buy additional assets. Lehman Brothers, Bear Stearns, Northern Rock, HBOS, Landsbanki and all the other banking disasters testify in a very practical way that this just doesn’t happen in the real world.
•  If banks could create vast multiples of credit from their deposit base in the way supposed, they would never have any financing issues and a need to seek any other sources of capital aside from the deposits they have from savers. Yet this is not the case. When Northern Rock imploded it had £113 billion of loans outstanding, but only £24 billion of this was backed by deposits i.e. less than a quarter. Did this mean the difference in these two figures was due to their ability to create credit over and above the £24 billion of deposits? No. The rest was financed from the money markets, where banks, building societies, companies, governments, local authorities and other organisations buy and sell short-term loans to finance their economic activities. When interest rates rose this put Northern Rock under pressure because the interest payments it was receiving on the loans and mortgages it had granted was barely covering what it had to pay in interest on the money markets to get the capital to lend out in the first place. And when the money markets started to seize up in late 2007, Northern Rock was doomed, having no more access to capital. Similarly, HBOS’s deposits covered only 44 per cent of the loans on its books before the crisis, the rest being financed from the money markets –and with most of this being short-term finance, it had a similarly disastrous result. Indeed, until the financial crisis broke the tendency within the banking sector had been for an ever greater proportion of banking capital to come from the money markets rather than deposits. This was because of a competitive drive to expand their capital so they could lend more and hence increase their revenue and profit. Until recent decades this was only ever done at the periphery of banking practice as to ‘borrow short’(via short-term loans on the money markets) while ‘lending long’(granting long-term loans and mortgages) was considered too risky.
• If banks really were able to increase purchasing power in the economy at the stroke of a pen or push of a button, there would be clear and observable consequences of this. For instance, many credit creation theorists have expected prices to rise alongside the expansion of bank credit, yet there is no observable correlation between the two. Prime Minister Margaret Thatcher gave up on this view in the mid 1980s when she realized the theory didn’t match the facts. Furthermore, while so-called ‘credit creationism’ is as old as banking itself, persistently rising prices (that have been left unchecked) have only been an economic phenomenon since the Second World War.
•  If banks were able to flood the markets with credit it would, other things being equal, drive interest rates down, and this is the opposite of what banks want to happen. If this phenomenon were a reality, banks would be caught in a ‘Catch 22’ situation where near endless credit creation would push interest rates down towards zero. But the rates banks charge have invariably been very healthy (for them), even during the crisis.
•  If banks can create vast multiples of credit from the savings that have been deposited with them, then so could other financial intermediaries. Building societies and even credit unions could do it, as the same principles would apply.  But nobody seriously suggests they can –if a credit union lent out more than had been deposited with it, it would go bankrupt (as, in reality, would a bank, the only difference being that a bank can also normally access the money markets for capital).
• The bankers themselves have explicitly stated that they cannot magically create credit in the way the theory supposes. For instance, Walter Leaf , Chairman of the Westminster Bank in the years leading up to the publication of the MacMillan Report was one of many who said so explicitly:    ‘The banks can lend no more than they can borrow –in fact not nearly so much. If anyone in the deposit banking system can be called a ‘creator of credit’ it is the depositors; for the banks are strictly limited in their lending operations by the amount which the depositors think fit to leave with them’. (Banking, 1926, p.102)

Indeed, many of the signatories of the MacMillan Report in 1931 (mainly the bankers and economists) later repudiated the theory they helped popularize. These included Reginald McKenna, Chairman of the Midland Bank, and most significantly of all John Maynard Keynes, who was the main author of the Report. In his seminal General Theory in 1936 Keynes stated:

  ‘The notion that the creation of credit by the banking system allows investment to take place to which ‘no genuine saving’ corresponds can only be the result of isolating one of the consequences of the increased bank-credit to the exclusion of others’(p.82)

In recent years the 2011 Vickers Report (the Independent Commission on Banking) has explicitly stated that banks are ‘financial intermediaries’that ‘bring together savers and borrowers’, without giving any indication that banks can create vast quantities of credit out of what is deposited with them.

