Major Douglas rides again
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Following is a discussion on the page titled: Major Douglas rides again.
Below is the discussion so far. Feel free to add your own comments!Re: Nor can banks "create credit"; they are essentially only financial intermediaries, borrowing money at one rate of interest from people with cash to spare and lending this at a higher rate to those needing money to spend or invest, their profits coming from the difference between the two interest rates. Along with the 'monetary cranks' designation, the above statement seems an echo of that the oppressors make, or at least previously made.Unfortunately for the writer, in obeisance to the overwhelming evidence that banks do indeed create money, institutions such as The Bank of England have been forced to admit the obvious truth.This truth starts at the point where all establishment financial institutions chart a tremendous rise in the amount of money in circulation. Did aliens bring it to earth. And no, when you say you make money at your wage slavery, there is no actual new money magically appearing. Place all your money in an envelope and give it to the security guys, then go check the envelopes after work and see if anybody has more in their envelope than when they began work. Silly yes, but not as silly as believing banks do not create money.One of the many, many pieces of said evidence, from the mainstream mediahttps://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerityRegardsDan Parkerglobaljusticemovement.org
I should point out, that the Guardian is a bit above the worst of the mainstream media; but nevermind any mainstream media, the truth about bank money creation can found coming from unpublicized admissions by many leading economists i.e. Friedman saying the money supply was decreased by 30% during the Great Depression, Allais comparing banks to counterfeiters, Galbraith and his comment that the way money is created is repellent, to paraphrase, publications such as that by the Chicago Fed Modern Money Mechanics, common sense on the math, etc. etc. etc.
The confusion comes down to the definition of "money". In the Major Douglas days the distinction between credit and money was one that was commonly made, nowadays this distinction is blurred.The point we make is that economic crises are not due quirks of the financial system, but the nature of the system of production as a whole.Can a commercial bank inifinitly extend credit without getting into trouble? The creationist school of economics would think so, experience and common sense proves otherwise.
Here's what we said about the Graeber article that Dan Parker postedhttp://www.worldsocialism.org/spgb/socialist-standard/2010s/2014/no-1317-may-2014/cooking-books-harry-graeber-and-magic-wand
Dan, many genuine and sincere activists want to solve the problems of capitalism but without changing its relations of production and so instead they find the flaws in some part of the monetary mechanism. By doing so they exonerate the industrialist capitalists to concentrate their attacks upon the bankers and financiers. It makes the proposed lever for any social transformation the alteration in the monetary mechanism yet leaves the capitalists in control of production. Groups such as Global Justice have the merit of recognising that the productive forces of capitalist society are being strangled in an economic strait-jacket: that poverty in the midst of potential plenty is shameful and unnecessary. They sincerely desire to abolish poverty and the miseries of exploitation, but this having said that they hope to do so without upsetting the existing social relations of production and without compelling anyone but a handful of bankers to yield up their power and privileges. They find the scapegoat in the “money power”, the credit monopoly of finance capital and not the profit system itself.The Socialist Party position strikes a different stance, Dan. We say the problem before society today is not a financial problem. It is a property problem. The banks belong to the superstructure of capitalism. Private property is the foundation. The financial crises and credit crunches etc. are nothing more than the reflections of the fundamental economic problems arising from the anarchy of production. No amount of credit supply to manufacturers, no amount of money-supply manipulation which leaves the question of property ownership untouched, can cure the crisis of capitalism.I think Jonwhite's point is that banks can only lend out what they have borrowed either from depositors or from their own borrowing on the money markets. It was an over-reliance on the latter that largely led to the collapse of Northern Rock and the near collapse of so many other banks. If banks could really create vast quantities of credit at "a stroke of a pen" then none would ever go bust. Neither would they need to tap the money markets for funds. What is of significance for those who describe themselves as Marxian economists (not that i am presuming you are one) yet espouse the idea of credit creationism is that runs counter to one of the basic precepts of Marxian economics, namely that value arises in the sphere of production not circulation. If banks could create credit with the stroke of a pen, that would mean in effect they could create wealth, and consequently, the Marxist Theory of Value would be shown to be wrong. However, as time passes the validity of the Labour Theory of Value, i.e. that wealth can only come into existence when men apply their energies to nature, is all too apparent. If credit creationism were true, the solution to society's problems would indeed be monetary reform, not socialism – exactly the sort of argument put forward by American right-libertarian anti-Fed Reserve conspiracy theorists of today. The continuous concentration of money capital into banks and the expansion of the credit system allows a great number of transactions to take place without the mediation of any money. This is due to what Marx calls the mutual settlement of accounts. If there is a series of exchanges based on credit such that Capitalist A owes £500 to Capitalist B, and Capitalist B owes £600 to Capitalist A, the only amount of money necessary to realize the £1100 of commodities is a £100 — the £500 owed to each (£1000 in total) are simply cancelled on the books and no money is necessary to intervene in the realisation of this portion of the value of the commodity capital. The amount of actual money intervening in giant purchases is surely very small. The bulk of purchases takes place against credit, where the mutual settlement of accounts is always possible. The move towards a "cashless society", debit and credit cards, can be seen as increasing the velocity of circulation of the currency.The Socialist Party have no love for banks. A world without banks would be a wholly better place. However to blame the banks for creating our debt-ridden society is just too biblical, like a re-run of Christ expelling the money-changers from the temple. Even if the banks were state-owned, they would still have to lend. If they didn't there would be no point in them existing. Banks and interest are not the villain of the piece but capitalism and production for profit. We need to abolish money before we can get rid of banks. But to get rid of money we need an end to property. And you can't abolish property relations until you abolish capitalism.
