Banking 5/7

Dealing with the conspiracists

The oft-given explanation circulating around the internet is that banking originated from goldsmiths is misleading as it suggests that this was widespread when there may only have been the odd example of this. There is one film (Money As Debt) which gives the impression that every mediaeval and early capitalist town had goldsmiths who did this. Currency cranks  use the goldsmith argument fairly extensively to show that a bank can lend more than has been deposited with it. It is also strange that this historical theory should be widespread in the US where there would ever have been any goldsmiths who did this (if only because the money-commodity there was silver to start with) and where paper money originated from the states printing it and making it legal tender for paying taxes.

Adam Smith makes no mention of "goldsmith bankers". His description of how the Bank of Amsterdam operated confirms that the currency cranks have not been able to produce any example of a bank that issued more certificates of receipts than the gold it had (and survived). Only a state or state-guaranteed bank can issue "fiat" money as money not backed by anything.

It would be much more likely that banking originated from moneylending, which would have been more widespread, when people with money to lend began issuing trade bills to factory owners and merchants to cover the period between production and sales. And if they started issuing more bills than they could honour (as goldsmiths are supposed to have done) they'd go bankrupt fairly quickly.

There were some goldsmith-bankers in London in the 17th century (but not in every town). Here's an example of how the currency cranks interpret what they say happened:

But the goldsmith-bankers seem rather to have been more like pawnbrokers for the idle rich according to this article.

A contemporary account of how goldsmith bankers actually operated can be in Richard Cantillon's "Essai sur la nature du Commerce en General" (it's in English) written in 1730. Here's what he wrote:

"If a hundred economical gentlemen or proprietors of land, who put by every year money from their savings to buy land on occasion, deposit each one 10,000 ounces of silver with a goldsmith or banker in London, to avoid the trouble of keeping this money in their houses and the thefts which might be made of it, they will take from them notes payable on demand. Often they will leave their money there a long time, and even when they have made some purchase they will give notice to the banker some time in advance to have their money ready when the formalities and legal documents are complete. In these circumstances the banker will often be able to lend 90,000 ounces of the 100,000 he owes throughout the year and will only need to keep in hand 10,000 ounces to meet all the withdrawals. He has to do with wealthy and economical persons; as fast as one thousand ounces are demanded of him in one direction, a thousand are brought to him from another. It is enough as a rule for him to keep in hand the tenth part of his deposits. There have been examples and experiences of this in London. Instead of the individuals in question keeping in hand all the year round the greatest part of 100,000 ounces the custom of depositing it with a banker causes 90,000 ounces of the 100,000 to be put into circulation. This is primarily the idea one can form of the utility of banks of this sort. The bankers or goldsmiths contribute to accelerate the circulation of money. They lend it out at interest at their own risk and peril, and yet they are or ought to be always ready to cash their notes when desired on demand. If an individual has 1000 ounces to pay to another he will give him in payment the banker's note for that amount. This other will perhaps not go and demand the money of the banker. He will keep the note and give it on occasion to a third person in payment, and this note may pass through
several hands in large payments without any one going for a long time to demand the money from the banker. It will be only some one who has not complete confidence or has several small sums to pay who will demand the amount of it. In this first example the cash of a banker is only the tenth part of his trade."

Nothing here about the goldsmith banker being able (or even trying) to lend more than the 100,000 ounces of silver deposited with them, as in the fairy tales of the currency cranks.

Cantillon's full account of how the banks of his time operated can be found in Chapter VI

Being poor = poor reading

Scotland had the worst record of the 32 nations taking part in the Organisation for Economic Co-operation and Development (OECD) international PISA reading tests. Bright boys from poorer backgrounds in Scotland’s schools are nearly three years behind their rich, clever male classmates in reading, a study has suggested.

