[ALB]

The arguments between Keen, Krugman, Positive Money, etc are all about how to stop bank lending getting out of hand in a boom. Not an issue in which socialists need to take sides, especially as we think none of them are going to work as it's not something that governments can do much about. They might as well try to stop all capitalist firms making profits while the sun shines in a boom. Banking lending expands in a boom because capitalist businesses are prepared to borrow more to expand production.The boom is driven by profitable production (that will eventually lead to overproduction and economic downturn) not by bank lending. How could a government stop that without bursting the bubble prematurely?The issue is what is the nature of banking and banks, and can banks create credit or money out of thin air. The answer is that banks are financial intermediaries borrowing money at one rate of interest and lending it at a higher rate, the difference being their income out of which they must pay their workers and covers their expenses, what's left being their profits. They are not conjuring money out of thin air and  making a profit out of lending it. If they could, they be getting a higher rate of profit than the rest of capitalist business, but they don't. Ok, they are now linked together with the central bank in a single monetary system (Keen's point) but that doesn't make any essential difference to what commercial banks are and can (and cannot) do.

[ALB]

Here is Steve Keen's reply:

Quote:

Very quickly Adam, because I don’t have time for individual email queries (1) the intermediaries story is used by mainstream economists (Bernanke, Krugman etc) to argue that credit (change in bank debt/year) can be macroeconomically ignored: this is overwhelmingly contradicted by the data, which you’ll see if you read my book of the same name; (2) the essence of the intermediary story is that lending shuffles bank liabilities around but doesn’t create new assets and liabilities: that is also categorically false.Cheers, SteveProfessor Steve Keen

Clearly, he is sticking to his guns and is not prepared to be contradicted. He does admit, though, that there are others who don't accept his theory. But, then, he prides himself on being "unorthodox".It is rather his assertion that banks "create new assets and liabilities" that is categorically false (except in the trite double-entry bookkeeping sense). In fact he virtually admits this in the interview Alan drew our attention to when he says:

Quote:

central banks are the only banks that can legally run negative net asset balances, i.e. whose liabilities are allowed to exceed their assets.

In other words, only central banks can create money for which there is no corresponding outside liability.Which is precisely what the ECB stated ("outside" money is money created by the central bank):

ECB wrote:

Commercial banks can also create so-called “inside” money, i.e. bank deposits – this happens every time they issue a new loan. The difference between outside and inside money is that the former is an asset for the economy as a whole, but it is nobody’s liability. Inside money, on the other hand, is named this way because it is backed by private credit.

[ALB]

Just followed up Steve Keen's reference to what the German central bank has to say about the modern monetary system. Here's what the Deutsche Bundesbank says about what it calls "book money" (the ECB's "inside money"):

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The banks create new book money when they grant loans. For example, Mr Müller needs a loan to buy a car. He negotiates this with the bank's loan officer. The bank grants a loan to Mr Müller. The loan amount is credited to his account and his credit balance increases. The bank has created new book money. It did this without needing to raise any savings deposits first.

But (and it's at this point that Keen — and currency cranks — stop reading) it has to raise the money somehow in the end:

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But how much book money can banks create?As described earlier, book money is largely created by granting loans. However, a business will only take out a loan if it has investment projects planned and if the expected returns are high enough to generate the required interest on the loan. The banks in turn check whether the borrower will be able to pay the interest and pay off the loan. Because if the borrower cannot pay the interest and repay the loan, the bank will incur a loss.The banks also keep a constant eye on the costs that may incur by granting loans and creat-ing book money. For example, if the customer uses the new credit balance to transfer money to an account at another bank, from the bank's point of view money will be flowing out. The bank then often has to recover this money, for example by taking out a loan from another bank, or by "refinancing" itself with a loan from the central bank. Alternatively, it can persuade savers to invest cash or credit balances at the bank in the form of savings or fixed-term deposits.As a rule, the bank has to pay interest on these refinancing measures. The banks' willingness to create book money therefore depends on how high the cost of interest is for the bank itself.

