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Bank Lending

'Militant' Confusion About Inflation

The West London supporters of Militant (the Trotskyite group which still believes in infiltrating the Labour Party) have recently republished a pamphlet, which first appeared in 1977, entitled Inflation and the Financial System.

It begins by explaining, using arguments first developed by Marx in Value Price and Profit, how a rise in wages leads to a decrease in profits rather than an increase in prices and goes on to draw the correct conclusion that

“since we have a paper currency which is not convertible into gold, inflation is caused by the printing of paper money in excess of the actual requirement of circulation.”

Cooking the Books - No One’s in Control

SINCE WORLD War Two governments have adopted various policies to try to control bank lending. This, to try to make the economy work smoothly without booms and slumps or “stop-go” as it used to be called. They are still trying.

At first they tried fixing a limit on the total amount of bank loans. Then they required banks to hold a given percentage of their assets as cash and hoped to influence  bank lending by increasing or decreasing this (this was known as “fractional reserve banking”, though this term has since taken on a wider meaning). This in turn was eventually abandoned in favour of trying to influence bank lending by manipulating interest rates.

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