The Uncaring Society

Carers are being forced to cut back on essentials such as food and electricity because of the so-called bedroom tax. 'Despite Government promises to protect them from the under-occupancy charge, one in six carers forced to pay it are falling behind on their rent and face eviction, research by Carer UK shows. .... Ministers pledged £25m in discretionary payments to protect carers and disabled people when the policy was introduced in April, but campaigners warned it would be only enough to support around 40,000 of the 420,000 disabled people affected by the cuts.' (Independent, 9 July) Just one in ten cases are receiving these discretionary payments on an on going basis, this latest research shows. When it comes to cutting welfare payments capitalism is ruthless even if you are disabled. RD

Child Labour

With the advent of the industrial revolution British capitalism made its fortune on the exploitation of child labour, but the advent of the trade union movement, after a long hard struggle, saw that ended. Ever ready to make profits the British capitalist class have shifted their source of child exploitation to Asia. The British sugar giant Tate & Lyle has imported large volumes of sugar from Cambodia through a supplier that is accused of using child labour. 'Tate & Lyle - which is the EU's largest cane producer and whose ingredients are used in a wide range of foods around the world - has used the Thai KSL group since 2011 for its supplies from Cambodia. However KSL is alleged to have been complicit along with the Cambodian government, in the eviction of people from the land, arson and theft. ..... Children as young as nine years of age work on Cambodian plantations run by KSL.' (Guardian, 9 July) RD

Hungry children in Scotland

Some children may be going hungry over the school holidays because their parents cannot afford to feed them properly, the Church of Scotland has warned.

"There is the real possibility that many children from all parts of Scotland will spend the summer break not getting enough to eat," said the Rev Sally Foster-Fulton Convener of the Church and Society Council. "People may jokingly mock school dinners but they provide essential basic nutrition and for many children they are the one substantial cooked meal they will get."

It was recently reported that the number of people using food banks has more than doubled in Scotland in the past year. The Trussell Trust said 14,318 people were helped during 2012-13; up 5726 on the previous year.

The rewards of owning Scotland

Wealthy landowners are qualifying for state hand-outs of £12,000 a week, according to a new report.

The report claims that with just 432 owners controlling 50% of all the privately owned land, Scotland has "the most concentrated pattern of land ownership in the developed world".

The report notes "the ready access estate ownership gives to the public purse" is a key attraction of land ownership to "the rich and super-rich".

It points to the £600,000-plus a year in government subsidies available to the future purchaser of a £11.4m Argyll property – the Auch and Invermearan Estate near Bridge of Orchy, that is on the market, a fact which is highlighted in the sales brochure.

See also this post on our companion blog.

Banking 4/7

Money! What is money? Money is a ticket that enables one to buy goods with, just as a railway ticket enables one to ride on the train goes the argument. The more tickets one has in one’s pockets, the more someone can buy. These tickets are, therefore, merely media of circulation, purchasing power. They may be made of anything. The material is of no consequence. What is of consequence, though, is the quantity of money in circulation. The mortal sin of the banks is that they refuse to issue enough money, or credit, to enable the “common man” to procure the necessities of life. Therefore, the power to issue money and credit based on social wealth must be taken over by a state-owned, claim the advocates of reforms and panaceas. Money, they explain, causes commodities to circulate, but herein they are certainly deceived by appearances. In reality, the movement of money is simply the reflex of the circulation of commodities. Money only realises the prices of commodities. Given the velocity of money, among other things, the quantity of money required in a community is just the amount sufficient to realise the prices of the goods to be exchanged. More than this the system cannot and will not absorb. For money, in the sphere of circulation is an effect not a cause. Hence, there is nothing seriously wrong with money, as such. Consequently, to increase the quantity of money will not put more goods into the hands of the people. Such an increase, in place of causing a greater quantity of commodities to circulate, can only have the effect of cluttering up the machinery of exchange. To advance as an argument for such an increase that many people are suffering because they have not the money with which to buy the necessities of life is not an argument for the relief of distress. Many are deeply moved because many are scarcity amidst plenty. It is a condition the reason for which baffles them. They can see easily enough that the products of labour are not properly distributed. That does not require much brain work . But they do not have sufficient insight into the capitalist system to be able to understand that this condition arises from the fundamental contradiction of the system. This fundamental contradiction is that goods are socially produced, but individually appropriated by the private owners of the means of wealth production. The profit system, albeit appropriately modified, must be maintained at all costs. Hence, they want to retain the capitalist system, but at the time escape the inequalities and distress which it produces. So when they speak of changing the system, what they have in mind is an indefinite idea of correcting some of its faults. Yet those faults will only end when the means of production are brought into common ownership and democratic control so that they can be oriented towards directly satisfying people’s needs – when banks, money and all the rest of the buying and selling system will have become redundant.