Perhaps I can put it in my own somewhat crude and simplistic way:I go to work with an apple in my lunch box. When I get to work my mate Bob says he has no apple. As I don't really fancy the apple today, I give Bob my apple and write down in my diary, "Bob owes me an apple".Bob decides he's rather have a pork pie from the canteen (wise man is my mate Bob) and gives Sally the apple on the agreement that she will give Bob an apple back tomorrow. Bob makes a note in his calendar for tommow "Sally one apple".Sally walks off and sees Julie who is diabetic and badly needs some food. Sally agrees to give Julie the apple, but being as tight as a frog's back passage wrties a post it note on Julie's computer saying "you owe me an apple!!!!"It doesn't really matter that a long streak of miserable, paralysed piss, called a work place auditor, comes in looks at the various entries and decides there are three apples, in reality there's still only one fucking apple!
There are two theories as to how banks can "create" money. One is that of Major Douglas and his fellow currency cranks that they can do so out of nothing by a simple stroke of the pen or these days by a simple keyboard stoke. The other is that they do so out of money they already have or supplied by a central bank like the Bank of England in Britain. But, as DJP has pointed out, this is a question of definition – if you define bank loans as money then by definition that is what banks do. But the real issue issue is still whether they "create" the money they lend "out of thin air" or loan already existing money. As Alan has pointed out, just because we don't think banks have the powers that currency cranks attribute to them doesn't mean that we defend them or are their unwitting agents. We want a society where there'll no banks. Which is far more than the currency cranks want.
The reasons that banks can create money from nothing and still go broke, is that individual banks have limitations put on them. the banking industry as a whole does not, to date. The latest iteration of controls for individual banks I think was the early nineties 'capital adeqacy requirement' enacted by the BIS, which is the bank for central banks in the west and elsewhere, out of Basel Switzerland.Before the BIS there were other overarching control mechanisms. For example, during the Great Depression, the banks decreased the money supply (money is extinquished when loans are paid off, and if new loans fall substantially, the money system shrinks). As soon as WWII started, the controlling institutions like the Fed B of E etc, lifted the restrictions, now Mom and Dad could both work, to build things to blow up in the fight against fascism. It was an abradcadra money moment, we have high unemployment because not enough money in beginning 1939, then it's Dad's hired, and Mom too in September and onward 1939, because there is lots of money to pay them. Think about it.The distinctions between credit and currency disappeared with the acceptance of the first receipts issued by the gold smiths by third parties, often made out on non-existent gold, the start of fractional reserve.Anyways, I have been studing money creation for thirty years, and as late as ten years ago, I would be the odd kook or crank, or in a small minority in mainstream newsgroups in a discussion on how money is created by banks. Now the majority has been brought up to speed, and even the mainstream Guardian is coming onside, albeit in an article by an author who is just at the beginning of their research and it shows.As for doing away with banks, I think properly structured they continue to offer many useful services. If the idea that government should run everything, history has shown where that concentration of power always leads. Even if the small group controlling does not get corrupted by power (Action said tends to, not will happen), they make an easy target for those less scrupulous. And so Stalin takes over and Trotsky gets the icepick.http://globaljusticemovement.org/index.php/just-third-way/quick-comparisonRegardsDan Parker
The Socialist Party position strikes a different stance, Dan. We say theproblem before society today is not a financial problem. It is a propertyproblem.This is exactly the view of Our Global Justicemovent, it is a property problem, but more specifically a proper of the concentrated ownership of property .In a nutshell, instead of a relatively few financial houses creating new money from nothing by loaning it to their bigshot friends, we are working on having this new money instead loaned, interest free, to each and every person of majority age for the purchase of productive property. The loan is paid back through the profits, then the investment becomes another source of income, with robots doing the labour. If no profits, there are reinsurance fallbacks as well as a negative income tax for someone whose investments and labour all fail below a point for a basic standard of living. This is better than the social credit design in which credit or money was to be largely distributed by a small group of experts, with inevitable abuses that such concentrated power begets. The power is diffused by the direct ownership of productive property by the vast majority in our work.If you look on our website homepage, middle video, that is what the t-shirts worn by Economist/Lawyer Norm Kurland, and erstwhile civil rights leader Walter Fauntroy, who is standing behind Norm are all about. Own or be Owned. If the big capitalists own almost everything, they own you, the same as what happens when the state owns almost everything. It is a step beyond what Douglas proposed in his book Economic Democracy.The current banks and the big capitalists are really two arms of the same entity, often serving on interlocking boards, and the fact that they get the great majority of the new money is part of this. So a small timer loses his home through the subprime debacle, while Trump gets in serious trouble during the 1980s and the banks make all kinds of concessions to keep him in business. It wasn't even a case of the 'too big to fail' nonsense. http://globaljusticemovement.org/cesj.org is our founder organizationDan
