It wasn’t the stars, or geology. It wasn’t ocean currents, or the weather. The world economy was brought crashing down in 2008 by the particular way we have allowed it to be organised.
It was brought down by being organised around the priority of maximum competitive greed and gain of a small exploiting minority.
From the early 1980s to 2008, world capitalism became more and more governed by the drive for quick, fluid gains, measured and coordinated through an increasingly complex and fast-flowing system of world financial markets.
Ever more elaborate forms of credit were packaged and traded, faster and faster. In the years 1990-2007 world trade grew at 8.7% per year; but cross border financial flows grew at 14.4%, from $1.1 trillion to over $11 trillion.
As Karl Marx argued in Capital, the expansion of credit both gives capital more flexibility and promotes larger, quicker-acting economic crises.
Credit, Marx argued, develops necessarily within capitalism to facilitate the movement of capital from one sector to another, i.e. to allow the equalisation of the rate of profit and to reduce the costs of circulation.
It speeds the movement of capital through its different phases, and increase the scope for the expansion of capital; and it pools all that would otherwise rest in individual reserve funds, and gives to money-capital “the form of social capital” concentrated in the hands of banks.
In Marx’s theory, profits declared by individual businesses are only segments of total surplus value, which is formed on a social level by the excess of new value produced over the wages paid to productive labour. Banks become the most centralised, compact, pivotal node in the flows of surplus value and of “tickets” to future flows of surplus value.
British banks hold around £20,000 billion in financial assets — enough to buy up all the country’s physical assets three times over — or the equivalent of about £800,000 for each household in the UK.
The credit system gives greater elasticity both to capitalist production — and to capitalist overproduction (overproduction relative to available markets).
“The credit system appears as the main lever of over-production and over-speculation in commerce... the reproduction process, which is elastic by nature, is here forced to its extreme limits... The credit system accelerates the material development of the productive forces and the establishment of the world-market... At the same time credit accelerates the violent eruptions of this contradiction — crises — and thereby the elements of disintegration of the old mode of production”. (Marx).
There have been periodic financial bubble-bursting crises all through the recent decades. In 2008, the bubble-bursting was big enough that its knock-on effects threatened to ruin the world’s leading banks.
Over the time since 2008, millions have lost their jobs and their homes. In some parts of the world, millions starved as a result of the food price rises set going in 2007-8 and from mid-2010.
In 2008, further collapse, beyond the bank crash, was avoided only by the intervention of social control. Governments stepped in with “socialism for the rich”. In Britain, the government pumped the equivalent of £18,000 for every child, woman, and man in the country into the banks, in cash, loans, credit, and guarantees, a total of £1100 billion.
Of course, the Government and the Bank of England could not pack up £1100 billion in banknotes to hand over to the banks. The entire total of bank notes and coins in the UK is only about £50 billion.
The Government extended credit and guarantees to the banks. Across the system, a lot of the dodgy assets “cancel out”, so not all the £1100 billion in guarantees could ever be called in.
But there was more to it all than the huge notional figures.
The best guess was that the bail-outs brought a £200 billion increase in the national debt. From that have come interest payments, to be covered from taxes, and Osborne’s cuts, excused by him with the spurious suggestion that high debt was caused by too much social spending from the last Labour government.
The losses from the crisis were “socialised”, while the banks’ gains remained “privatised”, and they continued to make those gains.
Government-supported or even Government-owned banks have been run in just the same way, by the same people or the same sort of people, as the pre-crash privately-owned banks.
Northern Rock was the first British bank to crash during the crisis, and it was nationalised in February 2008.
The government put in Ron Sandler to run it. He was £90,000 per month — £1,080,000 per year — more than the £690,000 basic salary of Northern Rock’s previous chief executive, Adam Applegarth.
Northern Rock workers lost their jobs, and Northern Rock mortgage-holders were evicted from their homes.
A few bankers resigned after the crash, but mostly the top bankers are still shamelessly taking home truckloads of loot. British bankers’ bonuses over the five years to 2014 totalled about. £80 billion. When forced to reduce them, the banks instead paid out similar amounts under the name “allowances”.
Those who resigned hardly suffered. Barclays boss Bob Diamond went with a “golden goodbye” of £2 million. Fred Goodwin of RBS went with a £700,000-a-year pension, now reduced to £340,000-a-year after he took out a £2.7 million tax-free lump sum.
The incomes of top bankers — only one small section of the capitalist class — are large compared even with the dramatic social cuts made by the Cameron government: a planned total for 2010-5 of about £18 billion from benefits, £16 billion from education and local services, over five years.