Graduates on the dole

As youth unemployment figures soar many workers think the solution is for a better education, but that often proves a futile move. 'This summer's university leavers face a tougher jobs market, with a forecast of a 4% fall in graduate vacancies. The Association of Graduate Recruiter (AGR) annual summer survey shows that leading UK employers are receiving 85 applications for each job.' (BBC News, 10 July) With 85 applicants for each vacancy the old notion of "lazy workers" looks a bit foolish. RD

A Bleak Future

The following grim findings emerged from a poll carried out for the Association of British Insurers. YouGov asked 2,506 employees questions relating to retirement and welfare. 'One in five working people believe that they will never retire. According to a survey being published today, of those who believe they will stop working full-time, more than four out of ten reckon they will have to keep a part-time job. Two thirds of those polled said they would struggle to meet the cost of paying for long-term care as they became infirm.' (Times, 9 July) Having suffered a lifetime of exploitation workers cannot even see some relief in old age. RD

Anarchism in Aberdeen

"You sing about your bonnie Scotland and your heather hills. It's not your bonnie Scotland. It's not your heather hills. It’s the landlord’s Bonnie Scotland. It’s the landlord’s heather hills. And if you want enough earth to set a geranium in, you’ve got to pinch it" declared J.L Mahon  a socialist who visited Aberdeen in 1887 and started a series of open air meetings and helped in the setting up of the Aberdeen Socialist Society, a branch of the Scottish Land and Labour League. 

The anti-parliamentarians broke in early 1891 to form the Aberdeen Revolutionary Socialist Federation. In 1893 the group changed its name to the Aberdeen Anarchist Communist Group.

The Aberdeen Anarchist Communist Group hosted the third conference of Scottish anarchists on January 1st 1895 and welcomed the delegates from Dundee, Edinburgh, Glasgow, Hamilton and Motherwell.  Aberdeen had a membership of 100, with sympathisers “not less than one thousand” and was asserted to be the greatest socialist force in the city.

Full article on Libcom link 

The earliest Socialist Party of Great Britain branch in Scotland was in the North East of Scotland (Fraserburgh or Peterhead?) In the 1970s a Socialist Party group in Aberdeen existed for a brief time.

socialist sport?

 The Gaelic Athletic Association in Ireland was founded in 1884 with now over 1 million members in 2,600 clubs .

Its players are amateurs, the grass roots are as important as the top echelons, and the majority of big games remain on free-to-air TV. And unlike football, clubs cannot be bought and sold and there are no private club owners. On the administrative side, club members elect an executive committee to carry out the running of the club on an annual basis. At the higher echelons of the GAA, such members must vacate their post after four years.

But Dr David Hassan of the University of Ulster denies that running the game with volunteers at grass-roots level means off-field activities are also "amateur". "At a community level, local competent professional people who are sympathetic to the GAA often do administrative jobs, such as a local accountant becoming club treasurer."

"The clubs and games are based in the community and operate on behalf of those people who are based in the community. If the grass roots say some policy proposal is a move in the wrong direction, the administrators cannot just say - as may be the case in English soccer - 'This is just business'."