• Many who are critical of capitalism as an economic system take inspiration from Marx’s ideas and his analysis of the market economy, but Marx took the view that banks are financial intermediaries between savers and borrowers who don’t create purchasing power: ‘A bank represents on the one hand the centralization of money capital, of the lenders, and on the other hand the centralization of the borrowers. It makes its profit in general by borrowing at lower rates than those at which it lends’(Capital, Volume 3, p. 528). For Marx, wealth and purchasing power arise through production, not the sphere of circulation and exchange. Banking profit does not, in Marx’s view, arise mystically out of financial conjuring, but as a portion of the surplus value created when the working class of wage and salary earners is exploited. This surplus value is then turned into industrial profit, ground rent, and banking interest.

In the light of all these arguments and the empirical evidence, it seems reasonable to conclude that the crude credit creationist viewpoint has little if anything going for it.

Second theory
A recognition of this has led to the popularization of the second, and more sophisticated, version of the theory. This is the version that argues that even if the one-bank model of credit creation isn’t plausible, the banking system when considered as a whole can effectively do the same thing. This was the view for years elaborated in standard economics textbooks by the well-known American academic Paul Samuelson and is perhaps the version that is most common today.

Samuelson dismissed the argument that an individual bank could lend more than had been deposited with it as ‘false’ and went on:

  ‘According to these false explanations, the managers of an ordinary bank are able, by some use of their fountain pens, to lend several dollars for each dollar deposited with them. No wonder practical bankers see red when such power is attributed to them. They only wish they could do so. As every banker knows, he cannot invest money that he does not have; and money that he invests in buying a security or making a loan soon leaves his bank.’ (Economics, 5th edition, 1961, p.331)

The argument he put forward is that when someone deposits £1,000 into a bank when there is a 10 per cent cash reserve ratio, the bank keeps £100 cash and lends out the other £900. This will then be spent by the borrower and will find its way back into the banking system more widely, which will then keep £90 of the £900 as a cash reserve and lend out the remaining £810, and so on.  Eventually, after these deposit and loan circuits have been completed, this leads to a situation whereby the initial £1,000 deposit in a particular bank has multiplied to £10,000 across the banking system as a whole.

Although it is an obvious oversimplification, in some respects this theory is sound. The key issue though is that it is not an example of ‘credit creation’at all. All this theory demonstrates is that money circulates and that for every loan that has been created, a deposit (that is greater than the subsequent loan) has also been made. In some ways it is little different to the concept underpinning the circulation of a bank note, whereby a £20 note can be used many times over a given period to facilitate transactions that, when aggregated, are many times the face value of the individual note.

No special powers
Given this, socialists say that ‘fractional reserve banking’ or ‘credit creation’ are myths. The crude version of the theory is illogical and at variance with any serious knowledge of banking practice, while the watered-down version most commonly found in modern economics textbooks isn’t really a credit-creation theory at all and proves nothing beyond the accepted fact that accepted means of payment circulate within the economy. In reality, banks can only lend out what they have received in deposits (or borrowed on the money markets), making their profits by levying higher interest rates on the loans they grant than they pay depositors (or pay to the money markets).

There really is no mystery to this, and the idea that banks have special powers and can hold the rest of society to ransom is consequently unfounded and movements for banking reform misplaced. The real problem in society stems not from what banks do specifically, but from the way society is organized as a whole. In particular, from the fact that the vast majority of people do not own and control the planet’s resources and have to work at the behest of those who do –some of whom are indeed bankers . . . but most of whom are not.

Dave Perrin

Letter: Billy Bragg (2012)

Letter to the Editors from the October 2012 issue of the Socialist Standard

Billy Bragg

Dear Editors,

I greatly enjoyed the article on Billy Bragg in the September Socialist Standard. By anyone’s standards, Billy is a great songwriter (if not a great singer!), but it is true to say that he has always been much clearer about what he is “against” than what he is “for.”

Being of a certain age, I was greatly enamoured of much of the post-punk scene of the early ’80s, of which the Gang of Four (also mentioned in the article) were a part. I’m not sure if they quite merit the label “Marxist”, though, at least not as we would understand it. Also, although they certainly had their moments, their po-faced brand of “feminism” could be a little tiresome, if not patronising – when the previously all-male band appointed a female bass-player they then announced to the world that they were now “one woman and three token men!”

