Facing the future (1985)

From the July 1985 issue of the Socialist Standard

The Labour government which entered office in 1945 was not the first in this country but it differed importantly from its two predecessors in that it was the first to have a clear majority of MPs in Parliament. The first Labour government in 1924, which lasted for less than a year, was very much a minority government. Its MPs numbered 191. against 258 Tories and 159 Liberals. It could exist only with Liberal support. The second Labour government of 1929-1931 was the largest of the three parties in Parliament but was still dependent on Liberal support, because the 288 Labour MPs were outnumbered by the combined strength of 260 Tories and 59 Liberals.

In the 1945 Parliament the Labour Party had an overwhelming majority of MPs — 393 out of a total of 640, against the Tories’ 189 (it was comparable with the preponderance of Tory MPs in the present Thatcher government; 397 against Labour's 209, in a total of 650). At the next general election in 1950, the Labour Party lost ground but just managed to hold a bare majority. 315 Labour MPs in a total of 625. The Tory strength increased from 189 to 281. Then at the 1951 election, the Labour Party went out of office. Their MPs numbered 295 against 302 Tories in a total of 625. The new Churchill government was a minority government.

At the 1945 General Election, the Labour Party committed itself to a big programme of legislation, including widespread nationalisation, the National Insurance Act. and the National Health Service and pledged itself to maintain "full employment" and "good wages" and a more or less stable price level. In foreign policy the Labour Party promised support for the United Nations and disarmament and undertook to work to remove the threat of war. The election programme had particular reference to America and Russia:

  We must consolidate in peace the great wartime association of the British Commonwealth with the USA and the USSR. Let it not be forgotten that in the years leading up to the war the Tories were so scared of Russia that they missed the chance to establish a partnership which might well have prevented the war. 

The programme also had something to say about what it called socialism.

  The Labour Party is a Socialist Party and proud of it. Its ultimate purpose at home is the establishment of the Socialist Commonwealth of Great Britain — free, democratic, progressive, public-spirited, its material resources organised in the service of the British people

How did its performance stand up to its promises? First the promise of socialism. If this had been true it would have put the Labour Party in total and permanent opposition to the Tory and Liberal parties. So little was it ever true that the Labour Party had served, along with the Tories and Liberals, in the coalition governments of two World Wars. The real intention of all Labour governments has not been to abolish capitalism, but to demonstrate that it can administer the system more successfully than the other capitalist parties. In 1929 the Minister in charge of employment. J.H. Thomas, had admitted that he was seeking to reduce unemployment "while accepting the present order of society" (unemployment jumped by a million). Some forty years later it was the Chairman of the Parliamentary Labour Party, speaking of the Labour government 1964-70. who said: "Never has any previous government done so much in so short a time to make modern capitalism work". (The Times, 5 April 1967.)

Specifically, what the Labour Party means by socialism is nationalisation — that is, state capitalism. They like to claim that this aim separates them from the Tories and Liberals but the facts belie the claim. Long before a Labour government came into being there had been a long history of nationalisation by Tories and Liberals, including the postal, telegraph and telephone services and the 1844 Act giving the then Tory government power to nationalise the railways. After World War 1 Churchill and Lloyd George had campaigned for railway nationalisation, and in 1943 in a broadcast. Churchill had said: "there is a broadening field for state ownership and enterprise especially in relation to Monopolies '.

In the 19th century Tory and Liberal policy on over-powerful monopolies was to nationalise them. Now that policy has been abandoned in favour of the present Tory policy of using laws against monopolies, on the lines of policy in America. In the field of disarmament and war the 1945 Labour government's hopes and intentions came to nothing. Along with America the Labour government got involved in the “cold war" and the Korean war. In 1950, fearful of a supposed threat from Russia to over-run Western Europe, the Labour government launched its great re-armament programme, and "defence" expenditure jumped from £770 million in 1948 to £1,110 million.

The Labour Party claims to deserve the "credit" for the National Insurance scheme and the National Health Service, but these were both commitments of the war-time coalition government. It was that government which, in 1941, appointed Lord Beveridge to examine and report on the introduction of these schemes and it was the same government which, in 1944, published the first proposals for a comprehensive National Health Service. The Labour government had intended the scheme to provide "free" treatment, but in 1951 it introduced charges for dentures and spectacles, a policy carried further by later governments.

A boast made at the time, and still being made is that it was due to Labour government policy that unemployment in the years 1945-1951 was very low. It was indeed — it averaged under 2 per cent for the whole six years, compared with 13 per cent in 1985. But in the following six years 1951-1956 under Tory Government it was even lower, an average of just over 1½  per cent. But in neither case was it due to government policy. One factor in the low level of unemployment was the backlog of work left after the war, in such fields as housing and factory building. Provided that British industry could get raw materials and fuel supplies, there was a big market for British exports. Getting the raw materials and fuel was greatly helped by the hundreds of millions of pounds received from the American government under Marshall Aid. A minister in the Labour government, Aneurin Bevan, stated in 1948 that "without Marshall Aid unemployment in this country would at once rise by 1,500,000". That is to say it would have been at depression level, as indeed it was at that time in several countries including Italy, Germany and Belgium. Another factor in the low unemployment was that British exports of manufactured goods had a particular and temporary advantage because some other countries — notably Japan and Germany — had effectively been knocked out of the world market by the war-time destruction of their industry.

The British share of total world export of manufactures, which in 1900 had been 33 per cent and had steadily fallen, to 21 per cent in 1938, received this special boost and jumped in 1948 to 29 per cent, which helped in keeping unemployment low. As Japan and Germany came back into the world market with their fierce competitive manufactures the British percentage of the total export of manufactures has steadily declined again and British unemployment has been on a continuous upward trend.

The policy of "full employment” was one to which all three coalition parties, Tories, Labour and Liberals, had been committed by the 1944 White Paper Employment Policy. This pledged all post-war governments, whatever their political complexion, to maintain "full employment" by the use of Keynesian techniques of so-called demand management. This theory is based on economic fallacies and has never worked. Faced with rising unemployment, the Labour government under James Callaghan (with Denis Healey as Chancellor) declared its abandonment of Keynesian policy in 1977 and the adoption of its idiot-twin called monetarism, which has been continued by the Thatcher government.

The 1945 Labour government was committed to maintain a more or less stable price level. In practice prices went up by 33 percent between 1945 and 1951. Under the Tories, equally committed to stable prices, they went up by another 25 per cent in the next six years 1951-1956 and have continued to rise under every subsequent government, including the present one. In practice the pledge of the 1945 Labour government to aim at "good wages" took the form of trying to hold wages down in the first of many "income policies", introduced by the Attlee government in 1947. Another action of the 1945 Labour government not provided for in their Election Programme was the devaluation of the pound in 1949, from four dollars to 2.80 dollars, although for a long time the government declared that it had no such intention.

Looking back on the 1945 Labour government, what in fact did it achieve? It carried through a lot of nationalisation measures. But what about the accompanying promise that nationalisation would improve the workers' conditions and reduce the number of strikes? Most strikes nowadays are in the nationalised industries and nationalisation has done nothing for the working class. The so-called Welfare State, which was supposed to abolish poverty, has totally failed to do so.

The 1945 Labour government, like its two predecessors and the Labour governments which have followed, have done nothing to change the basic structure of capitalism or remedy the evils flowing from it. The task of the working class remains as it was before Labour governments were formed —abolishing capitalism and establishing socialism.

Edgar Hardcastle

Manifesto of the Socialist League (1985)

From the July 1985 issue of the Socialist Standard

  A hundred years ago this month the first Annual Conference of the Socialist League, which had been founded in December 1884 as a breakaway from the Social Democratic Federation, adopted the following Manifesto. 

 Drafted by William Morris, it went through many editions and represents the first clear statement in the English language appealing to workers to undertake an uncompromising struggle to replace "the present system of capital and wages" with a system in which "all means of production and distribution of wealth" would be "treated as the common property of all". Apart from one or two loose phrases (which our regular readers will immediately recognise) it is still an excellent statement of the case for socialism; it is also a fine example of political English. 