Banking 3/7

Banking Myths

The first banks were the merchants of ancient world that made loans to farmers and traders that carried goods between cities. The first records of such activity dates back to around 2000 BC in Assyria and Babylonia. Later in ancient Greece and during the Roman Empire lenders based in temples would make loans but also added two important innovations; accepted deposits and changing money. During this period there is similar evidence of the independent development of lending of money in ancient China and separately in ancient India. The Templers began generating letters of credit for pilgrims journeying to the Holy Land: pilgrims deposited their valuables with a local Templar preceptory before embarking, received a document indicating the value of their deposit, then used that document upon arrival in the Holy Land to retrieve their funds. This innovative arrangement was an early form of banking, and may have been the first formal system to support the use of travellers cheques. The Order of the Knights Templar arguably qualifies as the world's first multinational corporation. Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe. Perhaps the most famous Italian bank was the Medici bank, set up in 1397. A bank was founded in 1609 under the protection of the city of Amsterdam. This bank at first received both foreign and local coinage at their real, intrinsic value, deduced a small coinage and management fee, and credited clients in its book for the remainder. This credit was known as bank money. Being always in accord with mint standards, and always of the same value, bank money was worth more than real coinage. At the same time a new regulation was introduced; according to which all bills drawn at Amsterdam worth more than 600 guilders must be paid in bank money. This both removed all uncertainty from these bills and compelled all merchants to keep an account with the bank, which in turn occasioned a certain demand for bank money.

Events such at the appropriation of £200,000 of private money by King Charles I from the royal mint, in 1640 caused merchants to lose trust in the existing institutions and drive them to find more trusted alternatives such as the goldsmiths. The goldsmiths soon found themselves with money for which they had no immediate use, and they began to lend the money out at interest to both the merchants and the government. Finding substantial profit in this business, they began to solicit deposits and pay interest on them. The goldsmiths eventually discovered that the deposit receipts they provided were being passed on from one person to another in lieu of payment in coin, which prompted them to begin lending paper receipts rather than coins. By promoting acceptance of the receipts as a means of payment, the goldsmiths discovered they could lend more than the gold and silver coin they had on hand, a practice that became known as fractional-reserve banking. These practices created a new kind of "money" that was actually debt, that is, goldsmiths' debt rather than silver or gold coin, a commodity that had been regulated and controlled by the monarchy. This development required the acceptance in trade of the goldsmiths' promissory notes, payable on demand. Acceptance in turn required a general belief that coin would be available; and a fractional reserve normally served this purpose. The monarchy's urgent need for funds at rates lower than those charged by the goldsmiths, and the example of the public Bank of Amsterdam, which had been able to make an ample supply of credit available at low interest rates, led in 1694 to the establishment of the Bank of England. The Bank of England succeeded in raising money for the government at relatively low rates.
http://en.wikipedia.org/wiki/History_of_banking

Food for thought

The tenth anniversary of the US invasion of Iraq was marked by seventeen car bombs exploding, killing sixty people and wounding one hundred and ninety. Iraq is torn apart by Sunni Muslims revolting against the Shiites in power. Youth unemployment has reached appalling heights and western consumer goods are scarce to none. During the decade the Americans were there, 4,484 of their soldiers were killed and 32,200 were wounded in a mission that cost between
$3 and $4 trillion dollars, to say nothing of the Iraqi death and wounded toll and the destruction to the country. Imagine what could have been done for both countries with proper use of that amount of social wealth. So much for capitalist achievements and its priorities. John Ayers.

Banking 2/7

"I think that people have learned that money is not made in banks. It is made by real people working hard at real jobs. Actually, deep down we knew that all along. We just have to learn it again." Asbjorn Jonsson, an Icelandic fisherman, in a week when Iceland was effectively a bankrupt state. Its banks owed the world an astonishing £35 billion - 12 times the size of Iceland’s gross domestic product and £116,000 for every man, woman and child.

Because money so dominates people's lives and because they associate money with banks, people's resentment at their money problems is aimed at banks but banking or monetary reform are not going to stop money dominating people's lives.

