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It is worth recording that the Communist Party of Britain, the legitimate political heir of the old CPGB, is changing its policy of how it advises workers to vote.
In the June issue of their paper Unity, their General Secretary Robert Griffiths is reported as saying that
“it was clear that the traditional advice to vote Labour where no Communist is standing could no longer apply”
and that there were “a growing number of socialist, progressive and Communist candidates” who would deserve support in future elections.
This represents a major change of policy on their part.
Incidentally, the same issue confirms that the CPB now supports the present Chinese government saying that “China are now building a modern socialist nation”.
If you believe that you’ll believe anything.
Looks as if Reform is trying to outflank on their left not just Labour but the Trotskyists too. Here’s a report of what Farage said yesterday in speech in Port Talbot in South Wales:
“He went on to say that a Reform government in Cardiff would reopen coal-mines in the South Wales valleys…”
I don’t know if any Trot promising that not even as “transitional demand”. Mind you, it is not self-evident that people there will want their kids to have to work down the pits to earn a living.
Meanwhile his deputy, Richard Tice, has been having a go at the bankers that the Left likes to hate, with his “attack on Bailey [the Governor of the Bank of England] for creating money out of ‘thin air’ to enrich City bankers”.
It sounds as if Reform might be a good hunting ground for Trotskyist “entryists”.
There is a serious point here, though. Left Populism and Right Populism use the same demagogic promises in a bid to lead “the masses”. It could even be said that Left Populism paves the way for their Rightist rivals.
Two articles on this here:
By coincidence, just after sending the post above I read this story in the papers:
It’s about the increase in the commercial banks’ reserves with the Bank of England resulting from the government bonds (and some corporate ones) that the Bank bought from them under Quantitative Easing. These reserves were increased by the Bank paying for them by adding to them (from “thin air”, as Tice correctly puts it — but which only a central bank can do, not a commercial bank). However, the banks didn’t put the new money into circulation but kept it there and banked the interest.
In some other countries the central bank doesn’t pay interest on the reserves it requires the commercial banks to deposit with it.
1. I think we are agreed, Link, that, if a government issues more of an inconvertible paper currency (one not convertible on demand into a fixed amount of gold) than the economy requires, this will lead to a rise in the general price level. This assumes a value relationship between commodities that is unaltered irrespective of the number of such paper “money tokens” that are issued. (Where there is a paper currency that is convertible into gold, as was generally the position in Marx’s day, the result is a different; it does not lead to a rise in the price level but to gold coins being withdrawn from circulation). In both cases, the validity of the labour theory of value remains. So I don’t see what argument “presented by the SPGB” is invalid.
2. Yes, I am arguing that only the government (but not commercial banks) can issue money-tokens that, if over-issued, have the effect of raising the general price level. If you chose (or it is chosen) to define bank loans as money, then of course — by definition — banks create money. Including bank loans as money is confusing, but it need not necessarily be as long as you don’t confuse such money with state-issued money-tokens. You would need to distinguish between date-issued “central bank money” and “commercial bank money”.
3. Conventional monetary theorists do in fact do this, as for instance the European Central Bank here:
“To understand how money is made, it’s important to distinguish between two types of money.
Central bank money is backed by a public institution, like the ECB. In the euro area, the national central banks can create this kind of money. It is most visible to citizens in the form of banknotes. Another type of central bank money is the deposits that commercial banks have at the central bank – known as central bank reserves. These are created electronically through our open market operations.
Commercial bank money makes up most of the money that people actually use. It is backed and balanced by the assets held by commercial banks. So it is created by banks expanding their balance sheets. For example, if a commercial bank grants you a loan to buy a car, they create money in this way. And when you repay the loan, the money created disappears.”https://www.ecb.europa.eu/ecb-and-you/explainers/tell-me-more/html/what_is_money.en.html
(Note here the statement that bank loans have to “backed and balanced” by the assets they hold.)
4. Your description of how the central bank gets more money into circulation seems basically correct — that it buys bonds off the commercial banks and pays them by adding (by a keyboard stroke) to the banks’ reserves held with it. The banks can then withdraw this and use it to lend more (provided there is a credit-worthy demand for more loans, which is not always the case, eg in a slump).