   The Socialist League virtually disappeared in 1890. but fourteen years later another organisation, also a breakaway from the SDF, took on the task of advocating "the principles of Revolutionary International Socialism": the Socialist Party of Great Britain.

Fellow Citizens — We come before you as a body advocating the principles of Revolutionary International Socialism; that is, we seek a change in the basis of Society — a change which would destroy the distinctions of classes and nationalities.

As the civilised world is at present constituted, there are two classes of Society — the one possessing wealth and the instruments of its production, the other producing wealth by means of those instruments but only by the leave and for the use of the possessing classes.

These two classes are necessarily in antagonism to one another. The possessing class, or non-producers, can only live as a class on the unpaid labour of the producers — the more unpaid labour they can wring out of them, the richer they will be: therefore the producing class — the workers — are driven, to strive to better themselves at the expense of the possessing class, and the conflict between the two is ceaseless. Sometimes it takes the form of open rebellion, sometimes of strikes, sometimes of mere widespread mendicancy and crime; but it is always going on in one form or other, though it may not always be obvious to the thoughtless looker-on.

We have spoken of unpaid labour: it is necessary to explain what that means. The sole possession of the producing class is the power of labour inherent in their bodies; but since, as we have already said, the rich classes possess all the instruments of labour, that is, the land, capital, and machinery, the producers or workers are forced to sell their sole possession, the power of labour, on such terms as the possessing classes will grant them.

These terms are. that after they have produced enough to keep them in working order, and enable them to beget children to take their places when they are worn out. the surplus of their product shall belong to the possessors of property, which bargain is based on the fact that every man working in a civilised community can produce more than he needs for his own sustenance.

This relation of the possessing class to the working class is the essential basis of the system of producing for a profit, on which our modern Society is founded. The way in which it works is as follows. The manufacturer produces to sell at a profit to the broker or factor, who in his turn makes a profit to the retailer, who must make his profit out of the general public, aided by various degrees of fraud and adulteration and the ignorance of the value and quality of goods to which this system has reduced the consumer.

The profit-grinding system is maintained by competition, or veiled war, not only between the conflicting classes, but also within the classes themselves: there is always war among the workers for bare subsistence, and among their masters, the employers and middle-men for the share of the profit wrung out of the workers; lastly, there is competition always, and sometimes open war, among the nations, of the civilised world for their share of the world-market. For now, indeed, all the rivalries of nations have been reduced to this one a degrading struggle for their share of the spoils of barbarous countries to be used at home for the purpose of increasing the riches of the rich and the poverty of the poor.

For, owing to the fact that goods are made primarily to sell, and only secondarily for use, labour is wasted on all hands; since the pursuit of profit compels the manufacturer competing with his fellows to force his wares on the markets by means of their cheapness, whether there is any real demand for them or not. In the words of the Communist Manifesto of 1847:

  Cheap goods are their artillery for battering down Chinese walls and for overcoming the obstinate hatred entertained against foreigners by semi-civilised nations: under penalty of ruin the Bourgeoisie compel by competition the universal adoption of their system of production: they force all nations to accept what is called civilisation — to become bourgeois and thus the middle-class shapes the world after its own image.

Moreover, the whole method of distribution under this system is full of waste; for it employs whole armies of clerks, travellers, shopmen, advertisers, and what not, merely for the sake of shifting money from one person's pocket to another's; and this waste in production and waste in distribution, added to the maintenance of the useless lives of the possessing and non-producing class, must all be paid for out of the products of the workers, and is a ceaseless burden on their lives.

Therefore the necessary results of this so-called civilisation are only too obvious in the lives of its slaves, the working-class — in the anxiety and want of leisure amidst which they toil, in the squalor and wretchedness of those parts of our great towns where they dwell; in the degradation of their bodies, their wretched health, and the shortness of their lives; in the terrible brutality so common among them, and which is indeed but the reflection of the cynical selfishness found among the well-to-do classes, a brutality as hideous as the other; and lastly in the crowd of criminals who are as much manufactures of our commercial system as the cheap and nasty wares which are made at once for the consumption and the enslavement of the poor.

What remedy, then, do we propose for this failure of our civilisation, which is now admitted by almost all thoughtful people?

We have already shown that the workers. although they produce all the wealth of society, have no control over its production or distribution: the people, who are the only really organic part of society, are treated as a mere appendage to capital as a part of its machinery. This must be altered from the foundation: the land, the capital, the machinery, factories, workshops, stores, means of transit, mines, banking, all means of production and distribution of wealth, must be declared and treated as the common property of all. Every man will then receive the full value of his labour, without deduction for the profit of a master, and as all will have to work, and the waste now incurred by the pursuit of profit will be at an end, the amount of labour necessary for every individual to perform in order to carry on the essential work of the world will be reduced to something like two or three hours daily; so that every one will have abundant leisure for following intellectual and other pursuits congenial to his nature.

This change in the method of production and distribution would enable every one to live decently and free from the sordid anxieties for daily livelihood which at present weigh so heavily on the greatest part of mankind.

But, moreover, men’s social and moral relations would be seriously modified by this gain of economic freedom, and by the collapse of the superstitions, moral and other, which necessarily accompany a state of economic slavery: the test of duty would now rest on the fulfilment of clear and well-defined obligations to the community rather than on the moulding of the individual character and actions to some preconceived standard outside social responsibilities.

Our modern bourgeois property-marriage, maintained as it is by its necessary complement, universal venal prostitution, would give place to kindly and human relations between the sexes.

Education freed from the trammels of commercialism on the one hand and superstition on the other, would become a reasonable drawing out of men's varied faculties in order to fit them for a life of social intercourse and happiness; for mere work would no longer be proposed as the end of life, but happiness for each and all.

Only by such fundamental changes in the life of man, only by the transformation of Civilisation into Socialism, can those miseries of the world before-mentioned be amended.

As to mere politics, Absolutism, Constitutionalism, Republicanism, have all been tried in our day and under our present social system, and all have alike failed in dealing with the real evils of life.

Nor, on the other hand, will certain incomplete schemes of social reform now before the public solve the question.

Co-operation so-called — that is, competitive co-operation for profit — would merely increase the number of small joint-stock capitalists, under the mask of creating an aristocracy of labour, while it would intensify the severity of labour by its temptations to overwork.

Nationalisation of the land alone, which many earnest and sincere persons are now preaching, would be useless so long as labour was subject to the fleecing of surplus value inevitable under the Capitalist system

No better solution would be that State Socialism, by whatever name it may be called, whose aim it would be to make concessions to the working class while leaving the present system of capital and wages still in operation; no number of merely administrative changes, until the workers are in possession of all political power, would make any real approach to Socialism.

The Socialist League therefore aims at the realisation of complete Revolutionary Socialism, and well knows that this can never happen in any one country without the help of the workers of all civilisation. For us neither geographical boundaries, political history, race, nor creed makes rivals or enemies; for us there are no nations, but only varied masses of workers and friends, whose mutual sympathies are checked or perverted by groups of masters and fleecers whose interest is to stir up rivalries and hatreds between the dwellers in different lands.

It is clear that for all these oppressed and cheated masses of workers and their masters a great change is preparing: the dominant classes are uneasy, anxious, touched in conscience even, as to the condition of those they govern; the markets of the world are being competed for with an eagerness never before known; everything points to the fact that the great commercial system is becoming unmanageable, and is slipping from the grasp of its present rulers.

The one change possible out of all this is Socialism. As chattel-slavery passed into serfdom, and serfdom into the so-called free-labour system, so most surely will this latter pass into social order.

To the realisation of this change the Socialist League addresses itself with all earnestness. As a means thereto it will do all in its power towards the education of the people in the principles of this great cause, and will strive to organise those who will accept this education, so that when the crisis comes, which the march of events is preparing there may be a body of men ready to step into their due places and deal with and direct the irresistable movement.

Close fellowship with each other, and steady purpose for the advancement of the Cause, will naturally bring about the organisation and discipline amongst ourselves absolutely necessary to success; but we shall look to it that there shall be no distinctions of rank or dignity amongst us to give opportunities for the selfish ambition of leadership which has so often injured the cause of the workers. We are working for equality and brotherhood for all the world, and it is only through equality and brotherhood that we can make our work effective.