Many seek out solutions without understanding the causes. Marx wrote extensively on money and banking and credit yet how convenient it is to forget his conclusion that it is the entire capitalism system not simply individual aspects of its functioning that is the problem. Theorists seem to forget that the capitalist system remains, in all essentials, the same as it was when Marx studied in the British Museum. Lest we forget, the source of all Rent, Interest and Profit is the unpaid labour of the working class. It’s not a revolution if you’re only taking out the bankers. The bankers are not wicked finance capitalists against whom the anger of workers should particularly be directed, just capitalists with their capital invested in a particular line of business, no more no less reprehensible than the rest of the blood sucking parasitical capitalist class. Recessions are inherent in the boom bust cycle of capital. “Greedy bankers” are a scapegoat distracting from the fact that this will happen again and again and again. Blaming them alone implies you could have a nicer capitalism with good bankers. Pinning the blame on “greedy bankers” lets the rest of the culprits off the hook. This is not just a financial crisis, but a crisis of the whole capitalist economy in which the whole business and political class are fully implicated.

Champagne And Capitalism

 

At present lots of politicians are expressing disgust at how much alcohol the working class are consuming. They are particularly outraged at cut-rate booze on sale at supermarkets.  None of these politicians are concerned about the owning class's consumption. Here is an example of the owning class and alcohol. 'There is a nightclub called Aura, in London, where the cheapest bottle of champagne is Taittinger 2004 at £255 for a bottle (it's £42 at Oddbins.com). The real rich won't drink this. This is what they give their servants for Christmas.' (Sunday Times, 7 July) This report goes on to say that a just-released 2004 vintage Dom champagne cost £600 a case. Not many workers will be queuing up at Asda for a case we imagine. RD

Hypocrisy In Action

Capitalism is a competitive society with groups of capitalists grouped in countries always trying to get the advantage on their rivals, so it should come as no surprise to learn that the USA has been accused of bugging EU offices in Washington and New York. This has led to the French government exploding in indignation at such chicanery. 'At the American ambassador's July 4 garden party in Paris, Manuel Valls, the French interior minister, denounced American spying on France and other countries. On Thursday, Le Monde reported that French security agencies routinely collect data on emails, text messages, phone calls and posts on Facebook and Twitter.' (Sunday Times, 7 July) Another case of "Don't do as I do, but do as I say you should." RD

Game, set and match

Andy Murray is already worth an estimated £32 million, but his latest Grand Slam victory will see his earnings soar into the ranks of the world’s wealthiest sportsmen.

Industry experts say that sponsorship and endorsements could see Andy earn around £100m over the next five years.

That would dwarf his career earnings of £18.5m and annual sponsorship deals currently worth around £9m, putting him in the same league as David Beckham.

The Yellow Brick Road

"Have you heard of the wonderful wizard, The wonderful Wizard of Oz, And he is a wonderful wizard, If ever a wizard there was"

While many today consider gold an instrument of financial and personal freedom, Frank Baum, author of 'The Wonderful Wizard of Oz' painted it as a villain - the tool of oppression. Baum published the book in 1900, just after the US emerged from a period of deflation and depression. Prices had fallen by about 22% over the previous 16 years, causing huge debt. Farmers were among those badly affected, and the Populist political party was set up to represent their interests and those of industrial labourers. The US was then operating on the gold standard - a monetary system which valued the dollar according to the quantity of gold. A key plank in the Populist Party platform was a demand for "free silver" - that is, the "free and unlimited coinage of silver and gold" at a fixed ratio of sixteen to one. Populists and other free-silver proponents advocated unlimited coinage of the white metal in order to inflate the money supply, This would have increased the US money supply, raised price levels and reduced farmers' debt burdens thus making it easer for cash-strapped farmers and small businessmen to borrow money and pay off debts. Baum's allegory is a critique of the Populist rationale. The Land of Oz, is a microcosm of America and Oz is short for ounce, the measure for gold and silver. Emerald City, its center and seat of government, represents Washington, D.C. The journey to Emerald City corresponds to the Populists effort to acquire power in Washington. The yellow brick road is the gold standard. The brainless Scarecrow represents the midwestern farmers. The Tin Man represents the nation's workers, in particular the industrial workers. The Wicked Witch of the West and the Wicked Witch of the East represent financial-industrial interests and their gold-standard political allies (NY banker J.P.Morgan and JD Rockefeller), the Emerald City of Oz (green-back money is also a delusion). The Wizard is simply a manipulative politician who appears to the people in one form, but works behind the scenes to achieve his true ends through deceit, and even Dorothy’s silver slippers (changed to ruby slippers for more effect in the color movie version) is a symbol of the belief that adding silver coin to gold coin would provide much needed money to a depression-strapped, 1890s America). Oz is full of monetary reform symbolism.

