Wednesday, December 31, 2008

Capitalism Must Go

Editorial from the January Socialist Standard

We are now in the middle of the biggest economic and financial crisis since the 1930s. In a world that has the potential to produce enough food, clothes, housing and the other amenities of life for all, factories are closing down, workers are being laid off, unemployment is growing, houses are being repossessed and people are having to tighten their belts. There are in fact already 16 million officially recorded unemployed in the EU. Outside Europe the situation is worse and people are rioting because they can't afford even the basic necessities of life.

Capitalism in relative "good" times is bad enough, but capitalism in an economic crisis makes it plain for all to see that it is not a system geared to meeting people's needs. It’s a system based on the pursuit of profits, where the harsh economic law of "no profit, no production" prevails. It's because the headlong pursuit of profits has led to a situation where they can't make profits at the same rate as before that those who own and control the places where wealth is produced have gone on strike – refusing to allow these workplaces to be used to produce what people need, some desperately. So, as in the 1930s, it’s poverty in the midst of potential plenty again. Cutbacks in production alongside unmet needs. Why should we put up with this?

But that's the way capitalism works, and must work. The politicians in charge of governments don't really know what to do, not that they can do much to change the situation anyway. They are just hoping that the panic measures they have taken will work. In Britain the Labour government is trying to spend its way out of the slump, but this has been tried before and has never worked. The slump will only end when conditions for profitable production have been recreated, and that requires real wages to fall and unprofitable firms to go out of business. So, there's no way that bankruptcies, cut-backs and lay-offs are going to be avoided, whatever governments do.

What can be done? Nothing within the profit system. It can’t be mended, so it must be ended. But this is something we must do ourselves. The career politicians, with their empty promises and futile measures, can‘t do anything for us. We need to organise to bring in a new system where goods and services are produced to meet people's needs. But we can only produce what we need if we control the places where this is produced. So these must be taken out of the hands of the rich individuals, private companies and states that now control them and become the common heritage of all, under our democratic control.

In short, socialism in its original sense (which has nothing to do with the failed state capitalism that used to exist in Russia or with what still exists in China and Cuba) as a society of common ownership, democratic control and production for use not profit, with goods and services available on the basis of "from each according to ability, to each according to needs".

Thursday, December 25, 2008

Political Reality

Bianca Jagger participating in a demonstration during the United Nations climate change conference in Poznan, Poland

Bianca Jagger participating in a demonstration during the United Nations climate change conference in Poznan, Poland

“The politicians just don’t seem to get the seriousness of the global warming crisis. Scientists attending the recent UN climate conference in Poznan, Poland, complained that the gap between political rhetoric and scientific reality on climate change is growing.”It doesn’t matter what the politicians promise,” said French climate scientist Phillipe Ciasis. “Even if we stop emissions growing today, the world will still warm by 2 °C - a lot more in some places. It is too late to prevent that.” Ciais was at Poznan to present the latest findings of the Global Carbon Project, a network of scientists that monitors how humans are influencing the natural carbon cycle.

While politicians boast of their progress in cutting CO2 emissions, in the real world the gas is actually accumulating at an accelerating rate. Emissions have risen 28% already this decade, compared with 9% for the whole of the 1990s, said Ciais.” (New Scientist, 20 December)

This is another example of politicians making sympathetic noises about the environment but in practice to cut emmissions may put them at a disadvantage against their international competitors. If they put themselves at a disadvantage in the quest for profits you can be sure the environment will not be a factor they will consider.


Wednesday, December 24, 2008

Manufactured Scarcity

Book Review from the December 2008 issue of the Socialist Standard

Green Capitalism. Manufacturing Scarcity in an Age of Abundance. By James Heartfield. .2008

James Heartfield is associated with the former Trotskyist (British) Revolutionary Communist Party (RCP) which used to publish Living Marxism (LM) and has moved on considerably since “the collapse of Communism” at the end of the 1980’s and the dissolution of the formal RCP organisation in 1997. These days the so-called “LM network” produces the edgy website and organises debates and events under the auspices of the Institute of Ideas and a myriad of propaganda campaigns expedited largely through a robust, sometimes entertaining, and not ineffective style of media entryism.

One area this current has been particularly interested in over the last two decades is in promoting a full-on critique of the reactionary imperatives of the politics of “Environmentalism”. In Green Capitalism James Heartfield reminds us that the profit system is essentially a system of rationing, which is now, in certain circles and in a variety of ways, being dressed up as “greenwashing” by Big Business and Governments – as the contemporary ruling elites reinvent scarcity in an age of abundance.

Heartfield rightly presents the capitalist mode of production as an epoch in which the force of human ingenuity has sought to ameliorate the exigencies of life through technical breakthrough with the result that happiness is the condition for most of us in Western societies. I do, however, take issue with the notion that one out of any of the 300 workers at the Lombe silk works on the Derwent in 1721 or the 5000 wage slaves at Arkwright’s Mill in Cromford in 1771 woke up for work every day with a sense of unmitigated joy. Whilst those long deceased exploited workers are no longer “variable Capital”, my modern-day neighbours don’t seem to enthuse much about the conditions of their means of living whilst having a sup on a Friday night in the local pub, either. Nevertheless, the material gains we have made in the interim between the first factories and 21st century capitalism are impressive.

In a summation of capitalist economics Heartfield tackles the neo-classical economists and suggests they were in effect “Rationers by Trade“ (my phrase not his) but you get the point. Notwithstanding that, the book opens with a great sense of optimism and opines succinctly upon the gains made by the working class under capitalism. The author explains carefully the concomitant progressive and destructive forces at play within the profit system and hints at transcending towards a more rational form of society founded upon technological progress.

This work sets out to show how modern Environmentalism came about as a consequence of ruling elites ideas about scarcity. Heartfield‘s argument is that, in Western society, the myth of the “fragile” planet emerged as a consequence of the retreat from production in the original heartlands of industrial capitalism.

Much of the Green Capitalism provides an excellent exposition of the fools’ errand of “Environmentalism” and the levers of power behind that aspect of the moribund profit system. Meanwhile, at times the prose is poor and plodding, and some of the referencing is both points-scoring and unnecessary to make the more essential issue clear. Do we really need to be lectured about Trotsky’s ideas on production? Some of this stuff would leave the general reader all at sea in very short order. Whilst a final extraordinary point is clearly made: the world population grew from 791 million in 1750 to 5.9 billion in 1999, as a consequence of advances in agriculture, transport, sanitation, industry. Many of that number exist at the level of subsistence – and it should not be that way! So, from an editorial perspective the narrative simply peters out – a bang and a whimper! Where is the alternative?

Notwithstanding that, this book has much to recommend it, not least for cocking a timely snook at both the modern-day misanthropes who see mankind as a plague upon the planet and the long-dead ‘dismal scientists’ of neo-classical economics who could not comprehend a theory of productive growth through collective endeavour. Heartfield puts a well aimed, populist boot into the modern-day Green Capitalists – Branson, Goldsmith, Charles Windsor, Al Gore, Bill Clinton, Lord (Peter) Melchett, and makes reasoned argument that Western Capitalism has got to go Green for the sake of exploiting new sources of profit.

There is an argument that modern socialists need to take on the Green catastrophists and promote technology and real democracy to face down the spectre of Austerity Capitalism in the 21st Century - in order to kill the pernicious profit system once and for all.

-Andy P. Davies

Sunday, December 21, 2008

Five benefits of not having money

From the Socialist Standard

Socialist society will have no need for money. This will profoundly affect all aspects of life.

Removing money from the current economic equation would strike most people as impossible, unthinkable, absolutely imponderable. Everything we do, every transaction we make, from a simple cup of tea to sending a space probe to Mars, from birth to death and at every step in between, money has become a necessary part of getting what we require. It has become an accepted, entrenched method of acquiring anything and everything but it wasn't always so and in a genuine socialist system money will be shown to have been an unnecessary, wasteful and divisive way of ordering world communities.

When initially presented with the notion of a world without money the first imperative is the willingness to contemplate a huge paradigm shift, to put aside all familiar long-held views and preconceived notions and to enter into an adventure of discovery that there is a place for all at the table, that it doesn't entail regression to the Dark Ages and that the welfare and progress of people doesn't have to come at cost to the environment.

1. Work

It is well recognised by experts in the health arena that work is one of the most stressful areas of life for reasons such as long hours, extended travelling time to and from place of employment, risk of job loss, lack of security of tenure including competition both within and without, inflexible working practices, difficulty getting release for major personal events such as bereavement, long-term illness of a spouse or partner, or even short-term care of a sick child. Loss of employment can put stress on the whole family, sinking it into debt, causing day-to-day difficulties with the budget and in many cases leading to loss of the home.