Let us all strive, then, towards this end of realising the change towards social order, the only cause worthy of the attention of the workers of all that are proffered to them: let us work in that cause patiently, yet hopefully, and not shrink from making sacrifices to it. Industry in learning its principles, industry in teaching them, are most necessary to our progress; but to these we must add, if we wish to avoid speedy failure, frankness and fraternal trust in each other, and single-hearted devotion to the religion of Socialism, the only religion which the Socialist League professes.

Fear and hope (1985)

From the July 1985 issue of the Socialist Standard

Workers are frightened. Scared of being put on the dole, scared of not being able to afford the rent or mortgage, scared of being beaten up for cash, scared of the terrorists’ bomb, scared of the poverty of existence on a pension, scared of the devastation which could so easily be caused by one powerful leader pressing a nuclear button. Workers would be daft not to live in fear, for we are living in fearful times under an inherently frightening social system.

Why are millions of workers taking tranquillisers? Why are there longer queues than ever for the psychiatric hospitals, where those who cannot handle their fear-caused depression go to collapse? Why is the suicide rate in Britain so high? Why is our society facing a heroin epidemic, with whole areas of deprived inner cities becoming known as "smack alley ”? Because people are happy with what capitalism is doing to them — or because we are living in a social atmosphere of overwhelming fear?

There are no soothing words capable of calming workers who are afraid. Women who cannot afford taxis are in danger every time they walk at night through streets filled with adverts exhibiting the female form as a consumable object. Capitalism, with its lying promise that workers can have access to what they want, creates the rapists just as it creates the muggers. People walking the unlit streets and estate walkways of Poverty City are in danger of being stabbed for pennies and pounds and are in danger of going home to find that someone else in poverty has broken in. We are right to fear the bomb which may be planted on the train or in the street and the store where we shop. It is not only in Belfast, but in the big stores of Oxford Street and the pubs of Birmingham or Guildford that workers understandably live in a constant state of tension. Old workers are dying in their thousands every winter and no amount of reformist talk will ease the fear of those who dread the forecast which tells them that death for the poor is once again on the weather chart. There are so many reasons to be worried that it is painfully clear why many thousands try to escape into the unreality induced by drugs and drink.

In November of last year the Sunday Times published the following report:

  Large numbers of children feel anxious and helpless about the possibility of nuclear war, according to a survey (carried out by the Avon Peace Education Project, an independent organisation funded by the Joseph Rowntree Trust). Of the 561 comprehensive schoolchildren questioned, 91 per cent think they would not survive the holocaust, 30 per cent think a nuclear war is likely to happen in their lifetime and 21 per cent think one could happen at any moment. Just under half (45 per cent) say that thoughts of nuclear war actually affect how they feel about making career and marriage plans . . . One 11-year-old said: "To survive a nuclear war would be horrible. Nearly all your friends and relations would be dead. You would probably end up killing yourself".

Adult readers skilled in self-deception may have smiled at such infantile fears. But these are not kiddies having nightmares about invented ghosts and dragons. Their fears reflect a reality which only the blinkered cannot see, and if we care for our children we will not pat them on the head and tell them to go away and play soldiers.

Under capitalism there is no escape from fear. Take bombs: let us imagine that all nuclear bombs are abolished tomorrow — about as believable as any proposed by the reformist "realists". Would we be free from fear? No. Still there would be the constant worry that some government would recreate the nuclear bomb, for there is no security in the vicious competition of capitalism. And everyone knows that the military technology exists to create a non-nuclear holocaust just as horrific as anything predicted now. Or, on a personal level, you may be a supposedly secure worker one of the so-called middle class — with your own house, as secure a job as you can hope for, and a few thousand pounds in the bank maybe even a few shares. What happens if tomorrow morning your doctor tells you that one of your family has a disease which can only be treated if you pay for it and the cost is several thousand pounds more than your bank account contains or your few shares are worth? You could sell your house, but how long would the money of even the best-off worker last when it really comes to the crunch? How many workers can live without fearing the next problem? And even those who imagine they can — how is their supposed affluence going to save them from being blown to pieces in a war, killed as a result of environmental pollution or allowed to die of a disease which the government has not put the money into researching a cure for?

Capitalism provides no hope for the working class. But that does not mean that there is no hope. In a lecture in 1884 William Morris declared that:

  Fear and Hope those are the names of the two great passions which rule the race of man. and with which revolutionists have to deal; to give hope to the many oppressed and fear to the few oppressors, that is our business; if we do the first and give hope to the many, the few must be frightened by their hope; otherwise we do not want to frighten them; it is not revenge we want for poor people, but happiness; indeed, what revenge can be taken for all the thousands of years of the sufferings of the poor?

(How We Live And How We Might Live)

Perhaps it sounds a little sweeping — even reminiscent of those miserable Christians who have come to save us all and make us happy — but the simple fact is that only socialism offers hope for the working class. For, once we have re-organised society on the basis of common ownership and democratic control of the means of living and production solely for use, the cause of our present fears will disappear. This is not to say that there will be no other problems and that nobody will have anything to fear in a socialist society; natural diseases and personal tragedies will always be around and no political revolution will eradicate all of them. But we can say with certainty that in a socialist society no man or woman need fear the enforced idleness of unemployment — or the enforced drudgery of wage slavery. Fear of war will not exist, for the property-based cause of war will be gone. Nobody will need to fear for lack of money, for in a moneyless world of free access such anxieties will be unimaginable. Instead of fear we can at last be motivated by the enormously creative power of conscious control over the social environment, out of which will come unfettered hope. We are living in cynical times and it is fashionable to expect doom. Socialists are hopeful, and we intend to turn our hope into reality.

Steve Coleman

Getting it made (1985)

From the July 1985 issue of the Socialist Standard

Thump. The morning post drops on the doormat. Over breakfast I begin my inspection. A glossy mail order catalogue. Another invitation to play bingo in "your super Sun". A second reminder about the electricity bill. And then — a brochure glowingly advertising a book that could revolutionise my whole way of life. Intrigued. I read on, a spoonful of cornflakes posed in mid-air.

The book is called The Science of Getting Rich, modestly described as the "single best source book ever written on the subject", but curiously "not available in bookstores". It is intended for those "whose most pressing need is for money — who wish to get rich first and philosophise afterwards" — presumably the sort of person not prone to frequenting bookstores.

How to get rich, the brochure tells me. is the "noblest and most necessary of all studies":

 Whatever may be said in praise of poverty, the fact remains that it is not possible to live a really complete or successful life unless one is rich. We develop in mind, soul and body by making use of things and society is so organised that we must have money in order to possess things.

At last, good news for those of us accustomed to fretting over electricity bills — we need not philosophically resign ourselves to poverty much longer:

  There is a Science of Getting Rich and it is an exact science like algebra or arithmetic. There are certain laws which govern the process of acquiring riches. Once these laws are learned and obeyed by anyone, he will get rich with mathematical certainty.
  Many people will scoff at the idea that there is an exact Science at Getting Rich. Holding the impression that the supply of wealth is limited. they will insist that social and governmental institutions must be changed before considerable numbers of people can acquire wealth. This is not true. Existing governments keep the masses in poverty only because the average person does not act in a Certain Way.

In 1980. according to the Inland Revenue. the richest one per cent of the population owned 23 per cent of the total marketable wealth in Britain, which amounted to £566,000 million. The poorest 50 per cent, on the other hand, owned less than six per cent of this wealth. Translating these figures into pounds and pence, the average person among the richest one per cent of the population held £315,000 in private wealth while the average for the poorest half of the population works out at roughly £1,600 each. In fact, this probably understates the degree of wealth concentration because of the greater ease with which the wealthy can withhold information about their assets for taxation purposes.

Is there any indication that this marked inequality is becoming less so in the long run? In his famous work, Equality, first published in 1931, the historian R.H. Tawney wrote trenchantly of the tremendous inequalities that existed then in Britain. But by the time the fourth edition of his book appeared in 1952, Tawney had come to the view that under the post-war Labour government there had been a discernible move "towards the conversion of a class-ridden society into a community in fact as well as name". The subsequent three decades were cruelly to expose this for the wishful thinking it was.

