Ways to fix capitalism (that don’t work)<\/p>\n
On the face of it, giving people more money to spend seems a good idea. Who doesn\u2019t want more money? But it won\u2019t work, at least not as intended; for two reasons.<\/p>\n
The first is that the payment from the state is never going to be much more than \u2018basic\u2019, something near the poverty line such as the level to which in Britain a person\u2019s income is made up to under the Universal Credit scheme. This is in part because the capitalist state will want to keep the amount spent on UBI down, but also because, if the income was too high, it would undermine the economic coercion that is behind the wages system.<\/p>\n
If people could live, even if rather sparsely, on the income, there would be less pressure on them to go out and find an employer. Some advocates of the scheme say this would strengthen the low-paid workers\u2019 bargaining position and see it as a reason why it should be introduced. But this is precisely why no capitalist government would introduce it at any level other than around the poverty line.<\/p>\n
So, if introduced, it would only be as a tweak to the welfare or tax systems, with the basic income replacing other benefits, amounting to no more than a \u2018redistribution of poverty\u2019. The results of an experiment in Finland (tinyurl.com\/y93baxxv<\/a>) showed that it did bring some benefit to the unemployed who received it in that they no longer had to submit to intrusive and dehumanising means testing, nor trying to find a job that wasn\u2019t there (capitalism needs a certain level of unemployment, so there are always going to be some unemployed), nor going on useless courses about how to fill in a CV. On the other hand, those receiving it didn\u2019t show any extra inclination to seek out a job; which was why it was not adopted.<\/p>\n The other objection to the scheme is that, as it would be paid to every citizen, whatever their situation and even if they were employed, it would be bound to have an effect on wages; it would strengthen the employers\u2019 hand in bargaining over wages as the price of people\u2019s working skills. Wages reflect the cost of reproducing these skills. So, if wage-workers are paid an amount by the state, the employer will not need to pay so much. This wouldn\u2019t happen immediately but it would exert a pressure for money wages not to rise in line with the general price level. In the end, what the right hand gave the left hand would take away.<\/p>\n In June 2016 Swiss voters \u2013 they get the interesting things to vote on \u2013 rejected a proposal to introduce a Basic Income from the state for everyone as of right whether they are working or not. Perhaps surprisingly, only 23 percent voted for with an overwhelming 77 percent against.<\/p>\n The voters were asked to decide only on the principle of introducing an unconditional universal Basic Income without any mention of its level. However, its promoters such as BIEN Suisse did publicise a figure of 2,500 Swiss francs a month, or 30,000 a year, an amount just slightly above the then poverty line in Switzerland.<\/p>\n We pointed out above that the introduction of a full Basic Income scheme would result in a strong downward pressure on wage levels, resulting eventually in a fall in wages. The Swiss proposers of the scheme didn\u2019t even bother to argue against this. Not only did they accept it but they incorporated it into their scheme. In an article in French costing the scheme on the website of G\u00e9n\u00e9ration RBI (Generation Unconditional Basic Income) they emphasised, with graphs and numerical examples, that everybody earning more than the poverty line would be no better off financially since, they said, their wages would be reduced by the amount of the Basic Income:<\/p>\n \u2018Wages are going to adapt themselves to become a complement to Basic Income. For example with an Unconditional Basic Income of 2,500 Swiss Francs, someone who at present gets 8000 Swiss francs from their employer will not get more than about 5,500 or so wages which will come to be added to their Basic Income\u2019 (http:\/\/rbi-oui.ch\/laboratoire-sur-le-financement-du-revenu-de-base-inconditionnel\/).<\/p>\n So their total income would be the same, only under their scheme, instead of all of a worker\u2019s total income coming from their employer, a part would come from the state and a part from their employer. This would not be a subsidy to employers (another danger of such schemes) as taxes on employers would be increased to pay for this.<\/p>\n And of course a Basic Income equal to the poverty line is neither going to undermine the wages system nor break the link between work and consumption, as other supporters of such schemes have argued.<\/p>\n The only viable way to break the link between income and work is on the basis of the common ownership of productive resources; that will allow the principle of \u2018from each according to their ability, to each according to their needs\u2019 to be implemented.