Post-punk had pretty much run its course by the time of the miners’ strike, but the article did recall to mind a time when the Radio 1 playlist was occasionally troubled by SWP agit-poppers the Redskins (yes, really!), and also possibly one of the most subversive hit singles ever, the Style Council’s “Walls Come Tumbling Down.” From its initial scream of “You don’t have to take this crap” to it’s breathy female chorus of “Governments crack and systems fall/ ‘Cos unity is powerful”, Bragg’s fellow Red Wedgers brought something close to a genuine socialist message into the Top 10.

Those were the days!

Shane Roberts, 

Bristol.

The Miracle of the Loaves and the Fishes (2012)

A Short Story from the October 2012 issue of the Socialist Standard

Socialists are not above resorting to any source in support of an argument – including the Bible

V17. And it came to pass at the sixth hour, when Jesus had spoken at length of the Edomites, and the Ephraimites, and the Hasmonites, and the Plasmonites, and the Sonderbites, and the Summenites, and the Malachites, and the Ammonites, and the Bakelites, and of many other wondrous things, that a question arose among the faithful: “Lord, what are we going to have for our tea?”

V18. The Lord replied thus: “Bring unto me your loaves and your fishes for safekeeping, that a repast may be prepared wherein all may share even unto the lowest of the flock.” And the people did so, rendering to Him all that was in their possession and sparing nothing unto themselves. And the Lord looked down upon the host of bread they had collected, which numbered not more than five loaves, and the fishes, which were in number but two, and He spoke in wonder saying “That’s not much is it?”

V19. Then He did address the gathering, bidding them form an orderly assembly. Thereupon turning first to one Jacob the Canaanite, who was at the head of the queue, He spake thus: “Take thee freely of my bread and my fishes, as though they were my very flesh,  that thou may eat and be content, O Jacob of Canaan.” And Jacob said “Thanks a lot, Lord.”

V20. But as Jacob knelt to take up a portion whereof to dine, Jesus held aloft his arm saying “But wait, O Jacob, for see ye not that  the sun is yet high, and that the hour of tea is not yet upon us? Wilt thou not tarry a while, that we may all partake communally as one people in God’s mercy?” And Jacob said “Alright, Lord, I will. If you say so.” Then Jesus said: “And wilt thou not also vouchsafe to me thy portion for keeping until the appointed hour? For I see by thy simple robe that thou hast no folds wherein it may dwell, whereas mine comes with pockets.” And Jacob replied, saying: “Hollowed be thy pockets, Lord. I shall place my faith and dinner therein.”

V21. Then did Jesus approach the next one in line, one Ezekiel of Zin, and first he did give him of the loaves and the fishes whereof he had heretofore been furnished, and that he had just lent, and that he had then embraced once again back into his keeping. Then did he also address Ezekiel in these words, saying “O Ezekiel, mark you that it is not yet of the dinner hour, and yet I perceive that you are also lacking pockets. Therefore surrender unto me for safekeeping that which I bestow upon you, and I’ll look after it for you as I did with Jacob.”

V22. And Ezekiel did. And thus did Mary of Edom also follow the same wise counsel, and Rachel of Modom, and Simeon of Simeon, and Gladius of Nubia, and Chief Running Deer of the far shores, until the whole multitude had done likewise.

V23. And Jesus spake to the multitude saying “Lo, this is a device I learned from the moneylenders at the temple, wherein by ineffable means known only to God the Father, loaves and fishes are created from the very air.

V24. “And I have this day performed this miracle before your very eyes. For yea, though my starting capital was but slender, have not each one of you received loaves and fishes by my hand, though ye be a great multitude?”

V25. And the people fell down in wonder, though they be sore famished by this time, and agreed that it was a miracle. Then on further consideration did they press upon the Lord to receive back what they had loaned on deposit, so that they may truly eat, thus creating an Almighty squeeze. But Jesus withdrew and implored them to desist, saying “Lord, forgive them, for they know not how finance works”. Then were fists raised in ire, and the first credit crunch smote the Lord upon the eye, followed by several others, for verily did the multitude twig that they had been diddled.

V26. At the eleventh hour under cover of darkness, and most belaboured upon the body by the faithful, did Jesus hasten back to the temple moneylenders, and there did He kick over their tables in full wroth, saying “Don’t even think you’re getting a bonus.”

