Money has been said to be the source of all evil but this is wrong, it is class society. However it must be said that money is nevertheless a truly insidious creature. Once it exists, it spreads and infects and corrupts everything around it and this means getting rid of it. Building a better society without money will not be easy.
The working class in the Russian Revolution found this out very quickly despite nationalising everything. The problem remained fundamentally that the rest of the world was using money so most trade that was necessary at the time had to keep involving money and that money could also be used to corrupt the ideals of the workers' movement as well as pay the forces fighting against the workers.
Money is the grease that enables the present system of production and distribution to work: it really does make the world go round. It is used to pay wages, buy commodities in shops and online, used by manufacturers to work out prices, used in differing currencies and for exchange rates, used to record bank accounts as well as being the basis of the commercial and financial empires that expand and dominate our lives. We all face money continually in our everyday lives and this keeps the capitalist system working and keeps us all in its thrall; it also demonstrates the absolute absurdity of the capitalists' financial system as you will see.
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Just got round to reading…
Just got round to reading this and was surprised to see someone from the Left Communist ‘milieu’ embracing currency crank ideas to make out a case for getting rid of class society and with it money.
We are told that:
‘It is a total myth that banks need or use savings in order to lend out money. This monetary system is what Aaron Sahr has called “Keystroke Capitalism” ie money is quite simply a product of using a keyboard as the banks create making and recording loans on their computer!!” (Phillip Sutton’s double exclamation marks)
and that
‘… the whole financial system is based on creating money out of thin air … The whole financial industry really is just based on creating electronic assets (ie virtual money) that are loans on which interest can be charged. What a system — an electronic data entry costs virtually nothing but earns interest for the bank!’
To back up this incredible view Phillip Sutton cites a 2014 article from the Bank of England Quarterly Bulletin (https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf ). Although this does state that banks create money when they make a loan, this is just a definition and does not imply that they do this from thin air. This said, the authors have only themselves to blame when ignorant or naive people take their statement literally.
Phillip Sutton writes that:
‘In modern capitalism it appears that in the money creation process, it is the borrowers that determine the money supply, and the only restriction on this credit is the ability, or perhaps the willingness, of borrowers to put forward existing assets as collateral against a loan.’
If you think that banks can simply create money to lend at interest by a few keyboard strokes, this is a logical deduction — the only limit to what banks could lend would be the amount requested by credit-worthy borrowers.
In an appendix Phillip Sutton reproduces a long passage from the Bank of England article which includes this passage which contradicts his claim above:
‘Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system.’
Further on in the article, the authors expand on this and also show that it is not ‘a total myth’ that banks need funds to back up a loan. The article explains what happens after a bank has used its computer keyboard to record a loan — the borrower will then begin to spend the money.
When the borrower does this most it is likely to go to people who bank with other banks; so the lending bank will have to transfer money to some other bank (if some bank with the same bank that will reduce its outgoings). What happens is that at the end of the day (literally) banks clear what they owe each other. If a bank has more money going out than coming in it covers this by drawing on its reserves. But this cannot continue indefinitely as at some point its reserves would be exhausted. The article goes on:
‘Banks therefore try to attract or retain additional liabilities to accompany their new loans. In practice other banks would also be making new loans and creating new deposits, so one way they can do this is to try and attract some of these newly created deposits. In a competitive banking sector, that may involve increasing the rate they offer to households on their savings accounts. By attracting new deposits, the bank can increase its lending without running down its reserves. Alternatively, a bank can borrow from other banks or attract other forms of liabilities, at least temporarily. But whether through deposits or other liabilities, the bank would need to make sure it was attracting and retaining some kind of funds in order to keep expanding lending’ (their bold).
So much, then, for the idea that banks don’t need to fund the loans they make. The article then explains what does limit bank lending:
‘And the cost of that [attracting funds] needs to be measured against the interest the bank expects to earn on the loans it is making, which in turn depends on the level of Bank Rate set by the Bank of England. For example, if a bank continued to attract new borrowers and increase lending by reducing mortgage rates, and sought to attract some new deposits by increasing the rates it was paying on its customers on their deposits, it might soon find it unprofitable to keep expanding its lending. Competition for loans and deposits, and the desire to make a profit, therefore limit money creation by banks.’
The most that can be said for the booklet is that it is right but for the wrong reason. Phillip Sutton does want to see the working class establish ‘a society of abundance in which people are rewarded for their contributions by the free provision of their personal needs’. That’s an advance compared to other adherents to the Thin Air School of Banking who generally see banking reform not socialism as the way out.