This is in effect accepting that banks are financial intermediaries, borrowing money at one rate of interest and re-lending it at a higher rate. It's just describing it in rather a roundabout way, by saying that they lend money at one rate of interest and then have to find the money to fund this at a lower rate.

[ALB]

It is a question of definition in the end. No serious person thinks banks can create money out of thin air, certainly not bankers themselves. If you define a bank loan as money, then of course banks "create money" but not out of thin air. It's, as the ECB says, out of "private credit".The other confusing definition is that of a "bank deposit". Originally, this meant money deposited in a bank from outside. Now it is also used for the bank deposit a bank creates for someone they make a loan to and into which they put the money that is being loaned. So the two are confused although they are quite different, leading to double counting since some of the money banks lend will come from what has been deposited with them.Also of course, banks don't just lend what has been deposited with them from outside, but also from what they themselves borrow from the money market. Both are "private credit" and in fact a distinction between them is made in the official literature, the former being called "retail funding" for the bank's lending activities and the latter "wholesale funding". High Street banks and Building Societies are typically funded more by customer deposits than wholesale funding. In fact it was over-doing the more risky (because the interest rate can suddenly increase) wholesale funding that did for Northern Rock and HBOS.In making a loan banks are using existing money to extend credit not "creating [new] money". If someone wants to call this "creating money" they shouldn't imagine that this is the same as when the State "creates" fiat money. If we are going to have to live with this definition I like the ECB distinction between "outside" and "inside" money.

[ALB]

a currency crank wrote:

data shows that most MPs do not know how money is created. Responding to a survey commissioned by Positive Money just before the June election, 85% were unaware that new money was created every time a commercial bank extended a loan, while 70% thought that only the government had the power to create new money. ..How is money created? ..All money comes from a magic tree, in the sense that money is spirited from thin air.

It is sort of re-assuring that only 15% of MPs think that "money is spirited from thin air". Let's hope that they represent the views of their constituents on this. In which case, currency crank ideas are not all that widespread, though they still need refuting.

[ALB]

Someone should indeed tell the ECB !

European Central Bank wrote:

Commercial banks can also create so-called “inside” money, i.e. bank deposits – this happens every time they issue a new loan. (….). Inside money (….) is named this way because it is backed by private credit.https://www.ecb.europa.eu/explainers/tell-me-more/html/what_is_money.en.html

The whole ECB document is a good description how the modern monetary system works. In fact it is something we can, and should, quote (and quote again) against the "thin air" school of banking. "Private credit" of course includes outside deposits (i.e not those opened by a bank for those it makes a loan to, but people and organisations depositing their own money there) and what banks themselves borrow.I think I'll put it to Steve Keen since he claims the backing of German banks for his description of how the monetary system works (and since he teaches just down the road from me at Kingston University). Not that he's a "thin-airist". It''s just that his description is an open invitation for them to misinterpret him..

[ALB]

Earlier this month French television broadcast a documentary on Russia in 1917 . According to veteran Council Communist Henri Simon on a discussion forum, this showed well that "il ne s'agit pas d'une conquête des masses mais d'un coup d'état minutieusement préparé par une minorité politique très réduite" or, roughly translated:

Quote:

that it was not a question of a conquest by the masses but a carefully prepared coup d'état by a very small political minority.

Nice to find someone else from our milieu taking this view.

[ALB]

Steve Keen wrote:

Banks don't on-lend deposits they take in from depositors. Banks create money — and debt  — whenever they extend credit to a client, whether it's by means of credit cards, mortgages, or business loans.

How many times do we have to repeat that banks don't lend only from what has been deposited with them but also from what they themselves borrow from the money market? The Bank of England papers state this clearly enough. Of course if you define a bank loan as money then by definition banks "create money" when they make a loan, but this leaves open the question of where they get the funds to make loans. Keen knows perfectly well that they don't simply conjure them up out of thin air. So do all practical bankers.