Pater Patricius

The Guardian: Haven for Cranks (2012)

From the October 2012 issue of the Socialist Standard

One way in which the notion that banks can create credit out of thin air has got into circulation has been through the Guardian.

“Money from thin air” was the heading of an article by James Robertson published in 20 March 2008 in which he claimed that

  “commercial banks are allowed to create almost all the money we use. They create it out of thin air and put it into circulation in the form of profit-making loans. They credit those to their customers’ accounts by a simple accounting procedure, and their customers spend the money into circulation.”

That banks give loans cannot be denied –that’s one of their functions –nor that those given a loan spend the money. That’s not the point at issue, which is: Do the banks create this money out of thin air by a simple accounting procedure? Or are they transferring previously existing purchasing power? In other words, are they creating purchasing power that did not exist before? In asserting that they do, Robertson has some other questions to answer. Why do banks compete with each other to attract people’s savings (i.e., money people don’t want to spend for the time being)? What is the difference between a bank and a moneylender? Do moneylenders, pawnbrokers and loan sharks also create money out of thin air when they make a loan? If not, why not?

In an article by Richard Werner and Green Party MP (and then Party Leader) Caroline Lucas on 12 February this year the two asserted that:

  “banks simply pretend that borrowers have deposited the money they lend them, and thus create it out of nothing, when they credit their deposit accounts, adding to the money supply.”

When they make a loan, banks generally do open an account for the borrower to which the amount of the loan is credited, but it does not follow that this has been created “out of nothing”. In fact, it has to come from what the bank has, either from outside depositors or from what they themselves borrow. Banks are essentially financial intermediaries which borrow money (depositing money in a bank is in effect lending it the money) from savers and lend it to investors (those who want money for some project). Their income comes from the rate of interest (if any) they pay those who lend them the money and the higher rate they charge those who borrow it from them. Bank profits are what is left after their expenses (buildings, computers, staff costs, etc) have been paid out of this income.

In the build-up to the present crisis, according to an article to an article by Deborah Orr (14 July):

  “The big international banks manufactured money, using very simple raw materials. All they needed were computers and borrowers. Every time they made a loan, the banks simply typed the amount they were lending into their computer system, transferred it to their victim’s account, and charged interest for the privilege.”

The fact that she herself described this as “the closest thing to alchemy that humanity ever contrived” ought to have alerted her that there was something wrong with this account.

If the banks she referred to only needed computers and borrowers, how come some of them got into serious difficulty when the rate of interest at which they had been borrowing money on a short-term basis rose, squeezing their income since they were unable to raise the rate they charged borrowers? Clearly, they did need the money to lend as well as their computers.

Orr went on to give her support to a bank reform under which banks would be “lending from their capital, not ‘lending’ money they had conjured up from thin air of cyberspace.” She didn’t seem to realise that this is what banks already do today.

Only a woolly-minded reader of the Guardian would believe the tosh that banks can conjure up the money they lend from “the thin air of cyberspace."

Adam Buick

The Banking System (2012)

From the October 2012 issue of the Socialist Standard

The origin of the banking system was the practice of depositing money for safe keeping with the goldsmiths and paying them for this service. The goldsmiths subsequently adopted the practice of paying interest to the depositor, and they re-lent the money at a higher rate of interest to a borrower. This was only an indirect way of the depositor himself lending his money at interest to the borrower. Whether the goldsmith acted as intermediary or whether the lending was done directly the general effect was the same, i.e., the owner of the money (representing a command over goods) was lending it to a borrower, who would thus, for a specified time, have at his disposal the means of buying goods. It was not an act of “creating” goods or values, but only of lending them, the banks being intermediaries between lenders and borrowers.

Fundamentally, the same process underlies the modern banking and credit system. People who deposit cash and cheques in the banks are, in effect, placing at the disposal of the banks a command over goods, expressed as a certain sum of money. The banks pay to the depositor a fluctuating rate of interest on most of the deposits, and place the deposits at the disposal of other persons and companies who wish to borrow. Again, it is, in effect, a process of transferring the command over goods from the saving section to the borrowing section. As the banks need security for their loans to industry the borrower in fact (or in effect) pledges his factory, his stock-in-trade, etc. The bank is just like a pawnbroker, except that the bank largely works on borrowed money. The banks are intermediaries between one set of property owners and another set. The borrowers pay interest to the banks, who pay a smaller or no interest to the lenders. The whole of the interest comes ultimately out of the productive process.