When money is not required in exchange for work and when, instead, all contribute their skills, expertise and/or manpower in return for open access to the requirements of life then we can begin to see a different motivation enter the whole concept of the "work" scenario. A moneyless world will free up millions of workers now tied to some very stressful occupations dealing only in (other people's) money – banking, mortgage brokering, insurance; those occupied in the collection of rates, taxes and utility payments; those in security work such as guards and armoured truck staff engaged only in protecting and moving money and other "valuables" – millions of workers who, when considered logically, currently fulfil no useful function and contribute nothing to society that improves that society.

Right now, worldwide, are millions of would-be workers who are sidelined in one way or another, without employment or scratching on the edges of a black economy and in some of the more "developed" countries we find some termed "scroungers" in current-day parlance.

Within the capitalist system there has to be a pool of workers unable to find work in order to keep the bargaining power in favour of the employers who strive to keep wage levels down, whereas if there is a shortage of suitable labour the bargaining power switches to the employees who try to force wage levels up. The fact that a few "developed" countries have systems which pay a percentage of workers to remain unemployed (receive benefits) is a price the capitalists are prepared to pay to maintain the tensions in society. Encouraging the employed to think that they are the ones subsidising the benefits system maintains one fissure within the working class. Also, allowing a large number of unemployed to be without benefits would cause too many problems for the capitalists with possibilities of mass looting, rioting and damage to their property

When all work is seen as legitimate and deserving of recognition, from the humblest occupations – collecting and sorting waste, stacking shelves in our stores, keeping the utilities working even in the worst weather, repairing our shoes – to those which are perceived as more elite – heart surgeons, ground-breaking scientists or cutting-edge technicians; when all are respected for their contribution simply by having the same right of access to the commonly produced goods, humankind will have truly developed to a higher level. This change in emphasis regarding human worth would, as a matter of course, give all the opportunity for further personal development in areas of individual choice which leads to the second topic for consideration.

2. Increased Leisure Time

With so many extra hands on deck working hours will be able to be considerably reduced which, with the knowledge that one's work is not tied to the ability to feed and clothe the family, to house them and provide all the other requirements of life, is to remove the stress at a stroke.

Decreased time, but working for the common good rather than increased time working only for personal remuneration. Less working time was the oft-repeated refrain in the early days of the technology era. Workers were to benefit from machine-operated production systems, computers would be able to handle many of the mundane operations previously done manually, the working week would be much reduced, maybe even leading to job-sharing and part-time employment. In fact this state of affairs never materialised and more employees found longer working hours became part of their conditions of employment, earlier agreements having been gradually eroded to the benefit of the employers.

In socialism, with millions released from wage slavery in the then redundant financial sector free to be a part of the production, distribution and services sectors, with the black economy and "illegals" no longer threatening paid workers (pay being redundant) there will be a huge reduction in individual necessary work time. When there is no profit incentive the emphasis will be on the production of quality goods from quality materials and no one need choose an inferior item based on cost. Providers of utilities such as electricity and gas, water and communications will be able to have sufficient workers to install, service, repair and develop their installations more efficiently and effectively. If there is work that no one is prepared to undertake then an alternative will need to be found democratically.

Without the constraints that we have today the workplace will become a different place, one of cooperation not competition, where we work for the benefit of all, not for the profit of a few.

The lines between work and leisure may well be much more blurred than in today's scenario. People will have time, time to be creative, to learn different and multiple skills and to enjoy the time they spend working. Leisure activities seen as hobbies now – vehicle maintenance, gardening, DIY home improvements, baking, the making of all kinds of hand-made items, giving or receiving educational and training courses – could well form part of one's service to the community, bringing a greater satisfaction and contributing to individual development generally, one of the aims of socialism. With more leisure time available it is also highly likely that more 'work' would be created in the leisure area, whether sports complexes, theatrical and music productions and educational courses in the widest sense and with unlimited opportunities for the active participation of those who choose it.

3. Housing

Adequate shelter, a "right" for all enshrined in the United Nations Charter, is still unavailable to millions (billions, probably). There is absolutely no automatic right to housing within the capitalist system. All must pay. To pay, all must work. It is no matter that you work long and hard and that your children work long and hard and don't go to school. All that matters is that you have enough to buy or rent or build. Maybe you did have enough before the housing market bubble burst and the "worth" of your house went down while the interest rates went up. Well, tough! Look around you. See the empty houses and FOR SALE and foreclosure signs. These people must be living somewhere now. There is always housing stock available – if you can pay the going rate.

This is one very obvious benefit of not having money. The recent economic crisis has focussed many home-owners' minds. Why should anyone be secure one month and the next find themselves in queer street?

Can anybody justify one individual's multiple home ownership while others live in slums, in cars, in cardboard boxes on the streets? Please! When the majority of us have eventually decided that this scenario is unacceptably obscene we can at last begin to move to a humanitarian way of ordering our societies. Housing for all. Decent housing for all. Materials that are free and belong to all of us. Our architects, builders, plumbers, plasterers, electricians, etc. etc. will all work for free – they also need homes to live in. New housing can be built to the best specifications using appropriate materials, incorporating adequate insulation and services with regard to environmental protection and best use of alternative energy.

Respect for people and respect for the environment. Decisions made democratically as to best use of urban space vacated by the money businesses; by communities wanting to refurbish or upgrade their older stock. The balance between urban and rural will no doubt change. In some parts of the world there will be a mass exodus back to productive farmland, reclaimed for local use and consumption rather than continuing to grow cash crops for export. Decisions will be taken based on the well-being of communities and determined by the requirements of those communities and there will be no constraints or limitations linked to profit for a third party.

4. Health care

As a result of huge stress reduction, no more worrying about salary or wages from the job, no more worrying about keeping up the payments on the house, increased leisure time – all these various factors will surely result in improved relationships all round and, quite soon, a healthier workforce.

At present there are huge variations in standards of health care around the world and also massive discrepancies in availability and monetary cost to the recipients, Universal health care simply dos not exist. Again it is tied in to the ability to pay.

Let's remove this barrier to good health and care of the sick by removing the money element and offer all services, treatments, drugs and medicines free of charge. Hospitals and clinics then will be free of top-heavy budget management and will be able to access resources, whether manpower, equipment or drugs, according to their requirements and not limited by financial constraints. Medical researchers, now mostly tied to global corporations and limited by them in the areas of their research, will be able to concentrate on eradicating disease and providing the best remedies for all comers, not just those with insurance. World diseases such as malaria, tuberculosis and polio will soon be a thing of the past when money, too, is history.

Work and training in one of the many varied avenues of health care will be open to those from the pool of post-money redundant sectors. With the shift from a market economy to societies geared to fulfilling human needs there will probably be more priority given to preventive medicine and appropriate information on suitable diet and healthy living, which leads us to consider the topic of food.

5. Food

Currently the growing, processing and distribution of food is largely dominated by transnational corporations solely in the pursuit of profit. The consumer appears to have a huge choice of goods and numerous decisions to make at each aisle of the supermarket but often the choices are superficial, not actually the choices being sought. For instance, notice the difficulty of buying a processed food which doesn't contain soya. The soya has probably been genetically modified and the labelling could be unhelpful. The choice becomes buy in ignorance or acceptance, or do without.

It's well known that products are laced with added sugar, salt, monosodium glutamate etc. to create a certain dependency and craving for more.

Last year's problems of melamine-laced pet foods which caused animal deaths in the importing countries were followed this year by melamine-laced milk products causing infant deaths and multiple illnesses in China, spreading fear to importing countries. There can be only one reason for food to be contaminated deliberately (apart from a mass assassination attempt or the desire to spread fear among the population) and that is in the pursuit of greater profit.

Africa, a net exporter of food until the post-colonial days of the 1960s, became a victim again, indebted to the World Bank and IMF. Recipient of highly subsidised dumping of food from rich countries (US and Europe) the result has been that the countries there have to grow cash crops for export in order to pay off some of the growing debt creating food shortages for the domestic population, many of whom had been forced off ancestral lands (for the growing of cash crops) and who were then without the means of subsistence. There have been a number of studies which reveal there is no problem feeding a world population considerably larger than today's. There is an enormous wastage of food in the rich world. The major problem for the hungry in the poorest countries is lack of cash.

Food, if regarded simply as fuel for the body, should be clean – free from contaminants, chemicals and the like; fresh – the more local the better; and nutritious. Free food for all would come with the bonus of knowing there would no longer be any incentive to adulterate ingredients. The question of "FAIR TRADE" wouldn't arise as all along the line farmers, producers, pickers, packers and distributors would have the same motivation to provide good clean food knowing they have the same access as the consumers. This has to be a win-win situation. Another winner in this scenario would be the environment.


Thursday, December 18, 2008

Banks, money and thin air

An urban myth is circulating on the internet that banks have been creating money out of thin air.

Those who have seen the cult film Zeitgeist and its sequel Zeitgeist Addendum, popular amongst conspiracy theorists and others suspicious of governments and banks, will have heard recounted the argument that banks can somehow create money out of thin air by the stroke of a pen or, these days, by the touch of a computer keyboard.