\n <\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n \u2018A key unique quality of capitalism is the employer\/employee relationship between two different groups of the people engaged together in the economic system. That relationship entails an exchange of wages or salaries for labor power (the ability of an employee to work). A contract between employer and employee covers that exchange plus the employee\u2019s exertion of brains and muscles over lengths of time and to ends specified by the employer.\u2019<\/p>\n A defining feature of capitalism is indeed the wages system. Ending capitalism does involve the ending of this employer\/employee relationship. Wolff, however, sees this as being implemented at enterprise level, describing as \u2018instances of communist enterprises\u2019 worker co-ops where \u2018one and the same community designs, directs, and performs the work of an enterprise such that each community member has one vote and enterprise decisions are made democratically.\u2019<\/p>\n His justification for calling worker co-ops \u2018communism\u2019 is that they are commonly owned by those working in them and end the employer\/employee relationship as far as their members are concerned. But if the common ownership of something by a group is \u2018communism\u2019 then there are many other examples of it within capitalist society. What socialists aim at, however, is the common ownership of the means of life by society as a whole \u2013 a communist society.<\/p>\n Wolff\u2019s envisages co-operatives producing for the market alongside private and state enterprises both under capitalism and in \u2018socialism\u2019 (by which, going completely off the rails, he seems to mean places like the old USSR). He advocates co-operative enterprises as a way forward for workers within capitalism in the same way that other reformists used to advocate state enterprises.<\/p>\n This brings out that his definition of capitalism is incomplete. It needs to include as well as the employer\/employee relationship that production is carried on for sale with a view to profit. Capitalism is a market society in which everything is bought and sold, not just labour power.<\/p>\n Common ownership on a society-wide scale implies that the democratically-run productive units would not be producing for a market, precisely because what they produced would belong to society and be available to be distributed in non-market ways, whether free distribution, free use or taking according to need.<\/p>\n Workers\u2019 co-ops have to function like a capitalist enterprise with all the shortcomings this involves such as having to make a profit to re-invest in up-to-date methods of production so as to remain competitive and stay in business.<\/p>\n This was candidly recognised by Txema Gisasola, when he was the president of the much-cited Mondrag\u00f3n co-operative group, who told the Financial Times<\/em>:<\/p>\n \u2018We receive visitors from many companies and many countries, and some come here with a magical idea of what Mondrag\u00f3n is. This is not magic. We are in this market, competing in the capitalist world, and the only difference is how we do things and why we do things. We have to be competitive, we have to be efficient, we have to have quality in our products and give satisfaction to our clients, and we have to be profitable. In that sense we are no different from anyone else.\u2019 (https:\/\/www.ft.com\/content\/d7d2fbcc-85b9-11e2-bed4-00144feabdc0)<\/p>\n This does not mean that there is no place at all for co-operatives within capitalism. There are some niches for a few of them, but they can never spread to take over the whole economy as their more romantic supporters envisage. Co-operatives are in fact not an alternative to capitalism at all, just one form of capitalist enterprise and a not very efficient one at that.\n <\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n But would it? Could it . . ?<\/p>\n The rich, especially the super-rich, can certainly afford to pay more tax. Even the arguments put by their apologists don\u2019t deny this. They concentrate on arguing that they shouldn\u2019t be taxed too much, that if they were they\u2019d move abroad or would no longer be prepared to work for capitalist firms in a country that did this. This would happen to some extent but confirms that capitalism is a world system and that any solution to the problem is not to be found at national level. But the fact remains that the rich are rich enough to pay more tax out of their huge incomes and piles of accumulated wealth.<\/p>\n Would making them pay more tax end austerity? Austerity is the government cutting back on its spending so as to reduce the burden of taxation on profits in a slump as a way to help a profit-led recovery (the only way a recovery can come about). Increasing taxes on \u2018rich corporations and individuals\u2019 would allow the government not to have to cut its spending so much, but if more than a one-off would prove to be counter-productive.