Banks deal in a wide range of forms of what Marx called “fictitious capital”. Shares and bonds appear as forms of capital “doubling” the tangible capital they represent on paper, and then financial derivatives double the doubling. All this whirl of paper increases the opportunities for banks to draw profits from fees (an increasing part of their revenues) and from differentials between interest rates here and interest rates there.
The more “financialised” capitalism becomes, the more surplus value is swirled round the financial world, and the bigger the cut of surplus value taken by banks and other financial operators. The share of total UK profits taken by financial sector firms increased round one per cent in the 1950s and 1960s to around 15 per cent in the years 2008 to 2010; in the USA, the financial sector’s share is 30% or more.
A public utility managing accounts and payments could also organise the supply of credit, allocating it according to socially-decided goals. Banks as they are now do not do that: mostly, they siphon off revenue as intermediaries in the flows of credit.
Some of what they do is just gambling, but gambling with a twist. If they win, they pocket the gains; if they lose, the taxpayer bails them out.
For a workers’ government to seize the banks would mean replacing the current nodes of profiteering by a public banking, insurance, and pension service, oriented to social investment.
Investment would be directed to social goals. Production would be democratically planned, rather than regulated by the swings and slips of chasing after competitive profits. Inequality would be curbed.
In 2012 TUC Congress passed a resolution stating that the chaos created by the major banks and financial institutions “should be ended through full public ownership of the sector and the creation of a publicly owned banking service, democratically and accountably managed”.
Activists should press the unions to campaign for that policy.
By calling for a workers’ government, we mean to put out in the organised working class a rallying cry for the labour movement to seek control over and to re-select its political representatives; and to push those representatives to take power and form a government which will carry out working-class policies.
A workers’ government means a government based on mass working-class mobilisation and accountable to the labour movement — a government which serves our class as the Tories and New Labour in power have served the rich.
We believe that the fight for a workers’ government can develop only as a staging post on the road to full working-class rule in society. A workers’ government seeking to pursue working-class policies within a capitalist framework would come up hard against resistance from the unelected state machine and the capitalists themselves, and would be compelled either to push forward in a revolutionary way or to submit and cease to be a workers’ government.
The struggle starts now in terms sketched by Leon Trotsky in 1938: “Of all parties and organisations which base themselves on the workers and peasants and speak in their name, we demand that they break politically from the bourgeoisie and enter upon the road of struggle for the workers’ and farmers’ government. On this road we promise them full support against capitalist reaction. At the same time, we indefatigably develop agitation around those transitional demands which should in our opinion form the program of the ‘workers’ and farmers’ government’.”
Public ownership of the banks by a routine bourgeois government is only ever likely to be something like it was in 2008: a means to prop up capitalist economic life until things look good again to reallocate the banks to private profit. The campaign for effective public ownership of the banks is inseparable from the fight for a workers’ government.
In our individual day-to-day dealings, it seems to us that the stock of money in the economy is a fixed quantity — if we gain money, it is because we have sold something, or received a payment or similar, from someone else who now has less money to exactly the same degree that we have more money. From the point of view of the economy as a whole, it is far from fixed.
Most money is not notes and coin. Probably you get your wages in the form of a bank credit rather than notes and coin, and convert the wages to notes and coin only bit by bit. In fact, most money is created by commercial banks, not central banks.
If you have £1000 credited to your bank account for your month’s wages, then the bank does not hold on to all of it. It lends out some of it, say £800. The person getting the £800 loan also does not keep the £800 in notes and coin. They put it into another bank account. Then most of it can be lent again... and so on.
The limit to this multiplication of money is the banks’ decision to keep reserves, either because they are legally obliged to or out of business prudence.
If banks become more reluctant to lend (or individuals decide to keep more in the form of ready cash, which is also happening), then the total of money in the economy shrinks. Many people have less money, without any counterpart of someone else having more money. Actual money — as distinct from shakier “financial assets” — becomes scarce.
Usually central banks regulate the total of money in the economy by changing the official interest rate at which the central banks lends to commercial banks. For a long time they prided themselves on their supposed ability to fine-tune economic life through that mechanism.
In the wake of 2008, those official interest rates have been pushed low, yet credit remains scarce. QE means the Bank of England is acting more directly to increase the total of money in the economy, by buying financial assets from the commercial banks. (Doesn’t that mean that the Bank of England loses money to exactly the same degree that the commercial banks gain it? No, because pounds are IOUs from the Bank of England. If the Bank of England holds an IOU to itself, that is not money).