In Zeitgeist Addendum this argument is based on what is stated in an educational booklet published by the Federal Reserve Bank of Chicago. Entitled Modern Money Mechanics it first came out in 1975 and has gone through several editions.

Zeitgeist Addendum begins by describing how it thinks the Federal Reserve Bank (the “Fed”) creates money. If, it says, the government wants more money then, through the Treasury, it creates Treasury bonds which it exchanges with the Fed for currency notes of the same face value; as the government has to pay interest on the bonds this adds to the National Debt and so is “debt money”. Both the Treasury bonds and the currency notes have been created out of thin air.

This is one way of putting it but it is misleading. It is rather the other way round in that the initiative to create more currency comes from the Federal Reserve Bank. Once it has decided that more notes are needed it asks the Treasury to print them (for which the Treasury charges). The normal way these get into circulation is by the commercial banks converting into currency some of the reserves they are obliged to lodge with the Fed. Modern Money Mechanics explains:

“Currency held in bank vaults may be counted as legal reserves as well as deposits (reserve balances) in the Federal Reserve Banks. Both are equally acceptable in satisfaction of reserve requirements. A bank can always obtain reserve balances by sending currency to its Reserve Bank and can obtain currency by drawing on its reserve balance” (p. 4).

In any event, both the Treasury and the Federal Reserve are part of government so we are talking about internal state accounting arrangements. It is, however, true that the new currency has been created out of nothing. Since it is not backed by gold and convertible on demand into a pre-fixed amount of gold, it is what in the US is called “fiat money”, that is, money created by a mere act of State.

Modern Money Mechanics does not in fact have much to say about currency creation but concentrates on what it calls “money creation”. It draws a distinction between “currency” and “money”. This is explained clearly enough on the first page of the booklet where money is defined as currency plus bank accounts with a cheque or debit card; which is M1 in the jargon (“In the remainder of this booklet, ‘money’ means M1”).

Congressman Ron Paul, from Texas, a critic of “fractional reserve banking” and advocate of a return to a gold-backed currency, has an even wider definition of “money”:

“”M3 is the best description of how quickly the Fed is creating new money and credit. Common sense tells us that a government central bank creating new money out of thin air depreciates the value of each dollar in circulation.” (27 April 2006, see

M3 includes other types of bank deposits and liabilities not included in M1. In claiming that all new money created by the Fed depreciates the dollar he is overstating his case. All the US currency (but, as we shall see, not bank deposits) is created “out of thin air” but an increase won’t lead to a depreciation of the dollar as long as it corresponds to an increase in the amount required by the economy for its various transactions (paying for goods and services, settling debts, paying taxes, etc). It is only currency issued in excess of this that will cause a decline in its value and so a rise in the general price level.

Everybody accepts that cash (currency, notes and coin) is money. Some might be prepared to include cash deposited in banks as well. But Modern Money Mechanics definition of bank deposits is wider than this. It doesn’t mean just deposits by people of the money they already possess but any account for which the holder has a cheque or debit card, i.e. including credit lines granted to those who banks have lent money to (so enabling Zeitgeist to go on talking about “debt money”):

“Checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by banks are credited to borrowers’ accounts” (p. 3, emphasis added).

So, when it talks about “money creation” it is not talking about currency creation but mainly about “bank deposit” (in the above sense) creation.

The Federal Reserve booklet goes on to explain what “fractional reserve banking” involves and how it can lead to the creation of more “money” in the sense of more bank deposits. Banks, it explains, have learned that when cash has been deposited with them they only need to keep a part (a “fraction”) of it as cash as a “reserve” to deal with likely cash withdrawals; the rest they can lend out. What this fraction is depends on the circumstances, but historically it has been around 10 percent.

On the booklet’s definition, in making a loan a bank is “creating money” as their loans will take the form of creating a new bank deposit as a credit line which the borrower can draw on as if they had made a deposit of their own money (except they will be paying interest on it). The booklet then asks “What Limits the Amount of Money Banks Can Create” and answers that this depends on the cash reserves it has decided to hold or is required by law to keep.

It is here that Modern Money Mechanics, by suddenly shifting from what an individual bank can do to what all banks together (“the banking system”) can, opens the way to the misinterpretation of people like Ron Paul and the makers of the Zeitgeist films that banks too can create “money” out of thin air. The booklet explains that US banks are required by law to keep a “fraction” of deposits as
“reserves” in its vaults and/or a balance with the Fed, and says:

“For example, if reserves of 20 percent were required, deposits could expand only until they were five times as large as reserves. Reserves of $10 million could support deposits of $50 million” (p. 4).

This is a very misleading way of putting as it could suggest that if banks receive total new deposits of $10 million they can immediately proceed to make loans of four times this. This is not so, and not really what the booklet meant to suggest. What it means is that the banks can immediately lend out only four-fifths of $10 million, or $8 million, and that this circulates throughout the banking system leading in theory to new loans totalling in the end $40 million, bringing total “bank deposits” up to $50 million.

Confusingly, the numerical examples the booklet goes on to give to illustrate this are based not on a 20 percent reserve fraction but on a 10 percent one (which is more or less what the law in the US requires for the kind of bank deposits in question). So, to take its example, if $10,000 is deposited in the banking system, initially say in one bank, that bank can make loans (create credit line bank deposits) of $9000. When it is spent this $9000 will be re-deposited in other banks which can then lend out 90 percent of this, or $8100; which in turn will be
re-deposited in banks, allowing a further $7290 to be lent out, and so on, until in the end and over the period, a total of $90,000 new loans will have been made.

This shows how the Fed can practice “fractional reserve banking” to control the amount of “money” (currency plus bank deposits) in the economy. This is done via “open market operations” as explained in a section headed “Bank Deposits – How They Expand or Contract”:

“Let us assume that expansion in the money stock is desired by the Federal Reserve to achieve its policy objectives . . . [T]he Federal Reserve System, through its trading desk at the Federal Reserve Bank of New York, buys $10,000 of Treasury bills from a dealer in US government securities. In today’s world of computerized financial transactions, the Federal Reserve Bank pays for the securities with an ‘electronic’ check drawn on itself . . . The Federal Reserve System has added $10,000 of securities to its assets, which it has paid for, in effect, by creating a liability on itself in the form of bank reserve balances” (p. 6).

The bank from which the Treasury bills were purchased now has reserves above the 10 percent limit and so can turn the $10,000 into loans, which starts the process described above rolling, leading to an extra $90,000 bank lending.

In theory the Fed could contract bank lending in the same way, but this has never happened. So M1 has gone up and up each year. But what about the currency in all this? It too has gone up but passively and almost automatically. With increased banking activity more currency notes are required, which banks get by converting their reserves into this and which, if it hasn’t enough notes, the Fed just asks the
Treasury to print more. But this has consequences – the depreciation of the dollar and the rise in the general price level Congressman Paul doesn’t like.

But has the banking system really created more “money”? Only if you regard “bank deposits” as money. If you don’t, all that has been shown is that currency has circulated in that the whole process depends on the initial deposit or injection of cash being recycled as further deposits by depositors (as opposed to by banks creating a credit line). So, neither an individual bank nor the whole banking system can lend more than has been deposited with it. By the end of the process, in the
example given, the first loan (out of the first deposit of $10,000) of $9000 has been used and used again for genuine deposits totaling $90,000. But all this assumes an expanding economy, since where is the money to repay the loans and the interest on them to come from without being assured of which the banks would not lend the money in the first place?

So the banking system does not create money to lend out of thin air but can only lend out money deposited with it and then only when economic conditions permit it.

Today, bank deposits are not the only source of what the banks lend. They also borrow on the money market (as has been highlighted by the present banking crisis). This means that their reserves are an even smaller percentage of their total loans, only about 3 percent in fact. This figure is mentioned in Zeitgeist Addendum as if this was now the “fractional reserve” and that therefore banks, or the banking system, can “create” loans of up to 33 times an initial deposit. Another silly mistake.

If currency cranks such as the makers of the Zeitgeist films have got the wrong end of the stick about “fractional reserve banking” and imagine that it means banks, whether singly or all together, can create money or credit out of thin air this is partly the fault of the way that booklets like the one produced by the Federal Reserve Bank of Chicago try to explain it. Of course the Fed does not believe the “thin air” claim, but to refute the currency cranks it would have not only to re-iterate that no single bank receiving an additional deposit of $10,000 can forthwith loan out $90,000, but also spell out that the expansion of credit line bank deposits still depends on people making real deposits of their own, unborrowed money (whether in cash or by cheque or by bank transfer). Which would restore a sense of reality and explode the myth that banks can create loans out of thin air.


Tuesday, December 16, 2008

Robert Owen: paternalist utopian

This year marks the 150th anniversary of the death of Robert Owen. The Owenites introduced the word “socialism” but Owen himself always opposed the class struggle.