While the share of the marketable wealth held by the richest one per cent has indeed plunged dramatically from 60 per cent in 1923 to 47 per cent in 1950 to its present level of 23 per cent, this has not been reflected in any significant increase in the proportion of wealth held by the great majority. Instead, as A. B. Atkinson has pointed out in his Unequal Shares, "what distribution there has been is not between the rich and the poor but between the rich and the rich", with the lesser rich gaining in relative terms. The bottom 80 per cent of the population still own less of the total wealth than the richest one per cent.

As for Denis Healey's boast that he would "squeeze the rich until the pips squeaked", that richest one per cent actually increased its share of the wealth in the first few years of the last Labour government. In contrast, the share of the wealth held by the poorest 50 per cent marginally declined between 1974 and 1980 (Guardian, 18 March 1984). Apparently, "it happens quite regularly that the rich get richer under Labour governments and poorer under Tory governments because of the strong influence of house and share prices" (Guardian, 18 October 1983). Clearly, in the politics of the market-place, egalitarian sentiments count for little.

But what about the claim made in the brochure? Is it realistic still to hope, in the face of this chronic inequality, that "considerable numbers of people can acquire wealth"? Before examining why this is simply not possible, we need to dispose of one or two false arguments.

The first is that however unequal our society is today we are all of us, better off than our grandparents were. We eat better, live longer, travel far more widely and even the poorest have access to the sort of technology undreamed of by our forebears. Broadly speaking this is quite true, although there is a danger here in confining our observations along too parochial lines. Taking a wider perspective this argument is by no means as clear cut and convincing as it may seem. Certainly in some parts of the world, especially in sub-Saharan Africa, it is highly questionable whether in absolute terms the majority are better off than they were, say, two or three decades ago. Per capita food production in sub-Saharan Africa has fallen continuously and, irrespective of drought, by no less than 20 per cent in as many years as subsistence farmers have found themselves increasingly squeezed by commercial pressures.

But in any case the argument itself is not relevant to the central issue at stake. This is how Marx saw it:

  A house may be large or small; as long as the surrounding houses are equally small it satisfies all demands for a dwelling. But let a palace arise beside the little house, and it shrinks from a little house to a hut. The little house shows now that its owner has only very slight or no demands to make; and however high it may shoot up in the course of civilisation, if the neighbouring palace grows an equal or even greater extent, the occupant of the relatively small house will feel more and more uncomfortable. dissatisfied and cramped within its four walls.
  A noticeable increase in wages presupposes a rapid growth of productive capital. The rapid growth of productive capital brings about an equally rapid growth of wealth, luxury, social wants, social enjoyments. Thus, although the enjoyments of the worker have risen the social satisfaction that they give has fallen in comparison with the increased enjoyments of the capitalist, which are inaccessible to the worker, in comparison with the state of development of society in general. Our desires and pleasures spring from society; we measure them by society and not by the objects which serve for their satisfaction. Because they are of a social nature, they are of a relative nature. (Wage Labour and Capital)

A second is the myth of the "self-made man". The presumption is that if one person has been able to rise from rags to riches, then so too can others. All they lack is the necessary drive and initiative. It must be said firstly that the so-called self made man is something of a rarity, an exception to the rule that wealth, by and large, gravitates to those who already have it;

  Research by historians does show that the rich are not, on the whole, self-made men like, say, the publishers. Robert Maxwell, or the computer tycoon. Sir Clive Sinclair.
  This has been demonstrated by Professor C D Harbury. who compared the wills of men leaving large sums in selected years from the 1950s to the 1970s with those of their fathers, traced through probate and birth registration records at Somerset House. Harbury found that 60 per cent of men leaving £100,000 or more since the 1950s had rich fathers. And some three quarters of these had fathers whose fortunes were ten times the amount that would have included them amongst the richest 10 per cent of the population.

(New Society, 6 October 1983)

The millionaire Malcolm Forbes, when asked how he came to be so rich replied that it was all due to "sheer industry and ability — you spell those words i-n-h-e-r-i-t- a-n-c-e". The case of one Gerald Grosvenor illustrates this particularly well. Otherwise known as the sixth Duke of Westminster. Grosvenor is reputedly the richest man in Britain with a personal fortune estimated as "somewhere between £1,000 and £2,000 million" (Sunday Mirror, 9 January 1983). This stupendous wealth derives chiefly from extensive landholdings both in this country and abroad. Contrary to what the more politically crass defenders of the status quo would suggest, it is not "superior intellect" or some other such personal attribute that has enabled the duke to amass this wealth. If anything, by the standards which these defenders would judge "intellect", Grosvenor rates as a nondescript — he has two O levels to his name. Where he differs from his intellectual peers is in having had the right ancestors:

  Unwitting founder of the fortune was Mary Davies, who in 1677 married Sir Thomas Grosvenor and brought with her as dowry some damp and sub standard farmland. It is unlikely that the recipients thought much of this until the expansion of London made that land valuable. Mary Davies' marsh land is now 300 acres of swishest London covering Mayfair and Belgravia.

(New Internationalist, July 1984)

But whether the fortunes of the rich are inherited, or acquired within their lifetime, is really beside the point. What matters is the source of that wealth. To understand why the rich are rich is to understand why the poor are poor. The plain fact of the matter, as the American social scientist Michael Parenti points out. is that "Hard work seldom makes anyone rich . . .  the secret to wealth is to have others work hard for you". He might have added that the secret to getting others to work hard for you is to ensure that they have no alternative. In short, to ensure that they remain in a state of relative poverty.

In the more forthright language of marxism. present-day society is fundamentally split into classes. The division between rich and poor does not simply reflect a disparity in the amount of wealth at a person's disposal. In a more important sense it reflects a difference in their economic relationship to the means of wealth production. The rich are rich because they possess capital — that is, wealth that is used to produce more wealth. The small minority of the population who provide the bulk of the capital invested in industry (the richest 3.2 per cent of the population in Britain account for 84 per cent of all listed shares) — in other words, effectively own and control the means of wealth production — are called the capitalist class. If rich individuals did not utilise some of their wealth as capital they would sooner or later sink into a state of poverty depending on the size of their fortune and the rate at which it was consumed.

The poor, on the other hand, possess little or no capital to speak of. As a result they are effectively divorced from ownership and control of the means of wealth production and are compelled to sell their working abilities to the capitalist class in return for a wage or salary — the cost of maintaining themselves in reasonable working order. This great majority of the population — called the working class — produces all the wealth in society. The value of this wealth, however, far exceeds the value of the wages and salaries the working class receives — the difference between these two values being known as surplus value.

Here in fact is the source of the wealth of the capitalists. Some of this wealth is consumed in a conspicuously affluent lifestyle; some of it is reinvested as capital, perpetuating the economic stranglehold of the capitalist class over the lives of the great majority. At any point in time it is in the interests of the capitalists that the amount of profit accruing to them should be as large as possible, while competition between capitalists makes doubly certain that they pursue their interests by bankrupting those who do not. The drive to maximise profits is expressed as a constant tendency to depress wages and salaries, for the relationship between them, as Marx pointed out, is antagonistic:

 What, then, is the general law which determines the rise and fall of wages and profit in their reciprocal relation? They stand in inverse ratio to each other. Capital's share, profit, rises in the same proportion as labour's share, wages, falls, and vice versa. Profit rises to the extent that wages fall: it falls to the extent that wages rise.

(Wage Labour and Capital)

At the very heart of capitalism is a self-regulating process that works to ensure that the way is firmly blocked for "considerable numbers of people" becoming rich in a relative sense. This is why Thatcher was, for once, quite correct to assert in a famous speech she made in 1975 that "the pursuit of equality is a mirage" In her opinion, "what is more desirable and practicable than the pursuit of equality is the pursuit of equality of opportunity". Just how the pursuit of equality of opportunity is at all "practicable" in an unequal society in which the opportunities expand in proportion to the wealth at one's disposal, she did not explain. But if the pursuit of equality is a mirage in capitalism it is because it simply focusses on the pattern of wealth distribution. It overlooks the underlying economic relationships that inevitably generate that pattern.