5. It is by such “open market operations” that extra money-tokens usually get into circulation rather than by the central bank simply allocating extra money to the government or by loaning money to it by creating money to directly buy government bonds (though these have happened). This is where there appears to be a mistake or maybe a misprint in your description when you write that “Governments only create money by purchasing bonds that are issued by banks and financial institutions”. The government central bank could, I suppose, do that, but in fact the bonds that it purchases are not those that banks themselves issue but government bonds that banks have acquired.
That’s the dilemma of this new breed of populist parties. Financed by capitalists who want a free hand to make profits as they think fit, they are still required to get working class votes if they are going to win political control.
But, like most workers, those with reactionary views still want jobs with good wages and still want the state to still provide pensions and social security payments. So the political side of the populist movement has to promise these. Hitler understood this too which was why he had the word “socialist” in the name of his party.
At some stage the same Musk-Trump split must be on the cards in Britain too with the ReformUK party.
I only recognise two names.
Councillor James Giles billed as leader of the opposition Merton Council. Actually he is the leader of the opposition (such as it is) in Kingston Council where he is one of 2 councillors from the Kingston Independent Residents Group. 47 of the 53 councillors there are LibDems. The two of them represent a one-time Tory ward. Be interesting to see if he uses the word “socialist” on his election statement for next year’s London borough elections. We’ll check of course.
More on him here:
https://en.m.wikipedia.org/wiki/James_Giles_(British_politician)
The other is Karl Vidol, who was the TUSC candidate for Southgate and Wood Green at last year’s general election. A socialist elector there exposed his reformist in the post below here. #262681 of 20 June
Odd though that TUSC should seem to be associated with this group. Maybe he’s not a member of SPEW. Or maybe they’ve sent him to “enter” the group to keep an eye on what’s going on.
Here’s what the Corbynistas seem to be planning for next year’s local elections in London and the rest of England:
https://thecorbynproject.com/independent-councillors-statement/
Woolly and wishy-washy. No definition of why they would want to call themselves socialists.
In an email to a Socialist Party committee dated 25 May, Tony Malone says that XR has abandoned the “3.5% rule” (that a non-violent activist minority of 3.5% is enough to bring a government to its knees and achieve the aim of the movement). He writes:
“The 3.5 percent minority theory was something that is closely associated with Roger Hallam, but was based in empirical research done by Chenoweth and Stephan (2011) on political campaigns from 1990-2006.
Roger was a high profile advocate of this theory when he was with XR, however it does not inform our current strategy.
You can read more about it (including links to the Chenoweth and Stephan (2011) paper) here:Social Movements and the (mis)use of Research: Extinction Rebellion and the 3.5% rule
Hope this helps,
Tony Marone
Public Engagement Working Group”The academic paper he references argues that the rule only applied under autocratic regimes and only to movements overthrow such a regime, to resist foreign occupation, or to seek secession; it didn’t apply in “liberal democracies”.
It’s good that they’ve abandoned this undemocratic tactic, but their website still declares:
“We have a shared vision of change: Creating a world that is fit for generations to come.
We set our mission on what is necessary: Mobilising 3.5% of the population to achieve system change – such as “momentum-driven organising” to achieve this.”Scroll down to “Our Principles and Values”.
Link, before dealing with the main point at issue, of who creates new electronic money, let’s clear up the minor points.
1. Some currency cranks give the impression that banks can create new wealth out of thin air. If this were true then the labour theory of value would be invalid as that would be another source of wealth production to applying human labour to materials that originally came from nature. Your revised theory that banks create new token money though mistaken is not incompatible with the LTV any more than is the (correct) theory that states can create new money tokens. I think we are both agreed that banks can’t create any new wealth or any new value.
2. The quote from investopedia, that a bank running a loan to deposit ratio of over 100% “may” mean that it would have to borrow some of the money to lend, was not saying that such a bank would not have to cover its loans. It might also cover them by using its reserves (of accumulated capital). In practice most of the excess of loans over deposits will be covered by the bank itself borrowing money.