Owen’s key idea, indeed perhaps his only one, was: “Man’s character is made for and not by him”. He thought that it was therefore possible to give a person any character you like. He was, in short, a ‘man moulder’.

Robert Owen was born in Wales. He had little formal education but through hard work and nous (including marrying the boss’s daughter) soon became a big cheese in the cotton spinning business. In 1800, at the age of 29, he moved to New Lanark in Scotland.

This was the real era of the dark satanic mills. Sans unions and sans factory legislation, the workers toiled endlessly for a measly pittance, existing in a degraded condition in filthy slums. Owen took New Lanark (which it must be said was even at the start one of the better mills) and made it a model factory estate. Nice Mr. Owen became well known as a genial entrepreneur and benevolent philanthropist. At his factory at Lanark he improved hours and conditions, introduced schooling, and banned ‘morally harmful’ out of hours activities (outlawing pubs and books and fining extra-marital sex). He raised the minimum working age from six to ten years. Entertainment for his workers was a little harmless music, some dancing and physical jerks. Military drill was introduced to “give them an erect and proper form, and habits of attention, celerity, and order”. In addition “firearms, of proportionate weight and size for the age and strength of the boys shall be provided for them”. A key element in the workplace was the public display of a block showing the behaviour of the individual (shades of Maoist self-criticism). This was said to be character building but also produced a disciplined and productive workforce. (All quotes are from A New View of Society Owen’s account of New Lanark).

The aim at New Lanark was made absolutely clear in a letter from Owen to The Times in 1834:

“I believe it is known to your lordship that in every point of view no experiment was ever so successful as the one I conducted at New Lanark, although it was commenced and continued in opposition to all the oldest and strongest prejudices of mankind. For twenty-nine years we did without the necessity for magistrates or lawyers; without a single legal punishment; without any known poors’ (sic) rate; without intemperance or religious animosities. We reduced the hours of labour, well educated all the children from infancy, greatly improved the condition of the adults, diminishing their daily labour, paid interest on capital, and cleared upwards of £300,000 of profit.” (quoted in GJ Holyoake’s History of Cooperation).

Like Lord Leverhulme at Port Sunlight, Owen found that treating your workers better makes better workers which makes better profits. The rest of Owen’s life was an attempt to recreate the Lanark Mills experience on a large scale. True later on for different reasons. But Owen never really understood that at New Lanark he was able to impose ‘nice’ upon his workers by their very status as workers.

The end of the Napoleonic Wars brought a period of crisis including mass unemployment. This resulted in a high poor rate. Owen, being a businessman, sought to lower this with a plan for solving unemployment. Again this was the 5 percent philanthropy at work. Concern for the suffering was tempered by profit making – in the form of a lowered tax burden. Some time around 1817 this tax plan became a general scheme for the changing of society.

Essentially society was to be transformed by means of experimental communities. These self-contained and self-supporting complexes were to be built as grand squares, the parallelograms. In the communities the precise form of ownership of property was left open, leaving the way open for ‘community of goods’. However Owen was averse to this. Economics, like the precise form of internal administration in the colony, was unimportant. Education was the key to Owen’s scheme and its purpose was to mould the individual into an ideal social character. Finance was to come by an appeal to the rich and influential. Such was not forthcoming. Owen blamed his failure on his relatively mild criticism of the established church and the family. Doubtless this had some effect but the rich really had no particular interest in solving the problem of poverty. So far as they were concerned the poor could rot.

From 1824 Owen poured his own money into setting up a community in America. New Harmony, in Indiana, failed within a few years, essentially due to lack of discrimination in choosing occupants (the great problem of freeloaders). Without the power that goes with being a factory owner, Owen was unable to make the communists behave as he wished, particularly as, despite his own high opinion of himself, he was not a particularly good organiser, often leaving deputies to deal with problems while he swanned off for parties with the wealthy (Owen was always fond of the Great and Good, dedicating the New View to the appallingly corrupt Prince Regent).

When Owen returned to Britain in 1829 after the dismal failure of his American experiment, he found the situation somewhat altered. Throughout the country the working class was making use of the repeal of the anti-combination laws to set up trade unions. These were as yet little more than local self-help clubs, often carrying out some form of cooperative trading venture. Many of those involved looked to Owen as a source of inspiration. Owen himself had lost virtually all his money and whatever slight influence he may have had amongst the wealthier classes. Bandwagonning a little, he began to associate himself with the various self-help schemes – co-operatives, barter schemes and trade unions. Although so far as he was concerned these were only of use in ‘preparing the public’s mind for community’, this short period (1829-34) was the making of Owen as a figurehead of the old Left.

Within a short time Owen had set up his own cooperative (Association for the Promotion of Cooperative Knowledge), union (Grand National Consolidated Trades Union) and labour exchange (National Equitable Labour Exchange) organisations. The latter functioned as an extension of the cooperative store, surplus coop produce forming the basis of its activities. Essentially goods brought in were valued by a committee and a note issued indicating the amount of labour required to produce the item. This could then be exchanged for other goods in the bazaar of the same labour time value.

The various groups were viewed as fund raisers and mind openers – fronts in modern parlance – rather than useful in themselves. Strikes were certainly not on Owen’s agenda. And when the true class war came to a head in the summer of 1834, Owen bailed out, disassociating himself from the GNCTU. Extreme pressure from employers led to the failure of the union, which brought down in its wake the cooperatives and labour exchanges. The latter were probably fatally flawed in any case due to their limited ability to satisfy needs, most goods making their way there being unsaleable on the open market.

In 1835 Owen renewed the attempt to found a community. This time the attempt was made through a distinctly working class body. This was variously named the Association of All Classes of All Nations (1835-39), the Universal Community Society of Rational Religionists (1839-42) and the Rational Society (1842-46). At its peak in 1841 there were 70 or so branches spread throughout Great Britain. In key centres, such as Manchester and London, meeting halls were built (the Halls of Science) and regular indoor and outdoor propaganda meetings held under the auspices of ‘Social Missionaries’. By late 1839 the efforts bore fruit with the opening of a community at Queenwood in Hampshire. This became known as Harmony.

Harmony was however distinctly unharmonious. Owen regarded the whole enterprise as a means towards the perfection of humanity, a great experiment in making people nice. The workers however saw Owenism in general and the community in particular, as a way of abolishing their own poverty. Conflict was inevitably the result, with control of the enterprise swinging back and forth between the paternalist Owen and the self-organising proles. The true downfall of Harmony however was really Owen’s responsibility. Having selected a hopeless site in the chalk uplands, he proceeded to build a hopelessly ornate ‘super workhouse’, burdening the society with unsustainable debts. In the summer of 1845 Harmony was sold off. Further details of the Harmony scheme can be found in Edward Royle’s excellent Robert Owen and the Commencement of the Millennium (Manchester University Press, 1998).

Historically the attitude to the Owenites of the 1830s and ‘40s has been determined by the semi-religious millennial language that was used and group dismissed (e.g. by GDH Cole) as nothing more than a sect. Although there were elements of this, Owen as the secular saviour leading his chosen people to the glorious paradise of Community, the reduction is a rather unfair slur. Many contemporary organisations, including the Chartists, used flowery language. And the image of Owen as unquestioned leader was certainly far from the truth.

Owen has further been criticised for paying no attention to the main mass movement of the day – Chartism. Chartism was a movement for political democracy and as such was irrelevant to Owen’s aim – setting up experimental communities. It must also be said that so far as the starving worker of the day was concerned the issue of mere possession of the vote in itself would not have brought them food. The demand for the ballot was resisted by the upper class largely because it was believed anti-capitalist measures would follow in its wake. Owen recognised, unlike most Chartists, that political democracy is not the solution in itself to capitalist misery. He did not however recognise that it could be a means to this very end.

After 1845 Owen went into a form of retired senility. Seances, bumpreadings and other such garbage were the order of the day. Perhaps his greatest contribution of these years was his autobiography The Life of Robert Owen by Himself, published in 1857. Although obviously biased it is a great from the horse’s mouth source.

The principal practical result of Owen’s life was the setting up of utopian communities. The Owenite communities, both the official ones detailed above and the numerous examples in which Owen had no hand, failed to demonstrate Owen’s theories of character formation, which was of course their main aim, because they never became properly established. What they do demonstrate however is how easy it is for such a community to fail. And since such communities would primarily be a demonstration of cooperation, providing a haven for a few from capitalism, the amount of enthusiasm and resources invested was surely wasteful.

Perhaps surprisingly, although Owenism was unfruitful in achieving its specified aims its by-products were far from inconsiderable. The Rochdale Pioneers, founders of the modern cooperative movement, were Owenites and the modern secularist movement can also trace its ancestry back to the Owenite movement of the 1840s.