Some have argued that the answer lies in the nationalisation of industry because "public ownership" must pave the way for greater equality. Practical experience tells a very different story. The following excerpt from a statement (reproduced in the Observer, 16 August 1981) by Mykola Pohyba, who was imprisoned for campaigning for workers' rights in a country in which industry is largely in the hands of the state, needs no elaboration:

  As a worker relegated to the lowest rung of the Soviet social ladder, I personally have experienced economic, socio-political and national oppression. Understandably, I could not help but give thought to and consider the real reasons for this oppression With time I realised that my fellow workers were also victims of exploitation and that this exploitation was greater the lower one found oneself on the social ladder.
  I came to the conclusion that ultimately it is the state which is the exploiter along with the State-party bourgeoisie which is in its service and which is the one wielding the real power in the country. The socialism and internationalism of which one so often speaks in the Soviet Union is nothing more than a smokescreen for a means of production and distribution of material goods which is not in the least socialist.
  In short, I have come to the conclusion that our country is actually a State capitalist society with a totalitarian form of government.
  In informal conversations with fellow workers, I expressed some of my views regarding Soviet reality. I saw nothing wrong in doing so. Specifically, I noted that the real causes for our impoverished condition are to be found not in mistakes committed by the administrative apparatus but in the very system of production which, in actual fact, is capitalist. 

There are those who say that socialism is about the "politics of envy". The views of an Australian multi-millionaire, Lang Hancock, say all that needs to be said about that:

  Riches to more riches is the story: wealthy pastoralist finds mountains of ore. Hancock may not be free with his money but he showers the nation with advice and his own brand of "philosophy". He was the original owner of Whitenoom asbestos mine which has been linked to more than 200 asbestos disease cases, including 45 deaths: "Some people have to suffer so that the majority can benefit from asbestos". He declines to contribute to a trust set up to help victims: "I believe I have saved millions of lives by producing asbestos".
  He is aware, however, of the problems facing "half-caste" aborigines and suggests a solution: ". . . dope the water up so they were sterile and breed themselves out" thus "curing people who are in a miserable situation to stop them bringing more unfortunate people into their misery".
  He is for . . . a White Australia policy and for the Ludwigs and Henry Fords: they create jobs for millions "but from the point of view of contributing something to the general welfare of the human race, well the average run-of- the-mill bloke would not make much difference if he were on the earth or not, would he?

(New Internationalist, July 1984) 

Socialism is about the politics of indignation. Were it not, it would be hardly worth the name. The disgusting conceit of a parasite like Hancock who owes all his wealth to the very class of people he contemptuously maligns, is not important in itself. Its significance lies in the fact that it consciously reflects the very nature of a social system that adds insult to injury as it legally robs the useful majority of the fruits of its labour. To describe socialism as the politics of envy is cynically to obscure this reality. It is to overlook what socialism is actually about.

Socialism is not about the ceaseless pursuit of more commodities on a treadmill of keeping-up-with-Joneses. It is not about levelling down the rich so that the living standards of the poor might rise. It is about a fundamental change in social relationships that will make the very concept of the "standard of living" superfluous. It is about a new type of society in which the "politics of envy" will be a meaningless term from a bygone age; an age which judged a person's worth by the amount of wealth they could command yet hypocritically condemned as "envious" those who wished for a world that would conform to their material self interest.

Robin Cox

Between the Lines: Simon’s war (1985)

The Between the Lines column from the July 1985 issue of the Socialist Standard

Simon’s war
Most of us experience war only through the medium of television. Too often it is presented as a ninety-minute, small-screen fiction — an appealing and heroic adventure which depicts "Our Boys" kicking hell out of those who dared to affront the Nation. War films glorify killing and condition innocent viewers to imitate the violence they see — but only when the state requires them to. Needless to say, moralising Mary Whitehouse and her crowd of repressed would-be censors are more concerned to ban explicit acts of love from the screen than the filthy portrayal of war. Copulation is regarded as an obscenity, which affects impressionable minds, but legally sanctioned guns and bombs seem not to offend.

All of this comes to mind after watching a repeated QED documentary called Simon's War. In an unpretentious way, it showed the horrors of legalised violence better than many a more politically-motivated documentary might have done. It was the moving story of Simon Weston, a Welsh Guardsman on board the Sir Galahad when it was hit. Forty-six men died, but Simon lived — in a sense. He was not one of the forty-six whom the government (and the loyal Opposition) need have on their consciences. He survived with 46 per cent burns to his body — mainly on his face and hands injuries described as "minor" by the Ministry of Defence when breaking the news to his parents.

The opening-shots showed the patriotic parade of whipped-up lunacy which preceded the pain — flags waving, wives crying, children bewildered. and bands playing. And then off they went to perform their violent duty to the tune of the national anthem. Next scene: the dead and dying being airlifted from the area of slaughter. Cameras beside a stretcher in the military hospital showed the anguish and recorded the screams of pain of the soldier whose injuries they had decided to make a documentary about. The film then followed Simon's struggle to come to terms with the severe physical and emotional injuries which had been inflicted on him. Physically, he has been transformed from a robust, able lad who used to be a good rugby player. Emotionally, he has been stripped of his independence and turned into a hideously deformed person who is frightened of scaring his own nephew. He returns home to Nelson in Wales for a birthday celebration, but is too weak to spend the evening in the social club where he used to be "one of the lads". An old mate comments, after seeing Simon: 'I couldn't say nothing to him. I just felt like throwing up and crying." During the period covered by the programme Simon's girlfriend, who was going to marry him. ceases to be his girlfriend. These are the consequences of war — good old conventional war, remember — which don't always make the columns of the Sun. Towards the end of the programme Simon is seen at a medal-giving parade, standing to attention before the arch-parasites, the Princes Philip and Charles. As they inspect the damage to their subjects there is a voice-over, with Simon summing up his predicament: "It's all part of war really . . . I’m just a working guy who tried to do his job and got injured."

Simon's War should be compulsory viewing for every young worker who is thinking of joining the army. Let them see what it means to survive in a war: let them know what they will be asked to sacrifice in order that a minority may grow richer and stronger; let them hear the cries of pain, which are but echoes of strident nationalist rhetoric. After the Falklands war they called Margaret Thatcher the Iron Lady. But iron doesn't burn; skin does.


Terrace war
In the South Atlantic workers were paid and given medals for behaving like thugs. In Brussels, where the actions of certain so-called football supporters led to thirty-eight deaths, the violence was not ordered by the government and we are therefore expected to be full of condemnation.

Turning on the football only to watch a two-hour riot was a miserable experience. Here were workers wasting their energies in a fool's war between one set of wage slaves and another. The sport experts in the studio, led by Jimmy Hill, became more and more like propagandists for state violence. Hill proposed bringing back national service; the studio team agreed. Terry Venables suggested giving all football hooligans a minimum prison sentence of five years; there was no dissent from his fellow pundits. From the stadium in Brussels, the Ayatollah Bobby Charlton proposed a revival of good old corporal punishment. This is what happens when sports commentators panic and become so frightened by the ugly symptoms of the present system that they have no concern for the cause. The crescendo of repressive propositions coming from the TV set that night showed just how easy it is for fear to give rise to totalitarian solutions. And television allows the cultivation of such collective hysteria to be even more controlled by the state than it was in Europe in the 1930s.


Commodity-talk
Millions of people have been trained to think about what they buy through advertising slogans. They go into the grocer for a packet of "exceedingly good cakes" and some "prolongs active life" for the dog; in the sweet shop they pick up a "helps you work, rest and play" bar and perhaps "Just one Cornetto" — to the approved tune, of course; then on to the travel agent to book two weeks in Benidorm with "Well take more care of you"; down to the garage to pick up the "Vorsprung durch Technik" and fill it up with a few gallons of the petrol which "you can be sure of". It is hardly surprising that a buying and selling society has taught the consumers to go in for commodity-talk. Think of all the language we'll lose in a world of free access: no more mindless slogans and jolly tunes to persuade us to buy shoddy brand A rather than bargain brand B. In a moneyless society I suppose we will have to learn to survive without the ad-men telling us what we want.