3. When I wrote that a bank had to have assets to cover its loans or acquire some “very quickly” I was referring to the fact that this has to be done by the end of the working day when what one bank owes another is “cleared”. If a bank is in real trouble through over-lending, to prevent collapse it will have to be “bailed out” by other banks or the central bank. That takes longer than the end of the trading day. Of course, as Bijou points out, if this doesn’t happen the bank collapses as has happened in the numerous cases he lists despite them supposedly having the power to conjure up money out of thin air.
Yes. Governments’ spending priorities are (and have to be):
1. Creating the best conditions for profit-making.
2. Military spending, currently openly called “preparations for war spending” (used to be called “defence” spending).
3. Spending on meeting people’s needs (health, education, welfare).
In that order.
The Starmer Labour government is not reluctantly or apologetically applying these priorities as some previous Labour governments have, but openly and enthusiastically.
Another comment on the political scene in Canada from our comrades there.
Note that Carney promises to make Canada the strongest economy in the G7. Starmer has made that promise too for the UK. Obviously one of them is bound to fail. And the one that does will come up with some excuse like “we were blown off course” or “we met unexpected headwinds”.
Doug Ford is the Tory premier of Ontario Province.
How did a war-monger and xenophobic dog-whistler like Starmer get to become leader of the a Labour Party. It just shows how rotten to the core the Labour Party is.
Somebody once suggested here that it was over the top to call Starmer a warmonger. But this headline tells it all:
https://www.thetimes.com/uk/defence/article/nuclear-submarines-war-readiness-qlblwqx2j
The Labour government even wants to involve the whole population on its militarist plans, put us all on a war footing. Bare-faced militarism. His father who called his son Keir after Keir Hardie must be turning in his grave.
1. The point of whether banks’ creating money out of thin air undermines the labour theory of value is easily cleared up. New wealth (use-values) can only be created by the application of human labour power to materials that originally came from nature. Under capitalism wealth takes the form of value and is the result of the application of socially-necessary labour to materials that originally came from nature. If banks could create money from thin air (as your book endorsed) then this would be tantamount to saying that value could be created other than by the exercise of human labour power. It is not incompatible with your revised position that banks create additional money tokens (in the same way that the state can). In fact, that creating an excess of money-tokens would lead to a depreciation of the money-unit and so to a general rise in prices is based on the labour theory of value. Banks don’t create any additional value. I think we are agreed on that point (even if not that banks create additional money-tokens when they make a loan).
2. Opponents of the intermediary theory of banks (that they borrow at one rate of interest and lend at a higher) claim that its supporters argue that what banks lend has to come from “deposits” ,ie money deposited in the bank from outside. But that is not the argument. Such deposits are not the sole source of what banks have to lend. Banks can also borrow from other financial institutions or use their own capital (reserves).
So a high loan to deposit ratio (of a 100 or more) does not mean that some of what banks loan is from thin air (not that you are claiming it does). It simply means that a higher proportion comes from sources other than deposits.
The Investopedia entry on this is quite helpful in understanding this :
“ a 100% LDR means the bank is lending out as much money as it’s taking in—an aggressive strategy carrying a lot of risk. The bank lacks liquid funds to cover withdrawals or unexpected expenses. Plus, when the LDR exceeds 100%, the bank may need to borrow money to fund its lending activities, adding interest costs that cut into its profit margins.”
“As a result, a bank that borrows money to lend to its customers will typically have lower profit margins and more debt. A bank would rather use deposits to lend since the interest rates paid to depositors are far lower than the rates it would be charged for borrowing money”.https://www.investopedia.com/terms/l/loan-to-deposit-ratio.asp
3. I don’t think that banks’ accounting methods prove anything either way. In any event, as explained above, the intermediary theory does not claim that the same money deposited with a bank is directly transferred to the deposit of the person the bank is making a loan to. The claim is only that a bank cannot lend more (mainly electronic) money than it has (or can get quickly).
If we can agree on these three points then we can move on to discuss the real point at issue — when a bank makes a loan, is it creating purchasing power (in the form of electronic token money) that didn’t exist before or is it recycling already existing purchasing power? Or, if you like, can excessive bank lending cause a depreciation of the currency leading to a rise in general price level?