The importance of the Owenites is that they marked a watershed; for the first time a complete change in the nature of society was contemplated by a section of the working class. We also owe them our name. Although previously in use, the name ‘socialism’ was adopted by the Owenites in 1837 to describe their aims and within a few years Owenism and Socialism were synonymous. The connection was so strong that Marx and Engels were forced to have a Communist Manifesto rather than a socialist one. The meaning of the phrase has altered much since then, primarily due to the influence of Marx and Engels, however the underlying assumptions of Owen and the Owenites that human nature is not eternally fixed and therefore a better world is possible remains the basis of socialism.


Saturday, December 13, 2008

This is what Marx wrote about the credit system, all those years ago...

Reposted from Socialist Courier

The credit system reproduces a new financial aristocracy, a new kind of parasite in the guise of company promoters, speculators and merely nominal directors; an entire system of swindling and cheating with respect to the promotion of companies, issues of shares and share dealings.

The credit system...accelerates the material development of the productive forces and the creation of the world market, which it is the historical task of the capitalist mode of production to bring to a certain level of development, as material foundations for the new form of production. At the same time, credit accelerates the violent outbreaks of this contradiction, crises, and with these the elements of dissolution of the old mode of production.

The credit system has a dual character immanent in it: on the one hand it develops the motive of capitalist production, enrichment by the exploitation of other’s labour, into the purest and most colossal form of gambling and swindling, and restricts ever more the already small number of exploiters of social wealth; on the other hand however it constitutes the form of transition towards a new mode of production.

Capital Volume III - Chapter 27 - The Role of Credit in Capitalist Production

Friday, December 12, 2008

On the Republic Window Sit-In

The occupation of the Republic Window and Door factory in Chicago has ended.

Certainly this has been an inspiring event. One hopes the sit-in will inspire even more inventive methods of fighting for working people.

However, we must also take into account what was “won”. The workers received the monies owed them. They lost their jobs. The employer had taken monies from the Republic plant and bought a competitor in Iowa.

That’s a victory? Perhaps in the present conditions it is. But it’s rather sad to crow success when you are getting what’s legally owed you.

Now the UE union - perhaps the best union in the US - is discussing restarting the factory perhaps as some sort of cooperative. While one wishes the workers the best, would this be an improvement? They will still be subject to the laws of supply and demand. How will they be successful when the former company wasn’t? As the downturn continues will they cut their own wages? Cut their own hours? Or perhaps just lay themselves off.

Cooperatives or worker owned businesses may be more “fair” for the workers than a privately held company like Republic Window. Can’t fault them for trying, right?

But ultimately you can’t wish justice or fairness - or seek room for fairness - in what is a fundamentally unfair society. Even a cooperative business must accept the logic of capitalism or perish.

An example of this contradiction is the famous Mondragon Cooperatives of the Basque country of Spain. These cooperatives we established in the 1940s and consist of more than 80,000 worker-owners. They were a huge inspiration for the 1970s cooperative movement here in the US as well as many anarcho-syndicalists who have long argued for “self-management” .

But the Mondragon Cooperatives have to function within the system. They thrived under the fascist dictatorship of Franco. They have also expanded, buying factories in Poland. But the Polish workers are not owners as the Basques are. This year the Polish employees of Mondragon went on strike and the Mondragon Cooperatives moved to break the strike and the workers’ unions.

I’m raising the problems of the Republic sit-in not to belittle the efforts made there. Nor is it a call to workers to sit on their hands or become isolated academics. The point needs to be made that UE is trying to replicate past strategies - sit-ins, cooperatives, etc. which are tired. Inspiring or not, the strategies have serious flaws. They are focused on the immediate and have no long term vision or goal.

Perhaps with a little class consciousness, some radical understanding of how capitalism functions, the workers at Republic Windows could have inspired a much more radical and powerful workers movement - one to abolish capitalism.

Thursday, December 11, 2008

Cuba’s wage system

The Cooking the Books column from the October 2008 issue of the Socialist Standard

Earlier this year, when in June the Cuban government, now under Fidel Castro's brother Raul, announced a new system of wage payments, the Guardian (13 June) wrote that Cuba had "abandoned its egalitarian wages system". This brought a response (20 June) from Helen Yaffe, author of Ermesto Che Guevara: The Economics of Revolution:

"In reality, there has never been an 'egalitarian wage system' (i.e. one where every worker was paid the same): Che Guevara himself devised a new salary scale, introduced in 1964, with 24 different basic wage levels, plus a 15% bonus for over-completion".

In other words, Cuba never had practised wage equality, not even when Guevara was Minister of Industry. Not that socialists favour equal wages. As long as the wages system – the sale of people's working skills for money – exists there will be a different price for the different types of skill. We want the abolition of the whole wage system, an end to the buying and selling of people's working abilities, and the application of the principle "from each according to their ability, to each according to their needs".

Yaffe made a claim about this too:

"Like Marx himself, Che recognised the socialist principle: 'From each according to his ability, to each according to his work' – which your article associates exclusively with Raul. Cuba has never claimed to be communist and therefore never embraced the principle 'from each according to his ability, to each according to his need', which expresses the attainment of communist society".

While it is true that Marx thought that it would not have been possible to implement "to each according to needs" immediately had a "co-operative society based on the common ownership of the means of production" been established in his day, he never drew a distinction between a socialist society (where this principle couldn't yet be applied) and a communist society (where it would be). He actually spoke of two "phases" of the same society, which he called "communist society". Engels and the later socialist movement adopted the term "socialist society", but both terms referred to the same type of society; they are interchangeable.

In any event, the temporary measure until distribution according to needs became possible which Marx mentioned in the private notes he wrote in 1875 known as The Critique of the Gotha Programme was a system of "labour-time vouchers". This would probably have proved unworkable but it was not the same as "to each according to their work". It would have been "to each according to their working time", with people being given a consumption voucher based on the time spent at work not for the particular kind of work they did. There wouldn't be 24 different levels, just one. An engineer and a cleaner who put in the same number of hours would get the get the same number of consumption vouchers. In this sense it would have been "egalitarian".

But what Lenin, Stalin, Castro and Guevara called "socialism" did not even correspond to Marx's "first phase of communist society" since it was based on the state, not the common, ownership and control of the means of production, the majority remaining propertyless and having to sell their working skills to live. As the state was controlled by the leaders of a minority vanguard party, these leaders became in effect the employers of the excluded majority. As employers they had to devise some system of pricing the different kinds and qualities of labour-power they purchased. Hence schemes such as Guevara's and the one just introduced in Cuba. This was state capitalism, not socialism/communism.

Wednesday, December 10, 2008

Colonialist Canada

Reposted from Socialist Banner

Canada is now a superpower in the African mining sector. According to the Ministry of Natural Resources Canada , only the Republic of South Africa, with over 35% of assets and investments, is just ahead of Canada in the African mining industry. But with South Africa's assets concentrated on its own territory, Canada dominates the rest of the continent. In 2001, Canadian companies have operations in 35 countries. 91% of Canadian investments were concentrated in eight countries, with the order of countries' importance being the following: South Africa (25.6%), DR Congo (17.8%), Madagascar (13.8%), Zambia (9.9%), Tanzania (9.5%), Ghana (6.5%), Burkina Faso (4.7%) and Mauritania (3%). Africa represented 11% of Canada's US$25.8 billion in cumulative mining assets in 2001, a proportion which had risen to 17% of the total $85.9 billion in the same assets by 2007.

Canadian diplomacy is very much at the service of business interests . In this regard, the country at times pursues objectives seemingly at odds with its development agenda, some examples of which include:

-In 1996, the Canadian High Commissioner in Tanzania intervened on several occasions to influence revisions to mining legislation as a means of promoting Canadian business interests. And, specifically, in order to counter the legal claims of local miners questioning the legitimacy of the mining company Sutton and designs on Bulyanhulu deposits

- In June 2008, the staff of the very same High Commission energetically intervened in Tanzanian parliamentary affairs to ensure that the country's politicians rejected the conclusions of the Presidential Mining Sector Review Committee on revisions of the mining sector. The Committee had recommended a greater proportion of profits generated by higher prices be kept for the
country itself

- In 2004, Canada's ambassador to the United Nations had criticized a part of a report produced by the Panel of Experts on the Illegal Exploitation of Natural Resources in the DR Congo, in which nine Canadian companies were accused of violating OECD (Organization for Economic Co-operation and Development) guidelines during the country's protracted war.

Canada's image as a moderate country and disinterested development partner in Africa is now thoroughly outdated.

Tuesday, December 9, 2008

Sunday, December 7, 2008

Future al Fresco, or the House of Cards that Jacque built

Anyone watching the online documentary film Zeitgeist (2007) would be advised to borrow Occam's razor for some editorial cutting. A well-made and interesting film, Zeitgeist nonetheless makes history more mysterious than it needs to be. You can explain what goes on in capitalism quite easily without making a giant secret conspiracy of it. So, when the sequel, Zeitgeist Addendum, came out in October of this year, socialists were expecting more conspiracy stuff and dodgy bank-credit economics.