Steve Coleman

Questions Answered (1985)

From the July 1985 issue of the Socialist Standard

You in the SPGB agree with and teach the Materialist Conception of History and the Labour Theory of Value. You kicked off in 1904, but what have you contributed to the Socialist Movement, what else have you learnt or taught?

Before answering this question it is appropriate to state what the Socialist Party of Great Britain has not done. The problems facing the working class under capitalism broadly come under the headings War, Want & Insecurity.

The British capitalist class have been involved in two major wars in this century. The SPGB has not encouraged the working class to lay down their lives to maintain British capitalism or to defend the revolution, "gone wrong” or not, in Russia. In the First World War we issued a statement pointing out that war was endemic to capitalism and that only socialism could end war:

  Having no quarrel with the working class of any country, we extend to our fellow workers of all lands the expression of our good will and socialist fraternity, and pledge ourselves to work for the overthrow of capitalism and the triumph of socialism.

In the 1914-18 war the Labour Party urged workers to fight in order to “crush militarism and end all war". It supported the 1939-45 war for "freedom and democracy". and promised a programme of social justice after the war. Organisations "left" of the Labour Party either supported the war to defend Russia, or because they thought the Russian revolution was socialist but had taken the wrong path and needed to be preserved to get it back on the correct one. The SPGB in 1918 had pointed out that Russia could only develop state capitalism — a fact widely accepted today.

Want & Insecurity are both endemic to capitalism. When the Beveridge Plan was proposed, workers were to be given the princely sum of £2 a week benefit. Conservatives and Liberals endorsed this amount. The Labour Party, the Communist Party and the Tories entered the market offering £2.10. £2.50 and £3 benefit respectively. The SPGB issued a pamphlet Beveridge Re-Organises Poverty. How right we were. Another policy in the left s attack on want is nationalisation; they all advocated it, and trade unionists supported it thinking that industries were being brought under common ownership and that they would take part in the control of their industry. The SPGB has continually pointed out that nationalisation is not socialism, but state capitalism. There is no evidence that nationalisation has guaranteed security for the worker. In some respects the worker is worse off, having no alternative employer.

With the fear of atomic annihilation and the periodic crises of capitalism, increasing the unemployed from hundreds of thousands to millions, in no way can it be argued that workers are any more secure today through the efforts of Labour governments. They have instituted reform after reform, but they have been powerless to remove any problem facing the working class.

Marx had another theory as well as the two mentioned in the question: the Theory of the Class Struggle. In any suggested political, social or economic programme the socialist asks: "What is in it for the working class as a whole in the long run and what are the consequences for the capitalist class?" The capitalist class want their system to run smoothly and so will offer reforms that may give temporary benefit to a section of the working class. Similar reforms advocated by organisations that have mass misguided support from the working class may also be acceptable to the capitalists. This is the reason why the parliamentary parties keep complaining that the other parties have stolen parts of their programme. Reforms do not change the basic structure of capitalism and do not endanger the class ownership of the means of production and distribution.

We have learned the correctness of the analysis of capitalist society made by our founder members, and which they detailed when they compiled the Object and Declaration of Principles.

We have taught:

• That the capture of political power is essential before any fundamental change in the social system can be made.
• That leadership is a necessary principle for capitalist society whereas the socialist revolution requires the conscious understanding and participation of the majority of the working class.
• That a socialist party cannot advocate reforms of capitalism, must not encourage support from non-socialists. and must be independent of all other parties.
• That socialism can only be a world-wide system, and therefore must be a world wide (not inter-national) movement; to this end the growth of companion organisations in the USA, Canada, Australia, New Zealand, Ireland, Austria, Sweden, as well as members in Belgium and France, demonstrates the developing geographical spread of socialist ideas.
• That there is no need for a transition period between capitalism and socialism.
• That all wars must be opposed, without distinction between alleged wars of defence, offence, or opposition to tyranny.
• That nationalism will not exist in socialist society.
• That taxation is a burden on the capitalist class and not on the working class, whose take-home pay must approximate at least to the minimum of wages in order to reproduce the commodity labour-power.
• That all Socialist Parties in different areas of the capitalist world must be open, democratic parties, with no leaders, no closed or secret meetings, with all members of equal footing, operating by majority decision, and thus demonstrating the society they seek to establish.
• That capitalism will not collapse of its own accord, but crisis will follow crisis until the working class of the world unites to abolish it.

Ken Knight

Tiny Tips (2012)

The Tiny Tips column from the February 2012 issue of the Socialist Standard

The majority of psychiatrists, psychologists and other mental health professionals “go along to get along” and maintain a status quo that includes drug company corruption, pseudoscientific research and a “standard of care” that is routinely damaging and occasionally kills young children:

[Dead Link]

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If the federal minimum wage had been updated since 1974 using the Social Security yardstick, it would now stand at $10.74 an hour. In other words, after adjusting for inflation minimum wage workers today are paid less — about 26 percent less — than they were in 1974:

[Link]

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Rape within the US military has become so widespread that it is estimated that a female soldier in Iraq is more likely to be attacked by a fellow soldier than killed by enemy fire:

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The number of empty houses in England has risen by nearly 12,000 to stand at 662,105:

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Homeless men live to an average age of 47 while women who live rough generally die four years earlier, new figures show:

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“At one major investment bank for which I worked, we used psychometric testing to recruit social psychopaths because their characteristics exactly suited them to senior corporate finance roles.”

[Link]

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She holds in even greater contempt the Islamist parties that have emerged in the first rounds of Egypt’s elections as the revolution’s biggest winners. Though a devout Muslim who covers her hair, she thinks politics and religion shouldn’t mix. The Islamists, she says, “have hijacked the revolution.” “I hate them,” she says. “The real owners of the revolution are the workers.”

[Link]

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With over 20 million internet users and growing fast, Pakistan has managed to secure the number one slot for searching the term ‘sex’ globally for all years:

[Link]

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Airlines’ accident risk is highest when they are performing very close to their financial targets, according to a study by a professor in BYU’s Marriott School of Management:

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Software developed for closed-circuit television systems can identify individuals and track them across entire networks of cameras:

[Dead Link]

Greasy Pole: Getting on at Westminster (2012)

The Greasy Pole column from the February 2012 issue of the Socialist Standard

How would an ambitious politician make their way in the world if not through attracting the maximum of attention to themselves? Regardless of the effect on our limited reserves of patience and of the cruel reality that whatever attention they get only reveals their self-publicity as a substitute for any kind of talent?

Louise Mensch is the Conservative MP for Corby in Northamptonshire, a seat which she wrested from Labour junior minister Phil Hope (whose talents include tap-dancing and juggling) in the 2010 election. Corby was a steel town stricken with unemployment when the industry was shut down in the early eighties. Mensch benefited from David Cameron’s controversial “A” list designed to ensure that Tory constituencies select their candidates free of any bias about their race or gender. One of their MPs protested about the party choosing such a “minor celebrity” – possibly a reference to Mensch being the author of (and making a lot of money from) a series of “chic-lit” novels with names like Glitz and Glamour. Since arriving at Westminster she has arranged to have herself persistently in the news, among other things aligning herself as one of a group of “Tory feminists” who may have had their reservations about a member who profited so well from what she described as ”escapist female fantasy”. Similarly in 1998, when she was in the United States churning out another of her financial masterpieces – Venus Envy – she wrote in the Daily Telegraph about her intention to flush out a suitable husband. This produced an acceptably wealthy property developer, Anthony LeCicero.  He was replaced in 2011 by Peter Mensch, promoter of rock stars, who aroused in her “strong feelings of hero-worship”.

