Taking on the currency cranks

[Jean-Luc]

No, you missed the second quote, the Paul Tucker one published by the Bank of England:
"banks in the short run lever up their balance sheets and expand credit at will"

I think rather that you have not understood the meaning of "lever up", i.e. borrow more. So he is not saying, as you seem to have misunderstood, that banks can simply expand their loans at will, but that they can expand their borrowing at will and therefore their lending. Nobody denies that banks can do this (if the state of the economy permits it). In fact it confirms my point that a commercial bank can't create money "out of nothing" but can only lend what it has previously got (either from deposits or from borrowing). Also, note that throughout his talk Tucker assumes that banks are essentially "intermediaries" between savers and borrowers.

when they extend a loan, they simply type in the numbers into a computer. That is the new money. The point is precisely that the money doesn't come from anywhere. They create it. If you do think it has to come from somewhere else, I invite you to describe the ledger entries, which I did on the thread in World Politics.

This is just basic double-entry book-keeping but this is not "simply" all they do: they also have to make the money available and so have to have it. So, yes, when they make a loan banks do type numbers into a computer. On the one side they record the loan as a liability, on the other side they record the borrower's promise to re-pay as an asset. They do the same when somebody deposits money with them (or when they themselves borrow money). On the one side they record the money deposited (or borrowed) as an asset, on the other they record their debt to the depositor (or borrower) as a liability. So what? This is just an accounting convention which has no bearing on how a bank operates economically, as an intermediary between savers and borrowers.

well in my last post I explained precisely why the 'deposit multiplier' model is misleading. deposits do not drive loans - it is the other way around.

Ayatollah, it looks like you and me are on the same side here against Jazzz. Like you I can accept (with reservations as to whether it would work that perfectly in the real world) that, with a 10% cash reserve requirement, if someone deposits £100 in one bank, that bank can lend £90 which will probably end up after being spent in another bank, which can then lend out £81, and so on in decreasing amounts till total loans of £900 have been made (corresponding to total deposits of £1000). Jazzz rejects this for the very reason I'm prepared to accept it: because it implies that before any new loan can be made a new deposit has to have been received.

I don't know if he goes as far as Professor Werner in the opening video and argue that, in this case, when a bank receives a deposit of £100 it can then immediately lend out £900. In fact, he works with a 1% cash reserve and so argues that a bank receiving a £100 deposit can then lend out £9900. Here, transcribed, is what he said:

The key example surely in textbooks is where you have the bank required to have a reserve with the central bank. And so if there's a new deposit with a bank, say a £100, and if the reserve requirement for the sake of argument is around 1% — which is sort of realistic, in many countries it is around 1% — then the textbook will say, ok, it receives a £100, it takes £1, gives it to the central bank as a reserve and now lends out £99. Well, actually this is not what the bank's going to do. In reality the bank will take the entire 100 deposit, give them to the central bank and say "that's my 1% reserve". 1% out of 10,000. 10,000 minus the 100 leaves you 9900 the bank is allowed to lend. So actually the 100 new deposit will lead to 9900 in what is called new loans. That's realistic as an explanation of what banks actually do. (...) The bank is allowed to do this and this means actually that the bank is creating 9900 out of nothing.

This is the purest currency crankism.

 

[love detective]

there's as much truth in the statement that:-

'borrowers create money out of thin air'

as there is in the statement that:-

'commercial banks create money out of thin air'

there's also as much truth in the statement that

'when you fill your car up with petrol, you simply pull the lever on the hose and petrol is created'

as there is in (Jazz's) statement that:-

'when they extend a loan, they simply type in the numbers into a computer [and money is created]'

and so on and so forth.....zzz

 

[kenny g]

I hope this angle of debate isn't falling victim to the absolutist "dead right" V "dead wrong" froth I see on the rise just about everywhere, always present but even more so in the age of 140 Chrs.

It isn't really good enough though to suggest that up to 2008 everything was alright and if only we could all get along a consensus could be reached where we return to the days where the Bourgeoisie were ripping off the people and planet in an "almost sustainable" manner. The fuse was very short prior to 2008, all that's happened is it has got a lot shorter. You may have felt alright but a lot of people didn't, and after what has happened in the meantime those with wealth and power feel that little bit more insecure so are far more willing to control and steal to protect themselves.

To the main point- I do think economics can be a painful distraction at times. After all the question is not to understand how this pile of shit works, but how to change it, right comrades?

The SPGB does have a historical connection to a particular position partly due to the late Edgar Hardcastle's work. http://en.wikipedia.org/wiki/Edgar_Hardcastle I am a bit wary that it may have become liturgical dogma though. The meeting should be very interesting as an interface between some elements of the "new radicals"/ almost conspiraloon rightists and the rich fountain of ideas represented by the SPGB.