Dan, as someone who has studied this issue for some years, perhaps you can help out.
Quote:The distinctions between credit and currency disappeared with the acceptance of the first receipts issued by the gold smiths by third parties, often made out on non-existent gold, the start of fractional reserve.Research by one of our members has traced back the earliest reference to goldsmiths and banking in Richard Cantillon's "Essai sur la nature du Commerce en General" written in 1730. Here's what he wrote:
Quote:"…If a hundred economical gentlemen or proprietors of land, who put by every year money from their savings to buy land on occasion, deposit each one 10,000 ounces of silver with a goldsmith or banker in London, to avoid the trouble of keeping this money in their houses and the thefts which might be made of it, they will take from them notes payable on demand. Often they will leave their money there a long time, and even when they have made some purchase they will give notice to the banker some time in advance to have their money ready when the formalities and legal documents are complete.In these circumstances the banker will often be able to lend 90,000 ounces of the 100,000 he owes throughout the year and will only need to keep in hand 10,000 ounces to meet all the withdrawals. He has to do with wealthy and economical persons; as fast as one thousand ounces are demanded of him in one direction, a thousand are brought to him from another. It is enough as a rule for him to keep in hand the tenth part of his deposits.There have been examples and experiences of this in London. Instead of the individuals in question keeping in hand all the year round the greatest part of 100,000 ounces the custom of depositing it with a banker causes 90,000 ounces of the 100,000 to be put into circulation. This is primarily the idea one can form of the utility of banks of this sort. The bankers or goldsmiths contribute to accelerate the circulation of money. They lend it out at interest at their own risk and peril, and yet they are or ought to be always ready to cash their notes when desired on demand. If an individual has 1000 ounces to pay to another he will give him in payment the banker's note for that amount. This other will perhaps not go and demand the money of the banker. He will keep the note and give it on occasion to a third person in payment, and this note may pass through several hands in large payments without any one going for a long time to demand the money from the banker. It will be only some one who has not complete confidence or has several small sums to pay who will demand the amount of it. In this first example the cash of a banker is only the tenth part of his trade…"Cantillon's full account of how the banks of his time operated can be found in Chapter VIAs this more or less contemporary account makes clear there is nothing about the goldsmith banker being able (or even trying) to lend more than the 100,000 ounces of silver deposited with them, as often ascribed in the many modern accounts. Whether the goldsmith acted as an intermediary or whether the lending was done directly the general effect was the same, i.e., the owner of the money (representing a command over goods) was lending it to a borrower, who would thus, for a specified time, have at his disposal the means of buying goods. It was not an act of “creating” goods or values, but only of lending them, the banks being intermediaries between lenders and borrowers. Fundamentally, the same process underlies the modern banking and credit system.Maybe, Dan, you possess primary sources of the time that may well give differing descriptions of the process and it would be very much appreciated if you could cite them.I was very disappointed that you associate socialist ideas with state-ownership. It appears that you haven't really looked at our website where we repeatedly explain that such economic structure is not socialism but state-capitalism. The socialists in our tradition have never been statists and it is made abundantly clear in our writings. A long, long time ago we determined, just as you say now that state-ownership would intensify slavery and exploitation. Planning is indeed central to the idea of socialism, but socialism is the planned, but not “central-planning” or the "command-economy". We envisage such organisations such as FAO, WHO and ILO and more local organisations continuing but with very much changed parameters.Nor, i think, we would be impressed by your continuance of capitalism in a new form. Why do you insist that the exchange economy should still persist when you acknowledge we have reached a technological where scarcity can be ended? The key feature of capitalism is production for