Tory and Labour

Born into a family described as “Catholic gentry”, with a stockbroker father, Mensch was prepared by boarding school in Surrey for the boisterous style of her employment and political career. When she was 14 she was inspired enough by Margaret Thatcher to join the Conservative Party but after about ten years she was equally impressed by Tony Blair as “socially liberal but an economic Tory” and switched to the Labour Party, only to return to the Tories a year later. Justifying these changes, bewildering even to anyone who had been able to follow them, she said, “I’m proud to say I was once in the Labour Party. It shows I think for myself…” which was rather weakened by “…but I don’t judge anyone, and I don’t like politicians who do”. During this time she was working in the press office of EMI Classics, from which she was later fired because she was said to be a “bad influence” on their client, the famous violinist Nigel Kennedy. The matter of who was being influenced was confused by the allegation that they had been taking drugs together in a night club – which, she agreed, “…sounds highly probable …we all do idiotic things when we are young” – the same evasion as used by David Cameron when that same question was put to him.

Commons Committee

But how has she fared in her new, exciting job as a representative of the people at Westminster? Her most prominent role has been as a member of the House of Commons Culture, Media and Sport Committee which at one time might have been a kind of refuge for insomniac Members but now, with the probing of the Murdoch empire’s phone hacking, has become a focal point of popular attention. Well, Mensch has been alive to the opportunity before her, casting off that avowal about not judging others while she busily probed and condemned, so that the normally staid Economist  eulogised her as the: “surprise star,” with her “sharp, precise, coolly scornful questions”. Perhaps this praise was too much for Mensch for she was impulsive enough to say in the committee that the ex-editor of the Daily Mirror, Piers Morgan, had stated in his autobiography that in that job he oversaw phone hacking. Morgan angrily challenged this but Mensch refused to back down and tried to take refuge in parliamentary privilege, making matters worse by misquoting a page from Morgan’s diaries. Eventually she had to withdraw her accusation and retire to soothe her wounded conceit. Until, that is, she popped into the news again after the August riots in London and elsewhere, suggesting that at times of such crises the Twitter and Facebook services should be closed down to prevent them being used as a method of summoning and directing the rioters. She did not seem to be aware, until it was gently pointed out to her, that the police use those services themselves at such times.

Starbucks

The anti-capitalist demonstrations outside the Stock Exchange and St. Paul’s gave Mensch another chance to expose her impetuous need for self-exposure when during the 22 October edition of Have I Got News For You she complained that while the demonstrators claim to oppose capitalism they are happy to accept what the system brings to them: for example coffee from the nearby Starbucks and nights spent in “very smart tents” on the pavements. The Have I Got News For You  regulars Ian Hislop and Paul Martin had problems dealing with such a naïve, ignorant, undeveloped argument so that at one stage Hislop said he would have to give up trying: “It’s all so obvious,” while Mensch did her best to conceal her chagrin behind a succession of grotesquely fixed and humourless “smiles”. For some politicians the experience of repeated exposure to such ridicule and contempt might have been overwhelming, but Mensch is driven by an unusual energy. A couple of months later she was whinging to GQ:  “I’m not even a Parliamentary Private Secretary. It’s kind of annoying. What do I have to do to get promoted here?” Well perhaps she might start by recognising that she has chosen to immerse herself in the business of capitalist politics where remorseless failure has seen off so many before her. Then she might make a clean breast of it to the voters of Corby.

Ivan

Where Money Comes From: A Reply to the New Economics Foundation. (2012)

Book Review from the February 2012 issue of the Socialist Standard

In a 140-page booklet entitled Where Does Money Come From? the New Economics Foundation (NEF), a greenish think-tank, set out to refute one theory of the nature of money and banking and replace it by another which they consider more accurate.

Money

“What is Money?” is not just a question of fact but of definition. “We disagree with the view of money as a commodity,” says the NEF, “and show instead that money is a relationship of credit and debt” (p. 9). More boldly, they declare “money has never been a commodity” (p. 51).

In Classical Political Economy (Adam Smith, David Ricardo, John Stuart Mill), and in Marx too, a commodity is an article of wealth produced to be exchanged. Wherever commodity-production has been widespread one commodity has emerged that can be exchanged for any other commodity. To be able to be such a “universal equivalent” this commodity must have its own intrinsic value, i.e. must also be the outcome of a certain amount of labour; otherwise nobody would exchange the product of their labour for it.

Other commodities have functioned as the universal equivalent, but in the end it was the precious metals, gold and silver, that proved the most convenient (because of their divisibility and their concentration of value in a relatively small bulk). To make things even more convenient states eventually stamped pieces of gold and silver as a guarantee of their weight and value. Hence coinage, which is still the popular idea of what money is.

To deny that the commodities that have functioned as a universal equivalent were “money” is to give a quite new definition of what money is. The NEF don’t deny that to be called “money” something has to be, as in the traditional definition, a medium of exchange, a store of value and a unit of account.

If they had just claimed that, today, money is not a commodity, they would have had a point. But to claim that no commodity has ever served as a medium of exchange, store of value and that accounts have not been kept in units of it, is clearly at variance with the historical facts. But, to sustain their definition that money is essentially a “social relationship of credit and debt”, they had to make this extravagant and historically incorrect claim. They are right, however, to see money as a social relationship but it’s one between buyers and sellers rather than creditors and debtors.

It is true that it does seem strange to still describe money today as a “commodity”, even though modern money does have a commodity ancestry. Modern money consists of paper notes and metallic coins that are accepted in payment (of taxes and debts as well as to buy things). These notes and coins have virtually no intrinsic value; they are like all-purpose, re-usable vouchers that can be used for any payment, just as the old commodity-money (such as gold) could be. We know where they come from: the state, which issues them via its central bank or finance ministry, and makes their circulation and acceptance compulsory. Because such money is entirely a state’s creation it is sometimes called “fiat” (“let there be”) money.

Purchasing power

“Money” and “purchasing power” are not the same. If they were, the total face value of the currency would have to be equal to the value of all the newly produced wealth. One feature of money (in the classical sense) is that it circulates: one coin or note can be used for many transactions. Hence the concept of the “velocity of circulation” of money. The amount of money needed by the economy to make payments is thus not the total value of these payments but this divided by the velocity of circulation of money.

One thing banks do is to reduce the need for cash. They have done this ever since, in the 17th century, they became an important feature of the capitalist economy. In addition, through clearing houses, they settle payments without the actual transfer of cash. Nowadays the vast majority of transactions are made through banks using cards, cheques and bank transfers, with cash (notes and coins) reduced to being the small change of the economy.

What this means is that today most purchasing power is exercised via the banks. But can banks create extra purchasing power that did not exist before? The NEF are in the tradition of economic thinkers (and monetary cranks) who have said “yes”. In the past the argument used to be that banks could create extra purchasing power in the form of “credit”.  Nowadays, as the distinction between deposits in banks made by savers and deposits created by banks for borrowers has become blurred, the same idea has come to be expressed by saying that banks can create new “money”.

Though this looser definition of money is popular today, even those who favour it feel obliged to distinguish between traditional money (today, notes and coins issued by the state) which they call “base money” and “bank money” (bank loans).

Calling bank loans “money” instead of “credit” doesn’t alter the facts. When banks make a loan, or extend credit, they do enable idle purchasing power to become effective; they do allow spending to take place – which is something that modern governments do strive to control. But the basic question remains: when banks make a loan do they create new purchasing power?

Purchasing power is generated in production as added value and is distributed in the first instance as the wages and salaries of productive workers and as the profits of capitalist firms. A large proportion is later redistributed by the state as “transfer payments” to others, via taxes and public service salaries, pensions and other state payments. But National Income (total new purchasing power) and National Product (total new value added) are always equal (there is no built-in or chronic shortage of purchasing power compared to new production, as economic theorists known as ‘underconsumptionists’ claim).

Some of the purchasing power is saved (not spent) by the recipient on consumption. When income is saved it is not simply hoarded. It is typically deposited in a bank or a building society. The bank doesn’t hoard it either. It lends it to someone else to spend: to capitalist firms to expand production; to the government; or to workers (to buy a house or a car or a holiday). It should be clear, then, that such bank loans come out of income (purchasing power) that others have saved (refrained from spending themselves).

Banking a fraud?