Addendum turns out to be a surprise. To be sure, it does reiterate the dodgy economics, overlooking the fact that when banks do try to create money out of nothing, they crash and burn, as has been happening recently. But then the film gets really interesting, because it proposes, as an alternative to capitalism, a global resource-based society of common ownership, without governments, hierarchies, markets, trading or money. Were the makers explicitly to use the term 'world socialism' most socialists would scarcely blink.

Not that there's any such reference, or indication of Marxian antecedents. Clearly the intention is to avoid triggering any knee-jerk reflexes from audiences schooled in the evils of soviet 'socialism'. Instead, they're offered the sci-fi version, with supersonic mag-lev trains, floating intelligent cities, nanotechnology and megamachines. The future is bigger, better and brighter, even if it does look a bit like Thunderbirds Are Go. The point being drummed in is that it's steam-age capitalism that's holding back technology, as well as creating a social and environmental hell-hole. Without capitalism, we can reach for the stars.

This is the Venus Project, futuristic creation of Jacque Fresco, engineer, architect and designer, a man on a laudable mission to persuade the world to ditch capitalism and create a practical cooperative alternative. For socialists to come across such a well-worked model which accords so closely with their own is a rare thing, so it seems almost churlish to suggest that the technology may be a bit over-done. It's not only that this kind of chrome-plated futurism looks paradoxically dated, like rocket ship stories of the 1950's, or that it may be off-putting to those yearning for William Morris-like rural idylls. More troublesome is the heavy emphasis placed on science and technology as the source of progress, for instance, as here: "The application of scientific principles… accounts for every single advance that has improved people's lives" (Designing the Future, at Trust a techie to say that. But what about the role of workers, in unions or campaign groups, to raise wages and working conditions, or reduce the working day, or demand civil rights? Did technology have anything to do with recognition of race or gender equality, or gay liberation, or legislation against slavery or child-labour? Instead of recognising that workers won those rights by organised force, Fresco seems to think all improvements in civil rights were 'privileges' which have been 'granted' by the ruling elite (p.4).

This gives a clue to Fresco's attitude to 'responsibility' and 'democracy'. Technology, he thinks, will obviate the need for these. Laws against drink-driving, for example, can be abolished if cars drive themselves. True enough. But can one find a technological fix for every situation requiring humans to have an awareness of their own social responsibility, and even if we could, would we want to? Responsibility is not a burden, after all, it is empowerment, it is personal growth. Make humans responsible, and they become mature adults. Instead, Fresco would let this human quality atrophy.

Similarly, Fresco seems wedded to the strange idea that humans don't want to make decisions. Thus he envisages a 'global neural network' that does our thinking for us, a marriage of automation and cybernetic intelligence called 'cybernation'. This column has recently referred to self-adjusting production systems (Sept 08), but running an entire social system that way is surely a leap too far. In answer to the question: Who makes the decisions in a resource-based economy? Fresco gives the bizarre response: No one does. Apparently the cybernation system will decide what we want to produce, as well as how to produce it, because we humans just aren't up to the job.

What emerges sounds less like a socialist society of responsible adults and more like a Tracey Island playground for hedonistic infants with no tough decisions to make and no responsibilities to shoulder. Socialists place participatory democracy at the very core of our social model, irrespective of the technology. For Fresco, it seems to be the other way round. In answer to the question, would there be a government? Fresco answers that there would be a transitional administration of expert technicians, before the process of 'cybernation' is complete. He adds that "They will not dictate the policies or have any more advantage than other people." But how does he know that? What mechanisms would prevent a technocracy maintaining power in perpetuity? Fresco is leaving the matter to trust. Worse still, in avoiding the whole issue of democratic organisation and class action, Fresco has no way to address the even more pressing question, how to overcome the certain opposition of the ruling class. So he dodges it by arguing that there will be no need to, since capitalism will collapse of its own accord. Leaving aside the extreme improbability of this, it begs the question: what should we do then, while we're waiting for that to happen? Spread the ideas perhaps, as socialists advocate? Apparently not! "True social change is not brought about by men and women of reason and good will on a personal level. The notion that one can sit and talk to individuals and alter their values is highly improbable" (www.venusproject. com/intro_main /essay.htm). Ever the technophile, Fresco has his eye on something more worthy of an engineer, the building of an experimental city in South America, in order to show his society in action. Thus, we have a future, non-market, non-money society with no human decision-making, existing as a sealed bubble inside capitalism, and on a continent famous for its CIA-backed counter-revolutionary guerrilla forces. Well, lots of luck, but this ain't a horse we would back.

Socialists rarely have anything good to say about post-modernism, but Fresco's starry-eyed fixation with technology reminds us what was wrong with modernity in the first place. It was enlightenment thinking gone light-headed, before the hangover set in and we realised that, actually, science can't save us from ourselves, in fact science and technology have got bugger all to do with it. Mass consciousness and democratic organisation are what it takes, not fantastical gadgets and optimistic faith in the imminent and obliging demise of capitalism. If you're wrong about that, you've got nothing. Without class action, there's no foundation, no plan, no clear road. It's a house of cards floating in the air.

Fresco and his friends deserve huge credit for the work they have done in setting out a vision of post-capitalist common ownership, and if nothing else, the Venus Project should remind us that such ideas are not unique to us. But visions born of conspiracy theories tend to preclude the idea of democratic mass action, and that is a weakness. For socialists, not only is mass action possible, it is essential. Capitalism will not collapse. It has to be pulled down. And machines won't do that for us.

Friday, December 5, 2008

The War Business

Why do capitalist states prepare for and wage war?

As we socialists never tire of pointing out, the primary function of military power in capitalism is to protect and expand control over resources, markets and transport routes on behalf of the capitalist class of the country concerned. However, the costs and risks that wars and armaments entail for the capitalists themselves often outweigh the benefits to them.

For example, while the U.S. did have real interests at stake in Vietnam in the 1960s and 1970s, those interests were hardly commensurate with the enormous costs of the war it was waging there. Growing awareness of this fact within the capitalist class eventually led to withdrawal.

In other words, states have a tendency to act in ways that appear to be irrational even in terms of the capitalist interests that they are supposed to represent.

War – a capitalist enterprise

There are various reasons for this apparent irrationality. But the main reason is this. War is not only a service that the state provides to the national capitalist class as a whole. War is also – and increasingly – a massive capitalist enterprise in its own right, a "war business" that wields considerable political clout and has special interests of its own.

The core of the war business, of course, is the so-called military-industrial complex. Arms manufacturers, like other capitalist firms, seek to maximise their profits. It does not concern them whether the weapons they sell have a cogent strategic rationale.

The military-industrial complex has a direct interest not only in the build-up of armaments but in war itself. War is the only way of testing weaponry under battlefield conditions. It uses up and destroys old stocks that then have to be replaced – rearmament is now, for instance, the top priority of the Georgian government – and stimulates demand in general.

But nowadays arms firms are not the only large-scale "merchants of death." Companies like Blackwater sell combat capability directly as the labour of hired mercenaries. Other companies, such as Halliburton, sell logistics and other war support services.

Resource wars, "strategic" wars

The argument is not that all armed conflicts are irrational in terms of the costs and benefits accruing to national capital. Some undoubtedly make good sense in these terms, as when valuable resources can be acquired at moderate expense. One example might be the "cod wars" of the 1970s between Britain and Iceland over fishing rights in the North Atlantic. Another, perhaps, is the ongoing conflict over the Spratly Islands in the South China Sea, whose oil and gas deposits are coveted by China, Taiwan, Vietnam, the Philippines and Malaysia.

At the other extreme, some wars have no discernible connection with the control of markets and resources. The recent war in Georgia was in this category (see October "Material World"). Although important oil and gas pipelines run through the south of the country, Russia did not contest control over them. Russia's rationale for war was "strategic" – that is, getting into a better position to fight future wars.

Again, Israel's wars are senseless from the point of view of the Israeli capitalist class as a whole, which has a clear interest in a peace settlement that will give it full access to the markets and cheap labour of the Middle East. This interest, however, seems unable to prevail against the political stranglehold of Israel's military-industrial complex.

The nature of the wars that the US and its allies are currently fighting in Iraq, Afghanistan and Pakistan is less clear-cut. Control of resources, markets and transport routes is certainly an important factor, especially in Iraq, but the likely outcome is hardly such as to justify the enormous costs involved. While the ultimate motive for war may be to arrest the decline in the competitive position of the US in the world economy, the actual effect is to accelerate that decline (see May "Material World").

Capitalism and war: two models

So we end up with two contrasting models of the relationship between capitalism and war. In the first model, war appears as an instrument in the hands of the state, which acts as the "executive committee of the (national) capitalist class as a whole" (Marx). The second model, unlike the first, takes into account the fact that war is evolving from an instrument at the service of the national capitalist class as a whole into a capitalist enterprise in its own right — what we might call the war business. The war business has special capitalist interests of its own, so it cannot function simply as an instrument of more general capitalist interests.