(Socialist Standard, May 1933)

Fabrications (2012)

From the October 2012 issue of the Socialist Standard

Some of the quotes used by credit creationists to support their view are not genuine but have been fabricated at some point by some dishonest currency crank and then naively accepted and spread by others. Two in particular are all over the internet. One is from Josiah Stamp, who was a director of the Bank of England from 1928 till his death in 1940, the other from Reginald McKenna, who was Chancellor of the Exchequer from 1915-1916 and chairman of Midland Bank (now HSBC) from 1919 till his death in 1943. We present the evidence that these quotes are fakes.

Josiah Stamp

  “Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of a pen they will create enough deposits to buy it back again. However, take it away from them, and all the fortunes like mine will disappear, and they ought to disappear, for this world would be a happier and better world to live in. But if you wish to remain slaves of the Bankers and pay for the cost of your own slavery, let them continue to create deposits.” Sir Josiah Stamp, President of the Bank of England in the 1920s, the second richest man in Britain.” (LINK)

In his book Debt, The First 5000 Years David Graeber says (p. 344) that “it seems extremely unlikely that Lord Stamp ever really said this, but the passage has been cited endlessly—in fact, it’s probably the single most often-quoted passage by critics of the modern banking system,” In a footnote (pp. 448-9) he goes into more detail: “Said to have been given at a talk at the University of Texas in 1927, but in fact, while the passage is endlessly cited in recent books and especially on the internet, it cannot be attested to before roughly 1975. The first two lines appear to actually derive from a British investment advisor named L.L.B. Angas in 1937: ‘The modern Banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banks can in fact inflate, mint and unmint the modern ledger-entry currency’ (Angas, Slump Ahead in Bonds, New York, 1937: 20-21). The other parts of the quote are probably later inventions—and Lord Stamp never suggested anything like this in his published writings.”

Reginald McKenna

  “I am afraid the ordinary citizen will not like to be told that the banks can and do create money. And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hand the destiny of the people.” Reginald McKenna, as Chairman of the Midland Bank, addressing stockholders in 1924. (same source)

The first sentence is from McKenna’s report to Midland Bank shareholders but in 1925, not 1924. It can be found in Postwar Banking Policy, a collection of his reports to the Annual Meeting of Midland Bank shareholders between 1921 and 1928, published in 1928. The last sentence does not appear anywhere in the book. So, where did it come from?

The earliest reference to it on the internet seems to be a facsimile of a page from an Australian newspaper reporting a speech by Alexander Amess who was standing on a Social Credit ticket in the Australian Federal elections of September 1940. He is reported as quoting the passage and saying that McKenna said it in 1937 (see http://trove.nla.gov.au/ndp/del/article/75036747). This identifies the currency crank group that fabricated the quote and indicates the probable time it was done. If someone was prepared to plough through Social Credit literature of the time no doubt they would find the original source.

Another indication that the passage is a fabrication is that in a lecture on ‘Banking’ he gave on 11 December 1927, McKenna expressed the opposite view: that the government controlled what banks could do, not the other way round. He spoke of ….“the total volume of money, the ultimate control of which lay with the central bank of issue, not with the ordinary trading banks”and went on to say that “the Bank of England was, in fact, controlled by the Treasury, which was, in fact, controlled by the House of Commons as representative of the people of this country.”

Although he advanced the controversial view that banks “create”money, he did not think that they did so out of thin air. The accurate version of what he told Midland Bank shareholders in 1925 (not 1924) is:

  “I am afraid the ordinary citizen will not like to be told that the banks and the Bank of England can create or destroy money. We are in the habit of thinking of money as wealth, as indeed it is in the hands of the individual who owns it, wealth in the most liquid form, and we don’t like to hear that some private institution can create it at pleasure. It conjures up a picture of an autocratic and irresponsible body which by some black art of its own contriving can increase or diminish wealth, and presumably make a great deal of profit in the process. But I need hardly say nothing of the sort happens.”