But it also included some utopian hopes.

In the sequel to the Wizard of Oz 'The Road to Oz' Baum has the Tinwoodman explain:
“It must have cost a lot of money,” remarked the shaggy man.
“Money! Money in Oz!” cried the Tin Woodman. “What a queer idea! Did you suppose we are so vulgar as to use money here?”
“Why not?” asked the shaggy man.
“If we used money to buy things with, instead of love and kindness and the desire to please one another, then we should be no better than the rest of the world,” declared the Tin Woodman. “Fortunately money is not known in the Land of Oz at all. We have no rich, and no poor; for what one wishes the others all try to give him, in order to make him happy, and no one in all Oz cares to have more than he can use...
...[later]"Don't they work at all?" asked the shaggy man.
"To be sure they work," replied the Tin Woodman; "this fair city could not be built or cared for without labor, nor could the fruit and vegetables and other food be provided for the inhabitants to eat. But no one works more than half his time, and the people of Oz enjoy their labors as much as they do their play." ”

The next book in the series , The Emerald City of Oz, Baum goes into more detail (inconsistencies notwithstanding) on the money-less economics:
"There were no poor people in the Land of Oz, because there was no such things as money, and all the property of every sort belonged to the Ruler. The people were her children, and she cared for them. Each person was given freely by his neighbors whatever he required for his use, which is as much as anyone may reasonably desire. Some tilled the land and raised great crops of grain, which was divided equally among the entire population, so that all had enough. There were many tailors and dressmakers and shoemakers and the like, that made things that any who desired them might wear. Likewise there were jewellers who made ornaments for the person, which pleased and beautified the people, and these ornaments also were free to those who asked for them. Each man and woman, no matter what he or she produced for the good of the community, was supplied by the neighbors with food and clothing and a house and furniture and ornaments and games. If by chance the supply ever ran short, more was taken from the great storehouses of the Ruler, which were afterward filled up again when there was more of any article than the people needed. Every one worked half the time and played half the time, and the people enjoyed the work as much as they did the play, because it is good to be occupied and to have something to do. There were no cruel overseers set to watch them, and no one to rebuke them or to find fault with them. So each one was proud to do all he could for his friends and neighbors, and was glad when they would accept the things he produced."

A wizard idea!!!

 Mary E. Lease, is the supposed model for Dorothy in the Wizard of Oz and she was the speaker for the Farmers' Alliance and the Populist Party touring the country making speeches telling farmers to "raise less corn and more hell." She believed that big business had made the people of America into "wage slaves", declaring:
 "Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. The great common people of this country are slaves, and monopoly is the master... Our laws are the output of a system which clothes rascals in robes and honesty in rags. The political parties lie to us and the political speakers mislead us. We were told two years ago to go to work and raise a big crop, that was all we needed. We went to work and plowed and planted; the rains fell, the sun shone, nature smiled, and we raised the big crop that they told us to; and what came of it? Eight-cent corn, ten-cent oats, two-cent beef and no price at all for butter and eggs-that's what came of it.The politicians said we suffered from overproduction. Overproduction, when 10,000 little children, so statistics tell us, starve to death every year in the United States, and over 100,000 shopgirls in New York are forced to sell their virtue for the bread their niggardly wages deny them...."