Does the first model represent capitalism in its "normal" form, while the second model represents an "abnormal" ultra-militaristic mutation of the capitalist system? Is the first model rational, in capitalist if not in human terms, while the second model is irrational? At first sight that seems reasonable.

But is there in fact any good reason to regard one model as any more irrational than the other? Each model represents a possible variant of capitalism and a possible form of capitalist rationality. The difference is that the first model assumes the existence of such a thing as "national capital as a whole," while the second model envisions only separate capitalist enterprises. Some firms sell sausages, some sell computers – and some sell war.


Wednesday, December 3, 2008

The return of Karl Marx

From the December 2008 issue of the Socialist Standard

Marx is again enjoying something of a revival. After his views on the globalising tendencies of capitalism, it is now his theory of crises that is attracting interest and being discussed in the media. Unfortunately not always accurately. For instance, in an article headlined “BANKING CRISIS GIVES ADDED CAPITAL TO MARX’S WRITINGS”, Roger Boyes, the Berlin correspondent of the (London) Times wrote (20 October):

“Marx’s new relevance relates mainly to his warning about the creation of an exploitative capitalism that ends up destroying itself: ‘An over-expansion of credit can enable the capitalist system to sell temporarily more goods than the sum of real incomes in created current production, plus past savings, could buy,’ said Ernest Mandel, the Marxist scholar, quoting his guru, ‘but in the long run, debts must be paid’. Since these debts cannot be automatically paid through expanded output and income, capitalism is destined for a ‘Krach’ - Marx’s word for a crash.”

If the suggestion is here, as it seems to be, that it was Marx’s view that capitalism will end up destroying itself in one big Krach, then it is wrong as Marx never argued that there was some flaw in the economic or financial mechanism of capitalism that would lead to it collapsing for purely economic reasons. In his view, as expressed in the last-but-one chapter of Capital on “The Historical Tendency of Capitalist Accumulation”, capitalism would come to an end by the working class becoming more and more organised and eventually expropriating the expropriators and ushering in a society based on “co-operation and the possession in common of the land and the means of production produced by labour itself”. In the meantime capitalism would continue being subjected to an ever-repeating cycle of boom and slump, with each boom ending in a Krach which would eventually create the conditions for a recovery of production and the next boom . . . and the next Krach.

The following day the (London) Times2 section of the paper had a full-page photo of Marx on its front page saying “He’s back. Does the financial crisis prove that Karl Marx was right all along?”. The main article, by a Philip Collins, was just silly, but some of those asked to comment did have something sensible to say, in particular Mick Hume (introduced as “The Times’s libertarian Marxist columnist, launched and edited Living Marxism magazine 20 years ago” who said on this issue:

“Marx was right to identify and analyse the tendency towards crises within capitalism, but he did not predict the system’s ‘inevitable’ collapse. Today too many people who have never read or understood Marx are trying to turn him into an anti-capitalist Nostradamus who supposedly predicted it all, a soothsayer rather than revolutionary social scientist. Marx always emphasised that the resolution of a crisis would ultimately depend on political factors: that man makes his own history, although not in circumstances of his own choosing.”

Hume has come a long way since, as the Trotskyist editor of what we used to call Dead Leninism, he advocated that workers should follow a vanguard party.

One of the others asked to comment was the Labour MP John McDonnell who proposed that “Das Kapital and Wages, Prices and Profit should be issued to all government ministers as the definitive guides to the causes of capitalism in crisis”. He also recommended a book by Ernest Mandel and another by David Miliband’s father who considered himself a Marxist. If he re-reads Wages, Prices and Profit himself he will see that Marx urges workers to adopt the revolutionary watchword “Abolition of the Wages System”, which is the last thing the party he represents in Parliament wants.

Mandel was in fact writing above only about credit crises, not economic crises. And he wasn’t quoting from his “guru”. The passage Boyes quotes is not from Marx but from Mandel (see Mandel, who died in 1995 was another Trotskyist, the leader for many years of one of the many “Fourth Internationals”, did, despite this, have a grasp of Marxian economics (at least, as applied to the West since he mistakenly thought Russia wasn’t capitalist). Even so, it is not clear that Marx would have expressed himself in the same terms. For instance, credit - if it is genuinely credit and not just the issue of more paper currency by the central bank - can’t exceed “past savings” plus savings from “real incomes created in current production” since these are precisely the source of any credit, i.e. of the money that is loaned.

Of course debts do have to be repaid and if for some reason (such as overproduction in relation to the market for some key product) they can’t be, the banks and other financial institutions will be in trouble and a financial Krach or, as we say nowadays, a credit crunch will result. Marx wrote quite a bit about these and, to give Boyes his due, he recognises this even mentioning the articles Marx wrote in the New York Daily Tribune in 1857 on “The Financial Crisis in Europe” of that year.

But then he goes on:

“In the manifesto, published in 1848, he lists the ten essential steps to communism. Step five was ‘Centralisation of credit in the hands of the state . . .”

It is true that one of the ten immediate measures, listed at the end of section two of the Communist Manifesto, that the Communist League of Germany advocated should be taken if political power in Germany was to fall into the hands of the working class in the course of the anti-feudal and anti-dynastic revolutions of 1848, did include

“Centralisation of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly”.

But there was no chance of the working class gaining control of political power at that time, as Marx and Engels later came to realise. In their preface to the first reprint of the pamphlet in 1872 they wrote that “no special stress should be laid” on the ten proposed measures which had “in some details become antiquated”. So to describe them today, in 2008 over a 150 years later, as “the essential” “steps to communism” is absurd.

No doubt the working class, when it does come to win control of political power, will have to have drawn up a programme of immediate measures, but they won’t include setting up a single State Bank as, given the development of the forces of production, society can now move straight to socialism (or communism, the same thing) where there will be no need for banks as there will be no need for money. What the manifesto elsewhere called “the Communistic abolition of buying and selling” can now be achieved immediately.

Adam Buick

Tuesday, December 2, 2008

Why we need a theory

The world we live in is a world of contradictions. The environment is in a state of decline, yet industry continues to pump pollutants into the atmosphere whilst non-polluting technologies are neglected. Thousands starve, while food stocks remain unused. We can communicate with strangers from all around the globe, yet no-one knows their neighbour. Automation could free us from involuntary labour, yet we are chained to the machine. We live amongst vast material possibilities, yet poverty is the universal experience – not just in the narrow economic sense but also in terms of the quality of lived experience. "Never in history has there been such a glaring contrast between what could be and what actually exists" (Ken Knabb, The Joy of Revolution).

Central to all these contradictions and reshaping all previous antagonisms is the global commodity-capitalist system. A system characterised by the production of commodities, wage labour and the market economy. A commodity is what is produced by the worker under capitalist conditions, its purpose to reproduce and enlarge capital (stored surplus value). The pursuit of ever increasing profits is the driving force behind the whole process – the fulfilment of people's needs is a secondary and not always occurring result.

Commodities are only available in exchange for other commodities, money being the universal commodity and measure of all others. Since all goods have been turned into commodities and access to non-commodified materials restricted, those without the means of producing anything to exchange must sell the only thing they have, their physical or mental labour-power. The logic of the market economy treats this labour like any other commodity; to be bought, sold and discarded as the market dictates. In effect the worker becomes a commodity. This transformation of living activity into an object creates an alienated or estranged world in which humankind does not recognize or fulfil itself, but is overpowered by the dead things and social relations of its own making.

Capitalist society is therefore split into two camps, the bourgeois or capitalist class (those who own and control the means of production – the land, equipment, machinery, buildings and raw materials necessary to create the things we need and use every day) and the proletariat (those with "nothing to lose but their chains"), broadly speaking the "modern working class" including the un-employed and unemployable. However the proletariat is not to be understood as a sociological category of people in such-and-such income group and such-and-such occupations, but as a social relation of capitalism. It is all those who have little or no means of support other than selling their physical and mental labour-power. The proletariat is the only class capable of ending class society, as it produces the material conditions of its own enchainment. However, both classes are subject to the laws of the market economy – our concern is with the social relation capital not the individual capitalist – the functionaries of capitalism are more and more disposable as individuals. While the rag-wearing classical proletariat of Marx's time has all but disappeared, at least in the developed countries, the fundamental division remains; power and wealth are becoming more rather than less concentrated under the control of a small minority. The modern proletariat is almost everyone; it is the working class which must destroy both alienated work and class.