 

[love detective]

After all the question is not to understand how this pile of shit works, but how to change it, right comrades?

couldn't disagree more - without first understanding the true exploitative nature & essence of capitalist social relations, you are blind as to what you need to change to get rid of it

And this whole money crank stuff is a classic example of this - when all the focus is put on something that is but a particular manifestation/expression of an underlying essence, and the idea that if you change or somehow suppress that expression then you are tackling the root of the problem

how often do you ever hear the likes of Jazz speak out against wage labour and/or the exploitation of labour by capital? not once, and the reason being is because he doesn't understand how this pile of shit works, and therefore doesn't actually have a problem with the essence of capitalist social relations, he just wants to tinker with one particular expression of it

 

[kenny g]

couldn't disagree more - without first understanding the true exploitative nature & essence of capitalist social relations, you are blind as to what you need to change to get rid of it

And this whole money crank stuff is a classic example of this - when all the focus is put on something that is but a particular manifestation/expression of an underlying essence, and the idea that if you change or somehow suppress that expression then you are tackling the root of the problem

how often do you ever hear the likes of Jazz speak out against wage labour and/or the exploitation of labour by capital? not once, and the reason being is because he doesn't understand how this pile of shit works, and therefore doesn't actually have a problem with the essence of capitalist social relations, he just wants to tinker with one particular expression of it

I was only paraphrasing Marx:-

Theses on Feuerbach para X1

The philosophers have only interpreted the world, in various ways; the point is to change it.

http://www.marxists.org/archive/marx/works/1845/theses/theses.htm

You are indulging in the fallacy of claiming because someone doesn't partake in your particular descriptive language game they have no understanding. "The likes of Jazz" is pure tar brushing- not very useful.

 

[Jean-Luc]

It was also Marx's position:

A bank represents a centralisation of money-capital, of the lenders, on the one hand, and on the other a centralisation of the borrowers. Its profit is generally made by borrowing at a lower rate of interest than it receives in loaning.(Capital, Volume III, chapter 25)

For Marx, wealth and purchasing power arise through production, not the sphere of circulation and exchange. Banking profit does not, in Marx’s view, arise mystically out of financial conjuring, but as a portion of the surplus value created when the working class of wage and salary earners is exploited. This surplus value is then turned into industrial profit, ground rent, and banking interest.

 

[love detective]

I was only paraphrasing Marx:-

Theses on Feuerbach para X1


http://www.marxists.org/archive/marx/works/1845/theses/theses.htm

You are indulging in the fallacy of claiming because someone doesn't partake in your particular descriptive language game they have no understanding. "The likes of Jazz" is pure tar brushing- not very useful.

the quote from marx is a call to first understand, then change it (his whole life time of work was predicated on this principle of first having to understand something before setting out to do something about it) - so i wouldn't say you were paraphrasing him, more directly contradicting him and his method

as to your last sentence, it seems to suggest that you think this whole discussion/argument is reducible to semantics and language, which seems a bit odd

 

[love detective]

It was also Marx's position:
For Marx, wealth and purchasing power arise through production, not the sphere of circulation and exchange. Banking profit does not, in Marx’s view, arise mystically out of financial conjuring, but as a portion of the surplus value created when the working class of wage and salary earners is exploited. This surplus value is then turned into industrial profit, ground rent, and banking interest.

exactly - and that is the anchor/elastic that always ensures that whenever finance capital tries to move too far away from its 'material' base of labour & value, the 'material' base will always win out and assert its dominance over that movement and bring it all crashing back in again through crisis so the whole thing can start over again

 

[kenny g]

it seems to suggest that you think this whole discussion/argument is reducible to semantics and language, which seems a bit odd

how often do you ever hear the likes of Jazz speak out against wage labour and/or the exploitation of labour by capital? not once, and the reason being is because he doesn't understand how this pile of shit works

I thought that your point about Jazz was a linguistic one. You say he doesn't speak in a certain way because he has no understanding. It may just be that he has indulged in different ways of speaking. Pre-marx there were plenty of outlandish speakers - see "The world turned upside down" - who may well have had an understanding of their world every bit as interesting and rich as someone who has swallowed a leftist phrase book.