Banking 1/7

Are the banks and greedy and incompetent bankers to blame for the current economic crisis? That’s what a lot of people think and what the media seems to want us to think. Certainly, bank directors generally are greedy – awarding themselves huge “salaries”, bonuses and pensions – and some of them are incompetent on their own terms. But blaming them is to let the real culprit off the hook: the capitalist system of production for profit. There are few places in the world more pointless than a bank. There are few compelled to toil more uselessly than bank employees. In every respect, the function of banks is to facilitate a form of exchange in which nothing is produced and much can be lost. A world without banks would be a wholly better place.

For all its worth, the distinction between productive and non productive capitalists remain a question of who gets what share of the unpaid labour of the working class.

Workers are exploited by virtue of the fact that we produce surplus value for the capitalists which is appropriated and used for their own ends. Nothing to do with low wages or being harshly treated. Exploitation is something which is built into the very nature of the employment relation itself which implies the division of society into employers/owners and employees/non-owners .

In fact, capitalism is not interested in producing things as such. It is only interested in profit expressed in money terms. Investing in the production of goods and services is an inconvenience which it has to go through in order to achieve its aim of ending up with a greater financial worth than it started with. Thus the purest form of capital is finance capital and, from the capitalist point of view, the most convenient way to make more money is to do so by financial dealings of one sort or another. It’s an illusion of course. It’s production, not finance, that makes the world go round. The financial world cannot go on feeding off rising paper asset values for ever. Reality must intrude at some point. But capitalism without finance capital is inconceivable; so too, therefore, is capitalism without financial crashes.

Capitalism is not a place (‘financial centres’) or a thing (‘multinational corporations’ ), it is a social relationship dependent upon wage labour and commodity exchange where profit is derived from capital’s theft of unpaid labour. Concentrating on “nasty” financiers and multinationals and defining “capitalism” in those terms can only end up as a massive diversion from the goal of abolishing the capitalist system.

This idea that bankers are any worse than other types of capitalists is not convincing. To repeat ad nauseum. The capitalist class as a whole, and all of the individual capitalists, enrich themselves thanks to workers adding more new value to the commodities they produce than the value of the wages received as payment for their labour-power. Any party to this exploitation of labour – whether the capitalist who lends the investment funds, the capitalist who supervises the commodity production process, or the capitalist who is tasked with selling the commodities – is entitled to a piece of the action and therefore share equally in the blame. It is nonsense to argue that one type of capitalist is more or less culpable than the others. The relations between capitalists is very much like those between a gang of thieves, who cooperate to pull off a heist and then divide the loot among themselves. Conflicts easily arise from such an arrangement: as a bigger share for one means a smaller share for the others. “Wall Street vs. Main Street”. It is more a re-distribution of booty among the robbers. Such squabbles are of little concern to the person who has been robbed. In the end it is just the old “divide and conquer” approach with a subtle new twist – instead of dividing the working class, the internal divisions of the capitalist class are emphasised to deflect attention from the actual real class divide that exists.

The task for socialists is not to drive out speculators from capitalism to perfect the system but to move beyond production as merely a means of capital accumulation.

Who are the people who find a difficulty in paying for the money they use? Not the working class in any sense of the word. Not the large capitalists, for they control the powers of government and have a currency suitable to their interests. There is left the small capitalist and shopkeeping section, who, fond of calling themselves the “middle” class, find themselves unable to hold their own positions against the giant production and “chain store” system of distribution that is crushing them out in all directions. Hence this howl for an extension of “credits” and the introduction of “cheap” money for the purpose of paying their debts. There is no chronic shortage of purchasing power. Sufficient to buy the product is generated as wages and profits in the course of production. Slumps are not caused by an absolute shortage of purchasing power but arise when, because of falling profit prospects, capitalist firms choose not to spend all their profits on fully renewing or on expanding production.

As Marx identified “So long as things go well, competition effects an operating fraternity of the capitalist class…so that each shares in the common loot in proportion to the size of his respective investment. But as soon as it is no longer a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, ie, to what extent he must share in it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers. The antagonism between each individual capitalist’s interests and those of the capitalist class as a whole, then comes to the surface…”

 Marx also pointed out that “the moneyed interest enriches itself at the cost of the industrial interest in the course of a crisis” Bankers are enriching themselves at the expense of industrial capitalists in other words.

