One for the Currency Cranks

The sectional interests of manufacturing, land owning and financial capitalists have always puzzled and misled the Labour Party and its satellites making them easy victims for the quacks who believe that the ills of capitalism can be cured by land tax or by currency juggling. Yet the situation is. not difficult to grasp. The workers produce the wealth, the capitalists own it. Out of the mass of wealth they produce the workers receive wages based on their cost of living. Out of the remainder the capitalists must meet all the expenses of production, and the costs of government, etc. Then they divide up the balance on terms which are the subject, of contract between themselves. In a time of expansion, when prices are rising, the capitalist who has goods to sell is improving his position. At such a time—for example, during the War—the Labourites howl loudly about the “profiteer” and the “hard-faced business man.”

During the next phase of the normal cycle of capitalism, when prices are falling, it is the turn of the money-lending capitalist to prosper, the man who has contracted to receive a fixed money return on a certain sum lent or invested. Now it is he who is getting a larger and larger relative share of the total wealth of the capitalist class. Then the Labourite turns soft on his poor, dear friend, the manufacturing capitalist, and joins with him in denouncing the wicked bankers who “grow rich on adversity.” What is overlooked all the time is that the workers, as a class, do not alter their general position whatever happens. The ups and downs of prices and interest rates are only a matter between the groups of capitalists themselves, and the changes that take place are not the work of conspiring individuals but are governed by the forces inherent in the capitalist system itself. It is not the “greed of the profiteer” which sends prices up at times of expansion—for, obviously, if it were he would never permit them to fall again. Nor is it the plotting of the bankers which sends prices down during a depression—for if bankers had much control over prices they would never suffer them to rise again.

At the moment the currency cranks are gaining widespread acceptance for their claim that the bankers can and do control prices and interest rates, and that the bankers have it in their power (by increasing or decreasing the supply of credit) to increase or decrease the volume of trade and the amount of money on deposit in the banks, and, in short, to make “prosperity” or “depression” as they choose.

A glance at a few facts will show the absurdity of: this. If the banks have such power, why have they allowed the bank rate to fall from five-and-a-half per cent, in 1926 and six per cent, in 1931 to two per cent, now? Why have they allowed the rate of interest paid by the Government on Treasury Bills to fall to the extraordinarily low level of three-quarters of one per cent. And why, after making a concerted move to force the rate up in the week ended October 15th, 1932, were they compelled to take actually less than the week before, i.e., 15s,. per £100 instead of 16s. l1d. (See Daily Telegraph, October 15th, 1932.) The fact is that bankers, just as much as any other section of the capitalist class, have to work within the limits set by the economic forces of capitalism. They can take advantage of, but cannot control, those forces. A glut of money seeking investment in gilt-edged securities (because of the declining profits and insecurity of industrial investments) will force the interest rates down in spite of all the bankers can do.

Similarly, with the stupid notion that bankers can “create credit” at will, and that bank deposits are the result of banks deciding to increase their loans to industry. This theory ignores the fact that banks want security for their loans and that money lent to produce more goods for an already glutted market would be money thrown away. The theory assumes that bank loans and bank deposits rise and fall simultaneously, the former being the cause of the latter. Actually, during the past year bank deposits have increased by over £100 million, while bank loans have not risen but have fallen by over £90 millions. (See Evening Standard, September 9th, 1932.) What has actually happened is what an understanding of capitalism leads us to expect. In times of depression, with production in excess of the demands of the market, the banks lend less because security is lacking; and investors seek safety in gilt-edged securities or by increasing their deposits with the banks. The theories of the currency cranks are in flat contradiction with the facts, but thousands of observers continue to be taken in by them, including many of the so-called labour leaders and representatives of labour colleges.