 

[love detective]

I thought that your point about Jazz was a linguistic one. You say he doesn't speak in a certain way because he has no understanding. It may just be that he has indulged in different ways of speaking. Pre-marx there were plenty of outlandish speakers - see "The world turned upside down" - who may well have had an understanding of their world every bit as interesting and rich as someone who has swallowed a leftist phrase book.

you're not making much sense

the point was that Jazz doesn't 'speak out' against the exploitation of labour by capital because his wonky surface level analysis doesn't see that this is the essence of capitalist social relations and that therefore it is this that needs to be obliterated to achieve real change

at best he has no idea of the role of exploitation of labour within the system he is nominally opposed to (capitalism) and at worst he does, but for reasons beknown only to him chooses to support the labour/capital relation and system of wage-labour & labour exploitation, while remaining nominally opposed to capitalism. In his world everything would be OK if we tinkered with the money system and left the capital/labour relation (that produced this particular manifestation of it) in place

so, even if he had a correct understanding of how money, credit and the financial system worked - a focus on combatting that would still miss the point

so it's nothing to do with linguistics, semantics or 'ways of speaking' - it's about the substantive content of his analysis (or more correctly, the lack of it)

 

[Jazzz]

there's also as much truth in the statement that

'when you fill your car up with petrol, you simply pull the lever on the hose and petrol is created'

as there is in (Jazz's) statement that:-

'when they extend a loan, they simply type in the numbers into a computer [and money is created]'

This is precisely the issue.

With petrol obviously the petrol came from somewhere. When you pull the lever, your car fills up, but the place where the petrol came from - that is not there any more. There is no additional petrol in the system. It is a 'full reserve' system.

But with fractional reserve banking, when a bank makes a new loan - and let's use the money multiplier model, so suppose someone deposits £100 in the bank, and the bank then lends out £90, which is drawn on - leaving a ten-percent reserve - The original £100 is still there. It exists as a book-keeping entry, a liability of the bank to the original depositor. It is money and the game is that the bank is prepared for it to be drawn on at any time. The bank doesn't say, "sorry mr depositor, you can't have your £100 tomorrow" which is precisely what you or I would have to do if we tried the trick.

It is the case that whenever a bank makes a new loan, new money is created, and when the loans are paid back, money is destroyed.

 

[love detective]

you misunderstand again

the point is to demonstrate that just like pressing a lever on a petrol hose doesn't create petrol, the simple act (in and off itself) of pressing a key on a keyboard in a commercial bank doesn't create money

anyway, i'm off out for the day, leave you to it

 

[Jazzz]

I think rather that you have not understood the meaning of "lever up", i.e. borrow more. So he is not saying, as you seem to have misunderstood, that banks can simply expand their loans at will, but that they can expand their borrowing at will and therefore their lending.

No, the quote was that in the short run they can expand credit at will - they don't have to borrow it first. All they do is type in the numbers! For a comparison, it is like a casino 'creating' money by loaning chips to a player.

 

[Jazzz]

the point is to demonstrate that just like pressing a lever on a petrol hose doesn't create petrol, the simple act (in and off itself) of pressing a key on a keyboard in a commercial bank doesn't create money

Except it does. How else do you think 97% of the money in circulation is created?

 

[love detective]

it's created through the act of circulation, a process that by definition can not be done by one party in isolation

as i said above

there's as much truth in the statement that:-

'borrowers create money out of thin air'

as there is in the statement that:-

'commercial banks create money out of thin air'

now, bye

 

[kenny g]

you're not making much sense

the point was that Jazz doesn't 'speak out' against the exploitation of labour by capital because his wonky surface level analysis doesn't see that this is the essence of capitalist social relations and that therefore it is this that needs to be obliterated to achieve real change

at best he has no idea of the role of exploitation of labour within the system he is nominally opposed to (capitalism) and at worst he does, but for reasons beknown only to him chooses to support the labour/capital relation and system of wage-labour & labour exploitation, while remaining nominally opposed to capitalism. In his world everything would be OK if we tinkered with the money system and left the capital/labour relation (that produced this particular manifestation of it) in place

so, even if he had a correct understanding of how money, credit and the financial system worked - a focus on combatting that would still miss the point

so it's nothing to do with linguistics, semantics or 'ways of speaking' - it's about the substantive content of his analysis (or more correctly, the lack of it)

The only sense I can make of that is that you are engaged in a web of tautology. The essence of capitalist social relations may well be the exploitation of labour but that is by definition. I am not sure that Jazz has argued for the capital/labour relations currently in place.

 

[kenny g]

As an aside, do you know how many times Capitalism is mentioned in the communist manifesto? The answer is none. Engels refers to it once in the intro of 1893. The word capitalist does arise and is used to refer to the class of individuals, the bourgeoisie. The leftist waffle of the kind espoused by Love Detective is not the source of a solution for the world, but is rather the drifting stench from the previous century's leftist failures.