This, however, is not clear to the NEF. In fact, they vehemently deny that this is the case. They attack the view that banks are financial intermediaries whose core activity consists of “taking money from savers and lending it to borrowers” and even criticise the recent Independent Commission on Banking for accepting this view. They declare:

“private banks can really create money by simply making an entry in a ledger” (p. 5).
“when a bank makes a loan it does not require anyone else’s money to do so” (p. 21).
“Banks create brand new money whenever they want by extending credit or buying assets” (p. 100).
“Those with the power to create new money have enormous power – they can create wealth simply by typing figures into a computer” (p. 51).

That banks can lend something they haven’t got is an extravagant and extraordinary claim. The NEF attempt to trace this back to goldsmiths in seventeenth-century London who, they claim, as custodians of other people’s money, adopted the practice “of issuing deposit receipts to a value greater than the value of the deposits the custodians actually possessed – a practice that would later be described as fractional reserve banking” (p. 35).

If goldsmiths did do this, it would have been fraud. In theory they could have done but there is no historical evidence that this was the normal and widespread practice that the NEF and others allege it was.

Because they think that banks today behave like they imagine the London goldsmiths did, the NEF describes modern banking as an “innocent fraud”. They have also misunderstood the nature of “fractional reserve banking”. It merely means that anyone taking in someone else’s money can safely lend only a proportion of it, a “fraction” having to be retained as a “reserve” against likely withdrawals.

The NEF claims that, “commercial banks can be seen to generate ‘special profits’ from their power to issue money in the form of credit through the interest charged upon loans and used overdraft facilities” (p. 68) and that “bank loans are rather special since they do not cost the bank anything to create, but the bank can charge very profitable rates of interest on them”. (p. 97)

But there is nothing special about bank profits compared to those of other businesses. Banks do not make their profits by charging interest on loans they conjure up out of thin air. Their income comes from the difference between the rate of interest they charge borrowers and the lower the rate of interest (if any) they pay savers. Their profit is what remains after they have paid the expenses of the business (buildings, computers, staff salaries).

Incredible credit unions

Any organisation that lends other people’s money has to keep a part of what is deposited with it as cash but can lend the rest, and so practises “fractional reserve banking”. The NEF does not shrink from this logical deduction from their position and asserts that banks are not the only organisation that can create money (new purchasing power) out of nothing:

 “Building societies and credit unions also have the right to create money through issuing credit” (p. 18).

A credit union, as a mutual society in which members save and lend to each other, is a good example to judge whether or not a lending organisation can lend more than has been saved with it. Merely to pose the question is to answer it – with a ‘No’. The only source of what a credit union has to lend is what its members have paid in; the loans it makes come entirely out of this.

Suppose that a credit union tried to lend more than had been saved with it. If its loans were payable in cash, clearly it would be impossible to hand out more cash than it had. If the loan were paid out by a cheque or some other kind of money order, if more of these were issued than the union had in savings then not all of them would be able to be honoured. The union would go bankrupt. The same would apply in the case of electronic transfers.

Building societies were originally like credit unions – members saved to be able to later get a loan to buy a house, their money in the meantime being loaned to other members to buy one – but these days they accept savings from anyone. But what they can lend is still limited by what has been saved with them. Building societies are in competition with each other and with banks to attract savings. If they could simply give a loan by typing figures into a computer then they wouldn’t be under such competitive pressure.

Banks are no different in principle from building societies and credit unions, although the link between savings with them and the amount of loans they can give is perhaps not so obvious. They can lend more than has been saved with them, but only by borrowing from elsewhere (“wholesale” from the money market, as their jargon puts it).

Banks cannot create extra purchasing power; they can only redistribute it from those who don’t want to use for the moment (“savers”) to those who need money to spend immediately, whether for consumption or investment (which is really spending on production). Contrary to what the NEF asserts, banks essentially are financial intermediaries.

Central banks

The NEF seems to have been carried away by its own arguments when it claims that commercial banks (and, by inference, credit unions) create new money not only when they make a loan but even whenever they spend any money, as on buildings, computers and the wages and salaries of their staff:

 “the bank creates new money when it buys assets, goods or services on its own account, or pays its staff salaries or bonuses” (p. 57).

This is an own goal as it would mean that to set up a bank you wouldn’t need any capital. You could go to an internet café, conjure up some money by typing some figures in a ledger and then spend it to buy a building and hire staff, which is ridiculous.

There is, however, one type of bank that can and does do this – a state’s central bank. A central bank can create purchasing power out of thin air and use it to acquire assets, as recently with so-called “quantitative easing”. However, this action does not create any new wealth (that can only be done by people actually working, not by any bank operation). It is popularly called “printing more money” but this does not necessarily involve in the first instance actually printing more bank notes. The new purchasing power is created in the way the NEF mistakenly thinks commercial banks can do it, electronically as digital money, though with quantitative easing it is a temporary phenomenon.

Conclusion

Banking is neither a form of magic nor a fraud. Those who believe that it is (and the NEF is far from being alone in this) are led to waste their time campaigning to reform something which doesn’t exist. In fact, the situation most of them want to achieve – control of the creation of nominal purchasing power by the government instead of by private bodies that profit from it – is what already exists but they can’t see it.

Adam Buick

Cooking the Books: Profitability (2012)

The Cooking the Books Column from the February 2012 issue of the Socialist Standard

Every quarter the Office for National Statistics (ONS) publishes figures for the ‘profitability’ of UK non-financial companies. The latest are for the third quarter of 2011. They showed that the “net return on capital employed” for all companies was 12.9 percent. For manufacturing it was 5 percent, for services, 15.9 percent and for North Sea oil and gas companies, 60.5 percent.

Over the last ten years the annual average has been around 16 percent for services and 9 percent for manufacturing.

Why the difference between these two sectors? Surely, according to the way that the competitive profit system that is capitalism works, capital should flow out of manufacturing and into services until the rate of profit is the same for both, as Marx explained in the section of Volume III of Capital on the averaging of the rate of profit.

The explanation lies in the fact that the rate of profit used by the ONS is not the same as in Marx.

There is no problem with the definition of ‘profits’ which are defined as “that part of a company’s income which arises from trading activities” less depreciation but “before payments of dividends, interest and tax”. It’s “capital” that is the problem. Here’s how the ONS calculates ‘profitability’:

 “Profitability is defined as the net rate of return on capital employed. That is, it is the value of profits (allowing for depreciation) divided by the value of fixed assets (allowing for depreciation) and inventories.”

In other words, “capital” is defined as fixed assets, i.e. buildings, machinery, office equipment and the like, or “fixed capital”. But this is not the only part of capital as it excludes “circulating capital”, i.e. the capital invested in what is entirely used up in the course of production (material, power, labour).

Marx divided capital in another way. That part whose value was only transferred, whether wholly or gradually, to the product (which he called “constant capital”) and that invested in employing productive labour (which he called ‘variable capital’ because, besides transferring its own value, it added new value).

So, the rate of profit in Marx is the ratio between profits and total capital while the ONS’s rate is the ratio of profits to fixed capital only. This is not even how companies calculate their rate of profit and its only usefulness would seem to be to record short-term variations in profits.

The different rates that the ONS formula results in for service and manufacturing companies does, however, neatly illustrate another point Marx made.

Marx argued that because the tendency under capitalism was for constant capital (mainly fixed capital) to increase more than variable capital (productive labour) – in economic textbooks, ‘capital intensity’ – and because variable capital alone generated profits, there was a tendency for the rate of profit to fall. This could be shown mathematically but wouldn’t necessarily happen in practice since there were counter-acting tendencies, notably an increase in the exploitation of labour and the cheapening of fixed capital.

Since manufacturing is more ‘capital intensive’ than services, if you compare profits to fixed capital you would expect this ratio to be less in manufacturing. Which is precisely what the ONS figures show.

How explain, then, the huge ‘rate of return’ on fixed capital in North Sea oil and gas which is a more capital intensive industry than most? It’s that most of their ‘trading profits’ are ground rent rather than profits proper.

Oil and gas have the same price on the world market wherever they are extracted but the difficulty and so the cost of extraction varies depending on geological conditions. The price is set by the most costly oil and gas fields, which means that the less costly ones get an extra, windfall profit that is actually ground rent. In Saudi Arabia and the Gulf States it goes to enrich the despots there. In Russia, it has created oligarchs. In Britain, it is largely taxed away by the government.