The present banking crisis is not all that complicated. When borrowing became less available and more expensive banks came unstuck. They found that, when their loans came up for renewal they had to pay more interest on them than they were getting from those they were lending money too. Since banks make a profit by paying depositors and creditors a lower rate of interest than they charge those they lent money to, this meant they were making a loss. That’s what can go wrong when banks can’t get hold of other people’s money on the right terms. What can also go wrong is that they make unsound loans - the sub-prime situation. If they buy a house and the lend someone the money to buy it, if that person defaults they are left with the house. In normal times they can resell it but because there has been overproduction in the housing market they are finding that they can’t get the same price for it as they paid for it. In other words, they lost money.

In fact this effective overproduction in the housing sector could be said to be what has provoked the present financial crisis.

What socialists say about the banks is not regulate them, nor nationalise them, but make them redundant. Abolish them, along with all the rest of the complicated, financial superstructure of the capitalist production-for-profit economy. The mythology surrounding the power of banking helps those who take the view that this vast institution is so necessary that the prospect of a world without money would be unthinkable. Let’s abolish capitalism and live in a moneyless, propertyless world without banks. That means moving from a demand for ‘regulation change’ to one for ‘system change’. Perceived wisdom is that it should be easier to make socialists in a recession when the shortcomings of capitalism are more evident. This capitalist recession will eventually end and the economy at some time in the future will inevitably return to growth. If there are more socialists at that future time, then at least one positive outcome will have resulted from this sorry and preventable mess.

“…no kind of bank legislation can eliminate a crisis” – Marx

 The only way to solve the worlds problems is to escalate and intensify the class struggle. Capitalism is subject to periodic slumps and is a global system, global economic crises are inevitable from time to time. I’d like to think that this would trigger off a world-wide movement for global socialism but experience has unfortunately shown that there is not necessarily a fixed one-to-one relationship between economic crises and the growth of socialist ideas. Other factors too are involved and only time will tell how the socialist movement will fare.

The middle class

Marx uses the term “middle class”. In the Victorian period this term was used to refer to the bourgeoisie or capitalist class. In modern Marxist terminology the words “middle class” would be replaced by “bourgeois” and “bourgeoisie“ as appropriate.

Class is defined by the position in which you stand with regard to the means of production. In capitalist society there are two basic classes: those who own and control the means of production and those who own no productive resources apart from their ability to work. The job you do, the status it might have, the pay you receive and how you chose to spent it, are irrelevant as long as you are dependent on working in order to live. This means we are living in a two-class society of capitalists and workers.

The existence of a “middle class” is one of the greatest myths of the twentieth century. In the last century, the term was used by the up-and-coming industrial section of the capitalist class in Britain to describe themselves; they were the class between the landed aristocracy (who at that time dominated political power) and the working class. However, the middle class of industrial capitalists replaced the landed aristocracy as the ruling class and the two classes merged into the capitalist class we know today. In other words, the 19th century middle class became part of the upper class and disappeared as a “middle” class. The term, however, lived on and came to be applied to civil servants, teachers and other such white-collar workers.

Having to work for an employer was how Marx defined the working class. Commodities express the amount of labor time embodied in them and that is how Marx has defined money.

The traditional division between “working class” and “middle class” implies that there is a conflict between these two groups, with the middle class being better paid, educated and housed, often at the expense of the working class. In order for the left liberal politics to maintain its appeal, the enemy had to be found, not in the abstract workings of a social system, but in the concrete everyday realities. The owning class is too remote to be tangible, and certainly too remote to be vulnerable. So the left reformers dragoon the “middle-class” into the role. Their immediate enemy is the “middle class” ie the lower /middle echelons of management, civil servants, social workers, teachers and all the other functionaries of capital. Making a supposed middle-class into an enemy is as divisive as anything dreamed up by the owning class.