<\/p>\n The incomes of the rich come in the end, one way or the other, out of profits. Not all of it is spent on conspicuous consumption (in fact that\u2019s against the logic of capital accumulation, which is what capitalism is all about). Most is saved and so comes to be re-invested in production to make further profits, a part of which will provide their future unearned incomes.<\/p>\n So taxing the rich is in the end a tax on profits. This is obvious in the case of taxes on \u2018rich corporations\u2019. Corporation tax used to be called \u2018profits tax\u2019 and that\u2019s what it still is: a direct tax on profits. As capitalism is a profit-driven system anything that reduces profits or makes profit-making too difficult will bring about an economic downturn. In a slump it would delay recovery.<\/p>\n Since you can\u2019t tax the rich unless the rich continue to exist and continue to draw a taxable unearned income, i.e. unless capitalism continues to exist, the Left populists who chant \u2018Tax the Rich\u2019 are proposing the old failed reformist policy that the Labour Party used to espouse of redistributing income from profits to workers, but not even to try to improve workers\u2019 conditions but merely to try to stop them getting worse.<\/p>\n It won\u2019t work. In promoting the idea that it could, they are peddling the same sort of empty and unrealisable promises as the conventional politicians. The fact is that capitalism cannot be reformed to work in the interests of the wage and salary-earning working class and their dependants. The only way out is to replace capitalism \u2013 with its division into rich and the rest \u2013 altogether.\n <\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n When a note or a coin is used in payment it passes physically from one person to another who can in turn use it to make another payment. In other words, cash circulates and is untraceable in that it doesn\u2019t bear the mark of who happens to own it at any time. The Bitcoin scheme aims to create this for electronic payments (electronic payments do of course exist today but are not untraceable).<\/p>\n This was a technical challenge but the geeks who thought up the scheme (maybe only because it was a challenge) solved it by requiring anybody buying or selling with their electronic money to adopt a pseudonym and by incorporating into the software encryptions and procedures to confirm transfer of ownership and to prevent double spending as well as to create new bitcoins until a total of 21 million is reached.<\/p>\n So, technically, it works. In fact there are claims that, being untraceable, it works too well in that it allows money laundering, drug dealing and tax evasion (just as cash does but not ordinary electronic payments). Also, people have been speculating on the exchange rate between bitcoins and conventional currencies going up or down, leading to bubble and bursts.<\/p>\n But there\u2019s also the ideology behind it. Because it\u2019s a means of payment that has nothing to do with the state, it is being touted by free-marketeers (or \u2018libertarians\u2019 as they are called in America). They have visions of it replacing state-issued money and solving the problems of depreciation, inflation and financial crises which in their view go with it. Currency reformers see it as a way of ending both the US Federal Reserve and the commercial banks\u2019 supposed power to create additional purchasing power out of thin air.<\/p>\n This is not going to happen, if only because bitcoins can only be used via the internet, but also because capitalism cannot do without a state and because for most people cash and identifiable electronic payments are more convenient. But suppose that it did. This, as the Gegun Kapital und Nation<\/em> Group have pointed out in their excellent article on Bitcoin<\/a>, would not solve the economic problems of capitalism since these are not caused by some flaw in the monetary system but by the very nature of capitalist production and of money capital. A fixed money supply, as envisaged under the Bitcoin scheme, would not prevent booms and slumps but it would constrain the accumulation of capital: <\/p>\n \u2018While clearly a state intervention, the central banks\u2019 issuing of money is hardly a perversion of capitalism\u2019s first purpose: growth. On the contrary, it is a contribution to it. Systematic enmity of interests, exclusion from social wealth, subjection of everything to capitalist growth \u2013 that is what an economy looks like where exchange, money and private property determine production and consumption. This also does not change if the substance of money is gold or Bitcoin. This society produces poverty not because there is credit money but because this society is based on exchange, money and economic growth.