[ALB]

You are right. The MIA version doesn't omit point 3 but there is still something wrong with it as it only has 9 points whereas the one in our pamphlet has 10 (as do other versions on the internet as here: http://home.wlu.edu/~patchw/His_213/spd_program.htm ). The whole text is there  but points 5 and 6 have become a single point, changing the numbers of what follows to 6, 7, 8, 9 (instead of 7,8, 9, 10). Someone should tell them.

[ALB]

The only one that could bear this interpretation is point 10 of the general reform demands that calls for a reform of the tax system:

Quote:

Progressive income and property taxes to meet all public expenditure, so far as these are to be covered by taxation. Duty of making one’s own return of income and property. Succession duty to be graduated according to amount and relationship. Abolition of all indirect taxes, customs, and other financial measures which sacrifice the collective interest to the interests of a privileged minority.

In the online version of the Party's pamphlet there is a misprint as in the last part the words "interest to the" after the word "collective" do not appear, rendering the sentence meaningless. No doubt this can be corrected. (Incidentally, the version on the Marxists Internet Archive omits point 3 in ours about universal military training and a people's army to replace a standing army (as in Switzerland). I am not sure why.)Apart from that point, all the other reform demands are either to extend political democracy or intended to protect the industrial working class. The Party's first three pamphlets in fact were Kautsky's first three sections of the theoretical introduction he wrote to the Erfurt Programme (translation with his permission and approval: see http://www.worldsocialism.org/spgb/pamphlets/handicraft-capitalism-karl-kautsky-1906). In 1899 Kautsky wrote a book on The Agrarian Question.In the first decade of the 20th century there was a controversy within the SPD over whether and to what extend to appeal to small peasants with the Revisionists around Bernstein advocating this and the party moving in this direction.

[ALB]

The latest, revised proposals put Head Office on the boundary (literally) of two proposed new constituencies: one called "Brixton & Vauxhall", the other "Battersea & Clapham". Clapham High Street is the border and Head Office will be on the side in Battersea & Clapham:https://www.bce2018.org.uk/node/6485?postcode=SW47UNAnticipating something like this was why we decided to contest Battersea rather than Vauxhall in the general election.

[ALB]

alanjjohnstone wrote:

Quote:

French Group (“Civilisation without money”)The Party has been contacted by this group seeking collaboration.Agreed that cde Buick responds inviting further contacts.

Is there any further background to this group available?

Here is their website (in French):https://www.civilisation-sans-argent.org/They seem to be an offshoot of the general Zeitgeist/Venus project movement. They stood a candidate in the elections in France in June this year. He got 40 votes:http://www.voter-a-m.fr/2017/

[ALB]

No, that is not my position. Not at all. I am not advocating fracking. My position is that we as Socialists should not be opposed to fracking on principle as, like with other technologies, it could in theory be made safe and, if need be, used in socialism. Trade unions support all sorts of things to maintain jobs, e.g. building submarines to carry nuclear weapons, just as Nimbys oppose all sorts of things.

[ALB]

Quote:

We are rejecting their consensus on the safety of GMO, on fracking and nuclear energy through parliamentary legislation.

It is not entirely clear. Is this Paul Mason or Alan Johnstone talking, i.e who is the "we"? The Socialist Party has never rejected GMO, fracking or nuclear energy as such. Genetic engineering has huge potential benefits and nuclear energy may have to be retained to combat global warming caused by burning fossil fuels. And who, not even supporters of capitalism, believe that the safety issues involved in these (and other) productive methods can be addressed merely by "parliamentary legislation"? They will be overcome by technology which may indeed not be fully adopted under capitalism because of cost and profits considerations but which could be in socialism.

[ALB]

No, someone like Bukharin (though he was a Left Communist at one time)

[Author]

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