ALB
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I was going to make the same point, so there is no need to repeat the argument that both lender and borrower can’t spend the same sum of money or activate the same amount of purchasing power (whichever way you want to put it). That would be, to coin a phrase, “cakeism”.
All I need to add on this point is that I was using the word “money” a bit loosely when I used it interchangeably with “purchasing power”. Since money circulates (one note or coin can make multiple purchases or as you describe with a bank loan), there is no need for the amount of money in circulation to be the same as the total amount of purchasing power generated in production as wages and profits. The amount needed depends on its “velocity of circulation”.
More broadly, while classical currency cranks such as Major Douglas (whose Social Credit followers sometimes visit us here and may well do again now I have mentioned them) and mistaken Marxian economists such as Rosa Luxemburg see the flaw in capitalism as being that it doesn’t generate enough purchasing power to buy all that is produced, you seem to be claiming that, on the contrary, it generates too much, hence permanent “inflation” (depreciation of the currency) at least since the Gold Standard was abandoned.
What might be called overconsumptionism as opposed to the others’ underconsumotionism.
I don’t know about that. There are plenty of socialists who are pensioners. Actually I was in a pub when she made her announcement. Those there were happy saying “about time” and “good riddance” Then they said “Bring Back Boris”.
Maybe the Tory membership should decide whether it’s Larry or the lettuce.
I have to say, though, it is a pretty good passing show they are putting on. With Boris trying to stage a comeback, it’s a rival to Coronation Street and EastEnders.
Dealing for the moment just with the case of a single bank, the question is: when it makes a loan is it creating new purchasing power or is it simply redistributing already existing purchasing power?
Banks get money in two main ways: (1) from individual depositors — retail; and (2) on the money market from other financial institutions and banks — wholesale. In both cases, from already existing sources of purchasing power.
Those who deny that banks are merely financial intermediaries assume that those who accept this are saying that banks lend just the money of retail depositors. We don’t. We know that banks also borrow wholesale from the money markets.
It is true that a bank doesn’t necessarily have to have the money before it makes a loan. But it does as soon as the borrower begins to spend that loan. The bank has to transfer purchasing power (and so can’t spend it itself) to the person or shop that the borrower bought something from. I don’t think this is a point of contention as the Critisticuffs pamphlet accepts this in the passage quoted.
Every day there are all sorts of payments coming into a bank (deposits, wages, etc) and going out of it (direct debits, loans being spent, withdrawals to buy things, pay bills, etc). At the end of the day (literally) a bank has to balance these. If, after what it owes other banks and what they owe it have been “cleared”, its outgoings are more than its incomings then it has to borrow money on the interbank lending market.
Banks want to avoid being in this position as they have to pay interest on what they borrow, and this is where the “liquidity management” referred to in the pamphlet comes in.
If incomings are more than outgoings then a bank can lend money on the interbank lending market. This is banks lending money to each other. But it’s a zero sum game. All banks can’t have more money coming in than going out. If one bank has, then some other bank or banks haven’t.
This means that all the loans made by all the banks are covered by — come from — already existing purchasing power. At most what a bank will have done is to increase the amount spent by activating already existing potential purchasing power that might otherwise have lain idle. In fact to activate such latent purchasing power (arising out of past production) can be said to be the economic role of banks.
The Bank of England doesn’t have to assert that the loan a bank makes is the equivalent of state money any more than it does a loan between two individuals.
In fact, how is a bank loan different in principle from any other loan? If Alice makes a loan to Bob she can no longer spend it. Only Bob can. Both the lender and the borrower cannot spend the same sum of money. The basic fallacy of “credit creationist” theories is to assume that they can.
I have now read their pamphlet and it is clear that they are full-blown “credit creationists”. Not cranks who think that a bank can create credit out of thin air. They accept that a single bank on its own can’t:
“The key point here is that Barclays does not need to have £100 in its vaults when it grants Eve an entitlement to £100. However, Barclays must be able to get its hands on £100 when payment in actual money is demanded, i.e. when satisfying payment demands with promises to pay does not suffice.”
Precisely. So making a bank loan does not create any new money by the mere strike of a pen or keyboard, as the real currency cranks claim. All that is created is a promise to pay.
Their argument is that the “banking system”, with the central bank at its centre, can. This is given some plausibility in that the central bank can create money at will and that it gets this into circulation via the commercial banks.