\u2019\n <\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n This reflected not the assumed ignorance of MPs, who actually got it right, but the confused use of the word money. This is now used to describe two different monetary phenomena. First, what in America is called \u2018fiat money\u2019, money issued by administrative decision by the state as notes and coins and electronically. Second, what used to be called \u2018bank credit\u2019, loans banks make to businesses and individuals. This is now called \u2018bank money\u2019, so banks are regarded as \u2018creating money\u2019 every time they make a loan.<\/p>\n This confusion misleads some into thinking that banks can create money in the same way that the state creates fiat money. However, what commercial banks lend is not \u2018spirited out of thin air\u2019. It is already existing money that they lend on from what they themselves borrow from depositors and the money market.<\/p>\n Bank lending certainly has the economic effect of increasing spending. It is this that gives rise to the illusion that they are \u2018creating new money\u2019. But what they are doing is making available, to those who want money to spend, the money of those who don\u2019t want to spend theirs for the time being. This is not creating new money, only activating existing money. That\u2019s precisely the economic role of banks and their usefulness to capitalism.<\/p>\n In 2017 Swiss banking reformers obtained the 100,000 signatures needed to initiate a referendum to restrict bank lending in the way Positive Money proposes, or, as they put it, to stop banks benefiting from being able to create electronic money out of nothing.<\/p>\n Explaining the apparent logic behind the proposal in the Financial Times<\/em> (5\/6 December), Martin Sandhu wrote:<\/p>\n \u2018The bank decides whether it wants to make you a loan. If it does, then it simply adds the loan to its balance sheet as an asset and increases the balance in your deposit account by the same amount (that\u2019s a liability for them). Voil\u00e0; new electronic money has been created.\u2019<\/p>\n This is indeed what happens from an accounting point of view. Double-entry book-keeping requires every new asset or liability to be balanced by a corresponding liability or asset. In this case, in making the loan, the bank acquires a liability. This has to be balanced, in the accounts, by a corresponding asset, recorded as an IOU from the borrower. That a new asset has been created out of nothing is only an illusion arising from an accounting convention.<\/p>\n Outside the accounts department all that has happened is that the bank has committed itself to making a loan to a customer. It ought to be obvious that, to be able to meet the obligation (liability) to pay this, the bank will have to be able to fund it, but currency reformers (and, surprisingly, some financial journalists) overlook this and believe that banks really can \u2018simply\u2019 create out of thin air what they lend.<\/p>\n This is not to say that loans have to be funded entirely from what people have deposited with the bank (a view sometimes attributed to critics of the thin air school of banking) since other sources of funding are available, from the money market (i.e. other financial institutions) or the central bank, some of which can even be done after a loan has been made.<\/p>\n Like Positive Money, the Swiss banking reformers subscribed to the mistaken, monetarist view that an over-expansion of bank lending causes (rather than merely reflects) booms and busts and they want to control and restrict it to try to prevent this. It won\u2019t work but that\u2019s the theory.<\/p>\n The proposal is that banks should not be able to re-lend money deposited in current accounts. When it receives such a deposit the bank will be required to re-deposit it with the state\u2019s central bank in return for what Sandhu calls \u2018State e-money\u2019. All banks would be able to do with this is transfer it between current accounts.<\/p>\n This would certainly restrict bank lending but it wouldn\u2019t (and is not intended to) stop it altogether. As the Swiss banking reformers explained<\/a>, after the enactment of their reform:<\/p>\n \u2018The banks can only work with money they have from savers, other banks or (if necessary) funds the central bank has lent them, or else money that they own themselves.\u2019<\/p>\n But this is already, now, the case! Money deposited in a current account is just as much a loan to the bank as is money deposited in a savings account. Banks can, and do, re-lend most of it too, except that, unlike with a savings account, it keeps all the interest. But if money re-lent from a current account is money created from thin air, why is money re-lent from a savings account not? Don\u2019t ask us. Ask Positive Money.\n <\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n