|Page 1 Image
|Page 2 Contents
|Page 3 Editorial
|Page 4 Pathfinders
|Page 5 Letters
|Page 6 Material World
|Page 7 Cartoon
|Page 8 Pieces together
|Page 8 Contacts
|Page 9 Suffer the little children under New Labour
|Page 10 as above continued
|Page 11 World Poverty
|Page 12 as above continued
|Page 13 Tourism : can it be green?
|Page 14 as above continued
|Page 15 Too little, too late
|Page 16 Capitalism versus nature
|Page 17 Cooking the Books 1 Passing on costs
|Page 18 Capitalism: no deal
|Page 19 Cooking the Books 2 Profits before homes.
|Page 20 Books Reviews Oil and the Rest,Disaster capitalism, Workers against the Bolsheviks.
|Page 21 Meetings
|Page 22 50 Years Ago :Socialists and General de Gaulle
|Declaration of Principles
|Page 23 Greasy Pole:Weasels at Westminster
|Voice From the Back
|Free Lunch cartoon
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Dear Editors,
Under the heading
"Working classes 'have lower IQs'" the BBC reported on 22 May:
"Working class people have lower IQs than those from wealthy
backgrounds and should not expect to win places at top universities,"
an academic has claimed. Newcastle University's Bruce Charlton said
fewer working class students at elite universities was the "natural
outcome" of class IQ differences. The reader in evolutionary psychiatry
questioned drives to get more poorer students into top universities".
(http://news.bbc.co.uk/1/low/england/tyne/7414311.stm)
So that's why I'm a bit
thick and should know my place.Or does it say something about the
validity of IQ testing or the disadvantage of just being poor and the
limitations to knowledge opportunity? Or does it say something about a
'science' that justifies the status quo or about what is 'science' in
this field of biological determinism which justifies the fundamental
'rightness' of our social organisation based on a hierarchy where those
with the highest IQs take their natural place?
Obviously university is not the place for me if this is the type of thinking that goes on there. I'm the better for it. I wish I hadn't been born stupid but apparently it's quite natural. I should respect my betters with their superior intellect. I'm not a prisoner of my genes but of my limited intelligence. I know my place!
Stuart Gibson, Bournemouth
MP's pay
Dear Editors,
The ongoing row
over MP's pay and allowances obscures that those elected to Parliament
will always receive a remuneration far superior to the average income
of their constituents regardless of what punitive measures are taken to
masquerade it as greater equability.
Contrary to the
conventional wisdom, MP's aren't elected to the House of Commons to
represent their constituents in the running of the country's best
economic and social interests. They are elected to assist in the
running of capitalism's best interests and whatever personal style they
choose to deal with the problems they encounter at their surgeries (all
of which inevitably have their genesis in the traumas of the system),
what they do and say will always be dictated by this factor.
Now that the
underlying rottenness of the system is becoming more evident in the
form of banks running dry, home repossessions, and global stagflation
even the most opportunist of MP's particularly if they've used New
Labour as a political career platform are placed in a dilemma in how to
explain the economic crisis to their anxious electors particularly if
those electors actually voted for them personally.
Consequently the
whole purpose of such excessive remuneration packages they receive is
to act as an inducement to ensure that all of them, particularly if
associated with the left, act in the highest traditions of
parliamentary etiquette and bi-partisan propriety so that none, apart
from the odd maverick who can easily be marginalised, dares to
challenge the wisdom in Parliament that there isn't an alternative to
capitalism and the global chaos it causes when there quite clearly is!
This issue has all
been comprehensively laid bare by New Labour's electoral drubbings in
recent local elections and the Crewe and Nantwich by-election. Tory
leader David Cameron was ironically 'right' when he said afterwards the
results heralded the end of New Labour but not for the reason he
infers. After ten years of an economy tied to the US dollar and credit,
voters actually rejected the neoliberal economic policies New Labour
had stolen from the Tories so that in effect politics, like the housing
market has plummeted into a type of 'negative equity' where voters
reject Tory policies by New Labour yet vote in official Tory candidates
on the other.
Such apathy will persist as long as MP's are paid in a way that buys them off to defend or play down the woes of the system, regardless of what their previous political leanings were.
Nick Vinehill, Snettisham, Norfolk
Would you credit it?