 

[Jean-Luc]

No, the quote was that in the short run they can expand credit at will - they don't have to borrow it first. All they do is type in the numbers!

That may be your view but you can't call "Paul Tucker, Bank of England Executive Director and member of the Monetary Policy Committee" to the witness box to testify in your favour. What he said in that speech was:

Well, much that I have said about banks - their capacity, in the short run, to lever up their balance sheets and expand credit at will; their role in providing liquidity insurance to investment vehicles and corporates - turns precisely on their liabilities being money. (p 9. Emphasis added)

This is saying that in the short run they can expand credit at will, but only if they first "lever up their balance sheets", i.e if they borrow more. It is not saying that they can expand credit at will just by typing in some numbers. Don't you understand the meaning of "lever up"?

 

[SpineyNorman]

As an aside, do you know how many times Capitalism is mentioned in the communist manifesto? The answer is none. Engels refers to it once in the intro of 1893. The word capitalist does arise and is used to refer to the class of individuals, the bourgeoisie. The leftist waffle of the kind espoused by Love Detective is not the source of a solution for the world, but is rather the drifting stench from the previous century's leftist failures.

Yeah, Marx and Engels never really talked about the relationship between wage labour and capital did they? And the Manifesto was a piece of propaganda, a pamphlet. If you were to read the serious philosophical stuff, expecially that relating to economics, you'd find that it's right at the core - that relationship is probably the most important and oft emphasised aspect of their social and economic analysis.

And previous century's leftist failures? You're SPGB aren't you? LOL

 

[kenny g]

Yeah, Marx and Engels never really talked about the relationship between wage labour and capital did they? And the Manifesto was a piece of propaganda, a pamphlet. If you were to read the serious philosophical stuff, expecially that relating to economics, you'd find that it's right at the core - that relationship is probably the most important and oft emphasised aspect of their social and economic analysis.

And previous century's leftist failures? You're SPGB aren't you? LOL

You are displaying your ignorance on all counts I am afraid. I am aware of the "serious political stuff", the labour theory of value and so forth. You are right to some extent, capitalism is mentioned, for example, four times, within volume II of Capital. I think the world would have been a far better place if Marx had not wasted his time on a lot of his economic writings but had rather put a bit more energy into an analysis of power. His critique of the Bourgeoisie hints at this but unfortunately he was sidetracked by economic theory. The "propaganda pamphlet" of the manifesto is a work of brilliance, his later Engel's sponsored works are best read in synopsis. I have followed this belief by not putting a great deal of time into his economic writings - I think they are to some extent irrelevant to preparing for a true revolutionary change.

For the avoidance of doubt.I am Kenny G rather than SPGB. I left them quite a long time ago. However, to return to the OP, I expect the meeting will be very worthwhile and of interest.

 

[SpineyNorman]

You're the one displaying ignorance. Nobody said the Manifesto was anything but a work of brilliance. But it's not, and can't be, read as a substitute for the real hard task of getting to grips with their works as a whole. For a start the term capitalism itself became widely used as a result of Marx and Engels' writings. And if you'd read Marx's more historical works - the 18th Brumaire, Class struggles in France etc. and Engels work on the state you'd see that the reason why they considered an analysis of the relations of production so vital was precisely because they rightly understood their importance with regards to power dynamics. Interestingly, some accounts claim that Marx was wanting to study anthropology once all 7 planned volumes of Capital were finished, which suggests that the vulgar base/superstructure interpretation is a nonsense and that he was well aware of the way cultural and linguistic factors could be put to use both in maintaining and changing the status quo.

Maybe if you'd not been so lazy and actually bothered to read it rather than dismiss it you'd have realised this.

 

[kenny g]

You're the one displaying ignorance. Nobody said the Manifesto was anything but a work of brilliance. But it's not, and can't be, read as a substitute for the real hard task of getting to grips with their works as a whole. For a start the term capitalism itself became widely used as a result of Marx and Engels' writings. And if you'd read Marx's more historical works - the 18th Brumaire, Class struggles in France etc. and Engels work on the state you'd see that the reason why they considered an analysis of the relations of production so vital was precisely because they rightly understood their importance with regards to power dynamics. Interestingly, some accounts claim that Marx was wanting to study anthropology once all 7 planned volumes of Capital were finished, which suggests that the vulgar base/superstructure interpretation is a nonsense and that he was well aware of the way cultural and linguistic factors could be put to use both in maintaining and changing the status quo.

Maybe if you'd not been so lazy and actually bothered to read it rather than dismiss it you'd have realised this.

Well, for all your reading and your, "real hard task of getting to grips with their works", you are about as politically relevant as any piss stained bloke who has wasted their life studying racing form.