Money Bugs (2012)

From the October 2012 issue of the Socialist Standard

William Jennings Bryan was what we call today a “money bug.” He believed that a certain change in the monetary system would be enough to bring prosperity to the vast majority and, at least, security to all. But, since money is merely a measure of value, we know full well that a mere change in its form would not add more value to that which it measures, any more than the shortening or lengthening of a yardstick would add length or quality to the cloth it measures.

This is the stumbling block of the majority of money reformers; they believe that a change in the measuring of value, a change in the money system, will bring about an alteration in the wealth it measures and changes in the possession of wealth.

…[N]o mere change in the means of measuring or medium of exchanging values will create new values or cause existing values to circulate more freely.

(John Keracher, Economics for Beginners, 1935 )

After Iraq, Iran? (2012)

From the October 2012 issue of the Socialist Standard

CND is deluding itself if it thinks that a capitalism free from nuclear weapons is possible.

CND are in support of a Nuclear Weapons-Free Middle East and the future UN conference on this matter. On 13 October they will be holding a special International Conference – ‘Building towards a Nuclear Weapons-Free Middle East: Civil Society input for a new Helsinki Process’. At which Professor Abbas Edalat of the Campaign Against Sanctions and Military Intervention in Iran (CASMII) has been invited.

Professor Edalat was the main speaker at a CND  public meeting at Conway Hall in Central London in July on the question; ‘Iran – Why is the West preparing it’s public for a new war in the Middle East?’ His organisation, CASMII, is said to support the Iranian Reform Movement which was in power in Tehran 1997-2005 and has a bourgeois ‘middle class’ base. But where do Professor Edalat and CND stand in relation to capitalism and war?

Edalat began with the quote “the road to Tehran goes via Baghdad” which is that regime change is the goal of the West, that oil resources are the reason but the pretext is that Iran’s nuclear programme is a threat. He identified the USA and Israel as the real threat in the region. It appears Edalat understands that wars in capitalism are about competition over sources of energy. Even capitalist economist Keynes recognised that “the competitive struggle for markets” was the major factor in “the economic causes of war”.

Edalat spoke of the economic sanctions against Iran which he said hit the “pro-western middle classes” whereas the “poor and lower classes” are looked after by handouts and subsidies from the state. It is understandable that the leftist exile group Hands Off the People of Iran criticise CASMII for being opposed to the interests of “workers, progressives and democrats”. It is interesting that Hands Off were excluded from the Stop the War Coalition, and that Stop the War have adopted CASMII’s resolution on Iran.lat pointed out that Iran’s breach of the Non-Proliferation Treaty was “minor” in that it was a failure to disclose a single receipt of low emission uranium purchased from China. He concluded that military intervention in Iran would mean that the Iranian people would lose out, there would be an oil price rise, disastrous effects for the world economy, and that there was an urgent need to debunk the western media discourse about Iran.

CND are developing a campaign against the threat of war against Iran. CND opposed UK involvement in the nuclear-armed NATO wars of ‘liberal interventionism’ such as Yugoslavia, Afghanistan, Iraq, and Libya. This attitude raises the question: do CND support some wars within capitalism? What about UK intervention in the civil war in Sierra Leone? Kate Hudson at CND identifies that US intervention in the Middle East is a “brazen pursuit of national interests”. In fact these are western capitalist interests.

Can international co-operation take place within capitalism? The 1946 Baruch Plan initiated by the US for all nuclear fuel production to be under the control of an international agency was not realised because of USSR opposition. CND have identified that the “preventative military intervention” against Iran for not meeting NPT obligations is a smokescreen for US desires for regime change in Iran. They see the parallels with the build-up to the Iraq War. Kate Hudson at CND believes that “concerted, transparent and productive diplomatic negotiations” will lead to a solution. Within capitalism this really seems quite unlikely. Western capitalist interests want regime change in Iran in order to open the country up to free market capitalism. Edalat would like a liberal bourgeois capitalist Iran in the western mould.

In the pursuit of the interests of the capitalist class, the state will in Brecht’s note to Mother Courage, “make war as a continuation of business by other means” which is a variation on Clausewitz’s “War is the continuation of politics by other means”. Interestingly Sun Tzu 6th century BC book The Art of War is used today in western capitalism as a handbook for corporate strategy in achieving profits.