The immediate effect is to increase the commercial banks’ account balances at the Bank of England. As and when the commercial banks draw on those balances, the Bank of England may have to print fresh notes to pay out. (Thus the description of “quantitative easing” as “printing money”).
The New Economics Foundation estimates that in Britain QE and similar policies have subsidised bankers by over £30 billion a year, by the Bank of England essentially lending them money for free.
The Guardian has recently “revealed that HSBC’s Swiss banking arm helped wealthy customers conceal millions of dollars of assets, doled out bundles of untraceable cash and advised clients on how to circumvent domestic tax authorities”.
HSBC’s response has been essentially that everyone was doing it, and they’ve cleaned up since: “the compliance culture... in HSBC’s Swiss private bank, as well as the industry in general, [was] significantly lower than today”.
Similar scandals have broken again and again since 2009. Several big banks, mostly American but also RBS, have paid billions in fines to settle charges of mis-selling mortgage-backed securities and abusive methods to evict people falling behind on payments.
Banks have been fined for rigging the interest rate at which banks lend to each other short-term, a rate used as a yardstick for masses of financial transaction.
They have been fined, too, for rigging the rates at which different currencies are exchanged; for evading sanctions against Iran and other countries; for money-laundering; for rigging electricity markets; for manipulating the price of gold; and other misdeeds.
British banks have paid billions for selling “payment protection insurance”, mostly to people who wouldn’t be able to claim on the insurance policies they were sold.
Over the five years 2009-13, one researcher has found, just 15 big global banks had to pay or set aside £173 billion for fines or settling claims for misbehaviour. That includes £36 billion from just four British banks, HSBC, RBS, Barclays and Lloyds.
More and more people see, as the conservative Financial Times journalist Martin Wolf puts it: “Banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff [meaning their top bosses, not the routine staff].
“Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with”. (2 July 2012).
Banks are a vast engine of inequality. They also control the bulk of the fluid, mobile wealth in society. They stand at the crossroads where investment decisions are made.
The control of investment funds by the banks makes it apparently not “realistic” to invest in health, education, welfare, and other public services, but very “realistic” for property developers currently to invest £2-billion-plus per year in building new luxury housing in London at an average of £2.5 million a dwelling.
Despite the banks’ great ability to lend, by far the biggest part of sizeable industrial corporations’ investment is not financed by bank lending.
It is financed by the corporations’ profits, and secondarily by them issuing bonds or shares (essentially, types of IOUs). Banks are at the crossroads of credit, but mostly lend not to big industrial corporations, but to smaller capitalist concerns, to households, to the government, and to each other.
The banks hold about £1300 billion of claims on households for mortgages, and draw considerable revenues from them, in a form of capitalist income which siphons directly from wages rather than flowing from the difference between wages paid and the new value which the buyers of our labour-power gain from our labour.
US figures show that in recent times debt service payments have taken up to 13% of household disposable income, easing after the 2007-8 crash to about 10%. (UK statistics are less accessible, but seem to be similar).
These are figures for payments both of “principal” (the actual amount borrowed for a mortgage or on a credit card) and of interest, so overestimate the exploitation. According to the American economist J W Mason, interest payments were about 8% of household disposable income from the late 1980s to the crash.
By far the bulk of the stock of household debt is mortgage debt rather than credit card debt or other forms of consumer credit. Indeed, and surprisingly, in the USA (the only country for which a good long run of statistics is available), consumer credit ballooned from 1945 to the early 1960s, but has been fairly static as a percentage of GDP since then. Mortgage debt has expanded much more than consumer credit.
However interest rates on credit cards, payday loans, and the like are much higher than on mortgages, and US figures show that monthly debt-service payment on consumer credit totals about the same as monthly debt-service payment on mortgage debt.
A significant minority have large credit-card debts requiring huge interest payments. The Citizens’ Advice Bureaus in the UK had 87,000 people approaching them in 2014 for helping in managing credit-card debts.
A story commonly told is that the rise in consumer debt has kept markets buoyant. That has been true, if at all, only in limited periods. J W Mason finds: “The rise in [household] debt [in the USA] in the 1980s is explained by a rise in non-demand expenditures [i.e. expenditures which do not generate consumer demand].
Specifically, it is entirely due to the rise in interest payments, which doubled from 3-4 per cent of household income in the 1950s and 1960s to over 8 per cent in the late 1980s”.