profit. The motive for producing things under capitalism is to make a profit. The “Profit System” is another very good name for capitalism But from another angle, capitalism could also be called the “Wages System”. The key market in capitalism is the labour market, where workers are forced to earn their living by selling their labour power to an employer.Capitalism is an economic system where, under pressure from the market, profits are accumulated as further capital, i.e. as money invested in production with a view to making further profits. This is not a matter of the individual choice of those in control of capitalist production – it’s not due to their personal greed or inhumanity – it’s something forced on them by the operation of the system. And which operates irrespective of whether a particular economic unit is the property of an individual, a limited company, the state or even of a workers’ cooperative. The capitalist system is left unscathed. Nowhere is the market-driven profit system as such challenged. Nowhere is the “can’t pay, can’t have” society we have that consigns the greater portion of the population of the planet to lives of abject misery condemned. Capitalism is taken for granted and all that is being asked in the end is the end of corporations. It is just the demand for wider democracy and fairer trading conditions while allowing capitalism to carry on perpetrating every social ill that plagues us.Instead of capitalism, even a tamed version of it, our aspiration and vision is a global economy, an “association of associations”or "industrial democracy", i.e. by a co-ordinated inter-linked and inter-connected network of neighbourhood assemblies/councils and producer-controlled production units. That is what we call “economic justice” . Production will be to meet human need, each person or group determining their own reasonable needs in a social context. There will be no buying or selling, but instead, plenty of giving and taking, a system of generalised reciprocity. We hope to achieve world socialism where various and diverse federations of self-governing groups are largely concerned with their internal affairs yet all the time collaborating on the common purposes that concern all the groups.
Dan, there's a long running thread on this question, where we record all the incoming evidence against the "thin air" school of banking:http://www.worldsocialism.org/spgb/forum/general-discussion/100-reserve-bankingHave a look at it too.
Re: Research by one of our members has traced back the earliest reference to goldsmiths and banking in Richard Cantillon's "Essai sur la nature du Commerce en General" *written in 1730*….Maybe, Dan, you possess /primary sources/ of the time that may well give differing descriptions of the process and it would be very much appreciated if you could cite them. If one looks back over bad behaviour in history, one will find far more false information justifying that behaviour in contemporary accounts, rather than latter accounts, simply because there are no powerful interests preeminent to protect with the propaganda. One might as well say that the offical accounts of the Catholic inquistion, while that tragedy was underway, were more accurate than contemporary ones, or for that matter the extent of child abuse in the church was more accurately reflected 30 years ago, than today.One must look at other evidence such as a dramatic increase in the money supply, with no accompanying dramatic increase in gold; for money that was all obstensibly tied to gold. Or how once gold owners caught wind of the scheme, they demanded a share of the interest; and how early bank runs and collapses were only possible because there was not enough gold in the vaults to redeem all the receipts.As for studying the website, my main argument was not with the website per se, but with the false information regarding how money is created, with the derogatory 'crank' designation that so precisely echoes the false propanganda of the establishment. At least until fairly recent, where once again truth is emerging from the propaganda of those and their agents who benefited from the unjust actions. The contemporary accounts at the height of the fraud as it were.RegardsDan Parker
RE: Dan, there's a long running thread on this question, where we record all the incoming evidence against the "thin air" school of banking: I glanced through it, and found the quote by the Icelandic fisherman to hold a deeper truth. Although banks can create money out of thin air, currently subject to a small capital adequacy requirement by the BIS (easily circumvented in many cases), it is true the work by us, or by the robots, the sun etc. is all that can give money its value. A central tenet of social credit by the way, regarding where the wealth of communities really comes from. Money is just a symbol and is only as good as it reflects real wealth production.Good on Iceland BTW, in rejecting austerity, jailing some bankers, and now having higher growth, as wonky as GDP measurement system is, than most of the developed world last year. Could be the bankers are biding their time in making an example of this country in refusing to go along with their fraudulent money creation.Anyways thanks for the discussion, and we will have to agree to disagree on banker limitations on creating money, and where the significant increases in the money supply come from. Dan
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