Dear Editors,
In your reply to my last
letter (Socialist Standard, May 2008), you deny that banks create money
by lending. This flies in the face of the facts ... see any book on
economics! How else do you explain the huge increase in the money
supply over recent decades?
Yes, they do have
to balance their books - so when they make a loan they account the
money put into the borrower's account as a liability, and balance their
books by entering the debt taken on as an asset. If the loan is not
repaid, and has to be 'written off', then their books do not balance -
hence their present woes.
You really ought to
study the system. The fiction that they only lend money deposited with
them is promoted to confuse the general public about this matter.
(At the end of the last
World War, the government still did create almost half of our money -
the notes and coins - and spent it into circulation; but with the
decline in use of these, it now only provides about 3%, the rest being
created by banks and other 'financial institutions'.)
Brian Leslie (by email)
Reply:
We have been studying the
system for over 100 years and it is because of this that we know that
banks are financial intermediaries who channel and distribute
purchasing power rather than 'create' it. The idea that they can create
vast multiples of credit from a given deposit base is a total fiction -
it is theoretically incorrect and empirically unsupportable.
It was a view that
gained credence because of the 1931 MacMillan Committee Report into
Finance and Industry that was written in large part by John Maynard
Keynes. You may be interested to know that a significant minority of
the Committee at the time opposed the view promoted by Keynes and
several of those who went along with it did not understand or realise
the implications of what they had signed up to - and we know this
because some of our members at the time (including a member of the
Editorial Committee of this magazine) were in correspondence with them
about it.
Interestingly, in
his most renowned work, The General Theory of Employment, Interest and
Money (1936) Keynes effectively abandoned the view he had promoted on
the MacMillan Committee just a few years previously, stating that "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".
Indeed, what the
simplistic model used in the Report had assumed was that banks kept a
certain 'cash ratio' back for customers to access as a proportion of
whatever is deposited with the bank (10 percent was assumed at the time
though these days this would be far less). They then assumed that the
whole of a new deposit by a customer could be held in cash to underpin
the creation of credit nine times its value (i.e. operating with a 10
percent cash reserve an initial £1,000 deposit would enable the
creation of £9,000 worth of credit). Bizarrely, it also then assumed
that this cash was never called upon in practice. In other words, for
the model to hold, they correctly assumed that banks kept cash in
reserve for customer use, but then assumed that nobody ever withdrew
any of it!
Very few economics
textbooks today repeat this nonsense. Instead, they typically promote
the version put forward by Paul Samuelson among others which explicitly
rejects the approach used by the MacMillan Committee in favour of a
multi-bank model. However, this model does not demonstrate anything
more than that currency circulates around the banking system and can be
used more than once in the process of customers' creating bank deposits
- as opposed to banks somehow creating multiples of credit from these
deposits (the July 1990 Socialist Standard dealt with this particular
model in more detail).
If banks could
create vast multiples of credit from their deposit base then the recent
problems of Northern Rock and others would never have occurred. In
reality, their problems arose precisely because they wished to lend out
more than had been deposited with them and to do this they had to
borrow 'short' on the money markets to finance their long-term loans
and mortgages. When inter-bank lending rates hit the roof, the game was
up - and the Bank of England and the Treasury did not just tell them to
go away and create some more multiples of credit from their deposits.
Traditionally,
banks have covered most of their loans through the generation of
deposits by customers; Northern Rock was unique in that in its dash for
growth it allowed its ratio of deposits to loans to go down to under a
quarter, an unprecedented level in UK banking history (it was around
£24 billion in deposits set against around £113 billion in loans and
other assets at the time of its major crisis). The difference was not
made up through 'credit creation' but simply by borrowing on the money
markets at the prevailing inter-bank rates of interest, as can be seen
from an examination of its balance sheet.
Similarly, the
current £12 billion discounted 'rights issue' of new shares by the
Royal Bank of Scotland is an attempt to shore up its asset base partly
because of losses it has made on investment vehicles tied to the US
sub-prime mortgage crisis. So again, much to the chagrin of their
shareholders, there is no easy way out of this crisis for banks by
attracting some more deposits and then creating vast multiples of
credit from them to magically cover their losses.
Editors
| Socialist Standard July 2008 | 5 |