I am fully aware that the term capitalism became widely used as a result of M and E's writings, and what a cul-de-sac that has been! Another -ism that adds very little to any kind of understanding. If Marx had got to the Anthropology rather than wasted so many words on the volumes he would have done the world a service.

Do you think coming to grips with the volumes is a pre-requisite for meaningful revolutionary political discourse?

 

[SpineyNorman]

Yes.

You know nothing of my life and my political relevance so I can only imagine that you're projecting your own inadequacies, presumably social ones, onto me.

And that's post-modernist bollocks.

In order to generate "meaningful revolutionary discourse" it is first necessary to understand the mutually re-enforcing links between the prevailing hegemonic discourse and real material power relations. A new or revolutionary discourse that cannot tap into and resonate with these power relations and the social phenomena they produce will never gain traction in the real world. This goes back to what ld was saying about analyses that don't scratch below the surface.

That's not to say that you have to have read all three volumes of Capital (and I'd be a hypocrite to say you did - I haven't read all of volume 2 myself) to have anything worthwhile to say but to suggest that it's irrelevant or a cul-de-sac is just ignorant bollocks.

E2A: isms maaan, don't label me dude!

 

[kenny g]

Yes.

And that's post-modernist bollocks.

In order to generate "meaningful revolutionary discourse" it is first necessary to understand the mutually re-enforcing links between said discourse and real material power relations. A discourse that cannot tap into and resonate with these power relations and the social phenomena they produce will never gain traction in the real world. This goes back to what ld was saying about analyses that don't scratch below the surface.

That's not to say that you have to have read all three volumes of Capital (and I'd be a hypocrite to say you did - I haven't read all of volume 2 myself) to have anything worthwhile to say but to suggest that it's irrelevant or a cul-de-sac is just ignorant bollocks.

So we are agreed that in order to understand the mutually re-enforcing links between meaningful revolutionary discourse and real material power relations you do not need to have read the complete works of Marx. Nor, I would suggest, do you have to express your political beliefs in purely marxian terms.

I think you misunderstand me. I was not suggesting that the volumes of Capital are a cul-de-sac or irrelevant, rather that the word capitalism is. I don't think it particularly helps us understand the real nub of the problem. Marx's earlier emphasis on the Bourgoisie and Capitalists is far more relevant to the real issues of control, exploitation and domination, both of the planet and of us.

It is interesting that I have moved from being SPGBer to a post-modernist in your eyes. I await the next pigeon hole.

 

[TruXta]

Yes.

You know nothing of my life and my political relevance so I can only imagine that you're projecting your own inadequacies, presumably social ones, onto me.

And that's post-modernist bollocks.

In order to generate "meaningful revolutionary discourse" it is first necessary to understand the mutually re-enforcing links between the prevailing hegemonic discourse and real material power relations. A new or revolutionary discourse that cannot tap into and resonate with these power relations and the social phenomena they produce will never gain traction in the real world. This goes back to what ld was saying about analyses that don't scratch below the surface.

That's not to say that you have to have read all three volumes of Capital (and I'd be a hypocrite to say you did - I haven't read all of volume 2 myself) to have anything worthwhile to say but to suggest that it's irrelevant or a cul-de-sac is just ignorant bollocks.

E2A: isms maaan, don't label me dude!

All begs the question tho - most people are gonna want to vomit when they hear the kind of language LD (and you, and me for that matter) generally use when discussing these things. Hegemonic discourse? Fuck off.

 

[cesare]

All begs the question tho - most people are gonna want to vomit when they hear the kind of language LD (and you, and me for that matter) generally use when discussing these things. Hegemonic discourse? Fuck off.

One doesn't vomit when learned people are talking about important things like Marx and Capitalism, comrade. But one might move swiftly on, on account of being excluded.

 

[TruXta]

One doesn't vomit when learned people are talking about important things like Marx and Capitalism, comrade. But one might move swiftly on, on account of being excluded.

If anyone tried to comrade me IRL I'd either laugh, spit or slap them.

 

[cesare]

If anyone tried to comrade me IRL I'd either laugh, spit or slap them.

You dislike "comrade" more than me agreeing with your point? But yes, it's another example of what can be implied by the use of a word even when the use is ironic.

 

[TruXta]

You dislike "comrade" more than me agreeing with your point? But yes, it's another example of what can be implied by the use of a word even when the use is ironic.

Sorry, that wasn't directed at you - I got the irony. You don't strike me as the comrading sort.

 

[cesare]

Sorry, that wasn't directed at you - I got the irony. You don't strike me as the comrading sort.

There shouln't be anything wrong with it as a term, but there's a sense of "club" about it.