War existed in the class societies before capitalism where they were caused by absolute shortages and scarcities. In capitalism there are artificial scarcities, and overproduction which cause competitive accumulation and leads to war. War in capitalism is an inevitable result of the quest for profit and competition between capitalist interests for markets, raw materials, energy supplies, trade routes, and exploitable peoples. The cause of wars in the Middle East has been the oil-importing countries’ need to have dependable oil supplies.

Recently the International Campaign to Abolish Nuclear Weapons (ICAN) published a study which shows the link between capitalism and war by identifying 322 banks and financial institutions that are funding nuclear weapons development and manufacture such as Barclays, Lloyd’s, HSBC, and RBS.

CND, Stop the War, ICAN, and CASMII do not identify capitalism as the cause of war but believe certain types of wars and weapons should be opposed and that reforms to capitalism by abolishing nuclear weapons will make the world a nicer place in which to do business and make profits. It is ironic that CND used footage from the film The War Game in its recruitment campaign when the footage was of the Allied ‘conventional’ bombing of Dresden which was more destructive in terms of fatalities than the atom bomb at Nagasaki.

All wars in capitalism are in the interests of the capitalist class and the working class are the victims and cannon fodder of capitalist war. The abolition of global capitalism and the transformation to world socialism will remove the causes of war.

Steve Clayton

Che and Violence (2012)

Theatre Review from the October 2012 issue of the Socialist Standard

Dirty Market are a theatre collective based in South-east London who have adopted bricolage techniques for their productions, and their most recent Be Good Revolutionaries took place at the Oval House Theatre in Kennington, London. The sources for Be Good Revolutionaries are the last letter of Che Guevara to his children, Crime on Goat Island by Ugo Betti, and  Brecht’s Mother Courage and Her Children.

Be Good Revolutionaries is set in the claustrophobic world of a jungle hideaway in Latin America in 1967 where a rebel leader's wife Anna (a formidable performance by Juliet Prague), and her two daughters and one son live. Into this world comes a stranger who appears to know the long-lost leader. The stranger is a ‘Martin Guerre’ character who intrudes like in the Betti novel, but his presence is disastrous like in a Roman Polanski film.

Be Good Revolutionaries is reminiscent of Brecht’s Mother Courage where the devastating effects of war are portrayed, and Brecht points out the utter blindness and futility of those hoping to profit by it. Dirty Market have adopted Brechtian techniques for this production, demonstrating the ‘estrangement’ effect by using singing and music to interrupt or comment on the action. This is memorably performed by musician-singer Rebecca Thorn.

The production is noteworthy for the design by Susan Sowerby of the Mexican ‘los dias de los muertos’ artwork, ‘ofrenda’ shrines, skeletons and ‘calavera catrinas’ which give the performance the necessary ‘latin’ American ambience. This is augmented by the choreographed movements of the children, a soundtrack of flutes, Rebecca Thorn’s accordion, gunfire and helicopter rotors which bring to mind Coppola’s Apocalypse Now and Christopher Bruce’s modern ballet Ghost Dances which featured the Chilean folk of Inti Illimani. Be Good Revolutionaries is evocative of the music of songs like the Cuban ‘Guantanamera’ and Victor Jara’s Chilean anthem ‘Venceremos’.

Che Guevara’s last letter to his children contained fatherly advice in the shape of “Grow up into good revolutionaries”, “Remember that it is the Revolution which is important” and a reminder that he was “a man who acted as he thought best and who has been absolutely faithful to his convictions”. Since the 1960’s, the famous Che image has been thoroughly ‘marketed’ and exploited by western capitalism. Che was captured and executed in 1967 in Bolivia where he was attempting to export the Cuban revolution, and conduct a Maoist “protracted peoples war”. This play includes the line “People have to die for change” and a glorification of “revolution”. Such romanticising of violent insurrection, and armed struggle is fundamental to Trotskyists and Leninists but all minority violent revolutions devour their own children.

Although Cuba is very popular with the Left, it is a one-party state, there are political prisoners, no freedom of the press,  no right to strike, price controls, goods rationing, a constitution based on the USSR,  a planned economy in the USSR ‘state capitalist’ mode, and essentially there  is ‘commodity nature of production’, and therefore is not a socialist society.

Steve Clayton