Cooking the Books: The Magic Money Tree
In the leaders’ debate on BBC1 on 31 May, the Tory substitute, Amber Rudd, kept on accusing the Labour Party of relying on a ‘Magic Money Tree’ to conjure up the money to finance their election promises. She was repeating a Tory mantra designed to get people to believe that Labour’s attractive reforms were impossible as there was no money there to pay for them.
In fact, there is plenty of money there, in the form of accumulated profits which, in theory, a government could tax or borrow. It’s just that the Tories are against this as they want to protect profits (or want to spend it on vital things for capitalism like weapons of war). But, more importantly, to overdo this would disrupt the workings of the capitalist economic system.
Capitalism is a system of production for sale on a market with a view to profit. Profits are what makes it go round as an economic system. It is driven by investment for profit. If the prospects for this are good, then there’s expansion and a boom. If they are not, then there’s an economic downturn; which happens quite normally from time to time as part of the way capitalism works, when a boom leads to overproduction in a key industry whose fall in investment then has a knock-on effect on other sectors.
This can also happen through government intervention. If the policy a government pursues threatens profits or makes conditions for profit-making worse, this will have an economic effect – investment and so production and employment will stall. Capital will go on strike.
Left-wing governments that have set out to increase popular consumption have experienced this many times and have attributed it to a ‘bankers’ ramp’, a ‘wall of money’, or ‘gnomes of Zurich’. But there is nothing they were able to do about it and in the end they had to capitulate to the economic forces of capitalism and give priority to profits and profit-making. Two examples within living memory would be the Wilson government of 1964 and Mitterrand in France in 1981. Both demonstrated the limits of reformism.
A Corbyn government would have come up against these forces too and failed, not because the money wouldn’t have been there, but because it can’t be used to improve people’s life at the expense of profitable investment. Profits are the forbidden fruit on the Money Tree – one reason why it makes more sense to end the whole capitalist system rather than try to make it work in a way it just cannot.
In one sense it’s capitalism that is a Magic Money Tree – for the capitalists. They invest money in production – buy premises, machinery, materials, hire workers – and sell what it produces, and end up with more money than they started with. Magic. But, like all magic, it’s an illusion. What happens away from appearances is that the workers they employ produce goods of a greater value than what they are paid as wages. It is this surplus value that is the source of profits and, further down the line, of the interest of bankers, the ground rents of landlords, and what governments spend. To stop this workers need to take an axe to the root rather than merely trying to get back some of the fruit.