The "official" history of the working class's struggle against capitalism is an inversion, what is presented as its greatest triumphs are in reality its most bitter defeats; Leninist "Communism" in the East and reformist "Socialism" in the West were both expressions of a general movement towards state-capitalism. The greatest tragedy of these times is that in the minds of the vast majority of workers the project for the dissolution of the commodity economy became associated with its exact opposite. "So the light darkened that had illuminated the world; the masses that had hailed it were left in blacker night… By usurping the name communism for its system of workers' exploitation and its policy of often cruel persecution of adversaries, it made this name, till then expression of lofty ideals, a byword, an object of aversion and hatred even among workers" (Anton Pannekoek, Workers Councils).

Though the call for a new society was never thoroughly extinguished; small and often profoundly isolated groups and individuals arguing the case for a social reorganization to bring free access and control of the means of production into the hands of the whole of humanity. "From each according to ability, to each according too need!"

The creation of such a society has two preconditions; firstly that technological production techniques have been sufficiently developed to be able to fulfil the material needs of the whole of society and secondly, that the majority of the population have an understanding of what needs to be done and want to carry it through. Revolutionaries are painfully aware that the first requirement has long since been reached but that the second is still far from being realized.

If we are to avoid repeating the mistakes of the past it will be necessary to develop a theory of revolutionary practice, a theory which seeks to "get to the root of all things" and improve them. It is not a matter of choosing from one of the pre-existing ideologies of the old workers movement and basing our world view around it, but a matter of finding the "moment of truth" in all the theories of the past and synthesising this with our experience of the present.

"Theory itself becomes a material force when it has seized the masses" (Karl Marx, Contribution to the Critique of Hegel's Philosophy of Right)

DARREN POYNTON (Socialist Party of Great Britain)

Monday, December 1, 2008

The Russian Revolution recalled

From the November Socialist Standard

Even 90 years after the Russian revolution there are still some who claim that the event shines as a beacon for socialism. We were able to say at the time that whatever was happening in Russia it was not a socialist revolution.

In August 1918 the Socialist Standard pointed out that, while there were industrial towns in Russia, the country was largely agricultural with about 80 per cent of the population still living on the land. The answer to the question whether "this huge mass of people" (about 160 million), which indeed included some industrial and agricultural wage slaves, was "convinced of the necessity and equipped with the knowledge requisite for the social ownership of the means of life?" was "No!"; beyond the fact that the leaders in the November movement claimed to be Marxian socialists there was no justification for terming the upheaval in Russia a Socialist Revolution.

Our analysis of the situation was based upon Marx's definition of capitalism as a relation of wage-labour and capital and on the conditions necessary for that relation to be ended and replaced by socialism. Before "the Communistic abolition of buying and selling, of the bourgeois conditions of production", as the Communist Manifesto put it, can happen, there must be a sufficient development of the productive forces, and the class which has to sell its labour power in order to live – the working class – must fully understand what is involved and be ready to take the necessary political action.

The conditions envisaged by Marx to be necessary for the ending of capitalism and establishing socialism did not exist in Russia in 1917, so why have the events been claimed as socialist?

Russia in 1917

The country had suffered huge losses during the war against the more heavily industrialised Germany, the economy was in a mess and there were food riots. The Tsar had been forced to abdicate in March 1917 – while both Lenin and Trotsky were out of the country – and the situation was confused. There was a provisional government which included capitalist and landowning representatives. In July Kerensky became leader with support from the Committee of the Duma (the Russian parliament) but with increasing support from the councils of Workers and Soldiers – the Soviets. However he continued with the war despite its unpopularity.

There was widespread discontent with soldiers, workers and peasants reacting against the adverse conditions, which the Bolsheviks were able to take advantage of the discontent. They gained control of the Soviets using slogans like "All power to the Soviets", and crucially "Peace! Bread! Land!" In other words, this was what the war-weary, hungry workers and peasants wanted – they were not after socialism. That there was not a majority ready for socialism would not have concerned Lenin. The situation fitted his vanguard theory that the working class by its own efforts is only able to develop trade union consciousness and needs to be led by professional revolutionaries. There were enormous difficulties including the backward state of the country and the civil war; also the expected uprisings in other European countries did not take place. The development of capitalism was all that could happen and the Bolsheviks as the new rulers would have no choice but to do their best to aid it.

That it was a minority revolution is illustrated by the way in which Lenin dealt with the political situation. The All-Russia Soviet Congress had met in November 1917 and had passed resolutions in favour of peace, ending landowners' rights to possession of the land, and the setting up of a 'workers and peasants' government, headed by Lenin and dominated by the Bolsheviks, pending the election of a democratic 'constituent assembly'.

However when the Constituent Assembly was elected the Bolsheviks did not have a majority and it was dissolved. Trotsky's excuses for this are instructive – the election had taken place too soon after "the October Revolution" and news of what had taken place spread only slowly. "The peasant masses in many places had little notion of what went on in Petrograd and Moscow. They voted for 'land and freedom'". Precisely, for that, not socialism. So, not only did the Bolshevik takeover not have majority support, majority support for socialism not present either.

By the middle of 1918 the Communist Party (as the Bolsheviks were now called) had firmly established its dictatorship and freedom of the press and assembly were restricted. The All-Russia Soviet Congress had ostensibly taken all power to itself but this was a fa├žade. The Congress elected the 200 members of the Central Executive Committee but the credentials of delegates to the Congress were verified by Communist Party officials. Lenin claimed that what he called "Soviet Socialist Democracy" was "in no way inconsistent with the rule and dictatorship of one person; that the will of the class is at times best served by a dictator" and this was approved by the Central Executive Committee in 1918 (Martov The State and the Socialist Revolution, p.31).

Labour discipline

Raising the productivity of labour was a priority. In an address before the Soviets in April 1918 (The Soviets at Work) Lenin declared that not only was it necessary to halt 'the offensive against capitalism', they also had to employ capitalist methods which included strict discipline at work. They should immediately introduce piece work and measures which "combine the refined cruelty of bourgeois exploitation and valuable attainments in determining correct methods of work." The previously stated aim of equal wages for all was abandoned and a "very high remuneration for the services of the biggest of the bourgeois specialists" was agreed. State control was seen as the "means to establish the control and order formerly achieved by the propertied classes" and he chided those who considered the "introduction of discipline into the ranks of the workers a backward step".

In January 1920 the Bolshevik government abolished the power of workers' control in factories and installed officials who were instructed by Moscow and given controlling influence. Democratic forms in the army had also been abolished.

The need to use capitalist methods to control and discipline workers in order to increase production, illustrates the absence of the absolute pre-requisite for socialism – the conscious participation of the majority of the working class.

State capitalism

In 1921 the Bolshevik government adopted a New Economic Policy. In proposing it Lenin argued that permitting some private industry and allowing peasants to keep surpluses were not dangerous for socialism. "On the contrary, the development of capitalism under the control and regulation of the proletarian state (in other words 'state' capitalism of this peculiar kind) is advantageous and necessary in an extremely ruined and backward peasant smallholder country…in so far as it is capable of immediately improving the state of peasant agriculture."

Our criticism of Lenin, Trotsky and the Bolsheviks is not that they did not achieve what was not possible at the time, i.e. socialism. It is rather that they adjusted theory to suit the circumstances: seeing the necessity for capitalist development they claimed that state-monopoly capitalism was socialism. In Can The Bolsheviks retain State Power? Lenin wrote about the "big banks" as the "state apparatus" needed to bring about socialism. "A single state bank…will constitute as much as nine-tenths of the socialist apparatus".

It was also Lenin who said in The State and Revolution in August 1917 that the first phase of communism was usually called socialism, when Marx made no such distinction between the terms. (In the 1888 Preface Engels refers to the Communist Manifesto as the most international of all Socialist literature). In Marx's conception of the first phase of communism there was still common ownership, an end to buying and selling, and no money. (Marx mentions the possibility of labour time vouchers despite their obvious drawbacks). What happened in Russia did not qualify even as a "first phase of communism".

Contemporary Trotskyists still call their aim of state capitalism socialism. The former Militant Tendency (now called SPEW) think that nationalising 150 big corporations would express in today's language the demand in the Communist Manifesto for the "abolition of private property". They also support Lenin's vanguard theory that a revolutionary minority can by their leadership turn protest movements into a 'socialist' revolution. So it is hardly surprising that they claim the events in Russia in 1917 to have been a socialist revolution, blaming the backward state of the country, civil war and Stalin for what went wrong.

Both Lenin and Trotsky thought that democracy was not appropriate to their situation. Having taken power in a minority revolution they had to rule by force. This included the use of secret police – the Cheka. Trotskyists excuse Lenin's red terror on the grounds that it was the outcome of civil war necessity, likewise with the measures taken to deal with the problems of production. However, it was precisely the conditions and the absence of a majority for socialism that made capitalism the inevitable outcome.

The rule of Lenin supported by Trotsky paved the way for Stalin. The legacy of the Russian Revolution, of Lenin and Trotsky, is that socialism/communism has come to be identified with state capitalism. It was not a victory for the working class, but a tragedy since it brought socialism into disrepute and diverted attention away from the vital need to reject capitalism in whatever form.