Extra money can be needed for all sorts of reasons, such as an increase in transactions or of the population, so providing this is one of the functions of a central bank. However, if the central bank issues more new money than the economy requires the result will be a fall in the purchasing power of the monetary unit, resulting in a rise in the general price level.
They seem to accept this definition of inflation but argue that it is not due to the central bank issuing too much money but to capitalist firms wanting to borrow too much (in relation to some “heap of commodities”) and the banking system creating the money to lend to them. In other words, a variation of the conventional view that the Bank of England plays merely a passive role and just makes available the amount of money demanded by the economy.
This leads them to a new theory as to how capital accumulation works. Under the heading “Credit is the foundation of capitalist growth” they write:
“This allows businesses to turn their growth and their competitive behaviour upside down. They no longer simply advance their own money, reap the profits and turn those into bigger advances for even bigger profits. Rather, they borrow money against interest, expand their business with this loan, pay the interest with a part of the profit then made and pocket the other part themselves.
Capital growth is not constrained by the profits already made, but only by the business outlook, how promising they are as debtors to those willing and able to extend credit. This alters the calculation for businesses in that profits are no longer the basis for growth. Rather, debt is the basis for this growth and profits must justify the creditworthiness to acquire debt.”This would seem to make debt and interest the driver of capitalist production, turning upside down the traditional Marxian explanation which makes interest a subdivision of profit rather than profit a subdivision of interest-bearing credit.
And there are plenty of firms that, to expand, use their own reserves (from past profits) or raise more capital on the stock exchange, rather than borrowing from a bank.
Anyway, there is something odd about their theory.
I think you are probably right that the Republican politicians are just vote-catchers trying to use voters’ resentment at the government spending money for a war in a faraway land while they suffer from rising prices.
It does seem to be sign of the times that, while those calling themselves (falsely of course) socialists are rallying support for one or the other side in the Ukraine war invoking vague slogans like “anti-imperialism” and the “right to self-determination”, the opposition to the war is being expressed by isolationists and populists.
Another reason why reformists are worse than useless.
This sounds as if it might offer sone hope too from the point of view of bringing the killing and destruction to a quicker end, but then it could be just another politician’s promise:
I don’t know how reliable these figures are (or could be under the circumstances) but if they are, they offer sone hope, with a quarter wanting negotiations to bring the war to an end as soon as possible — higher for women and for those living in the fighting zones.
https://news.gallup.com/poll/403133/ukrainians-support-fighting-until-victory.aspx
I thought allowing the market to operate freely was what Truss, Kwarteng and their advisers from the Institute for Economics Affairs wanted. It did and trashed their economic nostrums.
So now we have the proof that freemarketeers are no more capable of making capitalism work the way they want than are the interventionist reformists. Capitalist market forces, not governments, decide what happens. They control what governments can do, not the other way around.
Here’s another Tory, the MP Robert Halfon, telling it as it is or at least as it appears to him. Accusing Truss and her freemarketeers of trashing “blue collar conservatism” (whatever that is, but it doesn’t sound worth preserving), he said:
“I worry that over the past few weeks, the Government has looked like libertarian jihadists and treated the whole country as kind of laboratory mice on which to carry out ultra, ultra-free market experiments.”
Actually, at the time the Party gave Lenin full credit for realising — and saying — that in the circumstances capitalism was the only way forward for Russia. It showed that, on this point, he did understand Marx’s theory of history (as opposed to many of his admirers in Britain and other countries that what was being established in Russia was socialism).
Where we criticised him was his illusion that a socialist revolution had been imminent in Europe immediately after the first world slaughter and the undemocratic, dictatorial nature of Bolshevik rule.
His obituary in the March 1924 Socialist Standard was more nuanced than some of our later articles on him:
When they sent Head Office a copy, they added a covering note:
“Hi there,
We assume (and reference in the piece) that you’d disagree with this piece. Let us know if you’d like to discuss this disagreemnt. FWIW We don’t think it is terribly important politically, but clearly cared enough to write up our thinking, so happy to discuss 😄
Cheers”.”Not read it yet, but they seem to think that there is a difference.
“Mohammed El-Erian, the chief economic adviser at Allianz, the asset manager, said the UK’s mini-budget was an example of a country exacerbating existing market volatility via misguided policies.” (Times today)
“Ignorant and mistaken bank legislation, such as that of 1844-45, can intensify this money crisis. But no kind of bank legislation can eliminate a crisis.” (Marx, Capital, Volume 3, chapter 30)
