Saturday, 30 April 2016

Capital III, Chapter 33 - Part 2

But, also money in circulation moves faster or slower, depending on the extent and speed of economic activity. Credit facilitates both.

“A single piece of money, for instance, can effect only five moves, and remains longer in the hands of each individual as mere medium of circulation without credit mediating — when A, its original owner, buys from B, B from C, C from D, D from E, and E from F, that is, when its transition from one hand to another is due only to actual purchases and sales. But when B deposits the money received in payment from A with his banker and the latter uses it in discounting bills of exchange for C, C in turn buys from D, D deposits it with his banker and the latter lends it to E, who buys from F, then even its velocity as mere medium of circulation (means of purchase) is effected by several credit operations: B's depositing with his banker and the latter's discounting for C, D's depositing with his banker, and the latter's discounting for E; in other words through four credit operations. Without these credit operations, the same piece of money would not have performed five purchases successively in the given period of time.” (p 521)

As described previously, a banknote of £100, deposited in bank X, can create additional deposits at bank X and other banks. Bank X uses the £100 to discount bills, or make loans, and the recipients of this money, or money-capital, use their receipts to make deposits into their own accounts, which are then used by the banks to make further loans etc. which create further deposits, and so on.

“We have already demonstrated in the discussion of simple money circulation (Vol I, Ch. III, 2) that the mass of actual circulating money, assuming the velocity of circulation and economy of payments as given, is determined by the prices of commodities and the quantity of transactions. The same law governs the circulation of notes.” (p 522)

This is not entirely correct, as Marx describes in A Contribution To The Critique of Political Economy, because paper money tokens, or bank notes, can be printed in excess of the actual money they represent. Marx is correct that the laws which determine how much money is required also govern, thereby, the amount of money, represented by those tokens, is required. The difference, as Marx describes, in A Contribution To The Critique of Political Economy, is that if too much money is put into circulation, as gold or silver, it becomes hoarded and turned into bullion etc, and so drops out of circulation. But, paper money tokens have no actual value. They cannot be converted into bullion, or resume their commodity form. They continue to circulate, and become thereby devalued. 

Marx provides a table showing the quantity of bank notes of various denominations that were in circulation between 1844-57.
£5-10 Notes
£20-100 Notes
£200-1,000 Notes

It shows that the smaller notes, £5 and £10, increased , whilst the larger notes, £200-£1,000 decreased.

“This is explained as follows: 

"On the 8th June 1854, the private bankers of London admitted the joint-stock banks to the arrangements of the clearing house, and shortly afterwards the final clearing was adjusted in the Bank of England. The daily clearances are now effected by transfers in the accounts which the several banks keep in that establishment. In consequence of the adoption of this system, the large notes which the bankers formerly employed for the purpose of adjusting their accounts are no longer necessary." (B. A. 1858, p. V.)” (p 523)

Northern Soul Classics - Don't Pretend - The Belles

Roll back the carpets, sprinkle the talc for a bit of 100 mph class.

Friday, 29 April 2016

Friday Night Disco - Young Hearts Run Free - Candi Staton

Capital III, Chapter 33 - Part 1

The Medium of Circulation in the Credit System

“"The great regulator of the velocity of the currency is credit. This explains why a severe pressure upon the money-market is generally coincident with a full circulation." (The Currency Theory Reviewed, p. 65.)” (p 520)

This comes down to two things. Firstly, credit reduces the amount of currency required to circulate a given value of commodities. Secondly, the level of credit affects the volume and value of economic transactions itself, which thereby also increases the velocity of circulation of the currency.

“The velocity with which the note circulates here, to serve for purchases and payments, is effected by the velocity with which it repeatedly returns to someone in the form of a deposit and passes over to someone else again in the form of a loan. The pure economy in medium of circulation appears most highly developed in the clearing house — in the simple exchange of bills of exchange that are due — and in the preponderant function of money as a means of payment for merely settling balances. But the very existence of these bills of exchange depends in turn on credit, which the industrialists and merchants mutually give one another.” (p 520)

Credit reduces the need for money by enabling mutual claims to be netted against each other. If A and B both bank with bank X, and the balance of claims between them means that B owes A £100, then this can be resolved simply by Bank X transferring £100 from B's account to that of A. To the extent that this is merely a book transfer within the same bank, no money even needs to be present to effect it. Money here is reduced simply to a role as unit of account. The total amount of money that the bank itself possesses on deposit is not changed. Similarly, if the total balance of claims from people with accounts at bank X, against people with accounts at bank Y is £1,000, then this can be resolved by transferring £1,000 from the account of bank Y, to that of bank X, with each bank then making the necessary debits and credits in the accounts of their respective customers.

“The concentration of 8 to 40 million bills of exchange in the hands of one bill-broker, such as the firm of Overend, Gurney & Co., was one of the principal means of expanding the scale of such balancing locally. The effectiveness of the medium of circulation is increased through this economy in so far as a smaller quantity of it is required simply to balance accounts.” (p 521)

Thursday, 28 April 2016

Why Livingstone Was Suspended

Why exactly was Ken Livingstone suspended from the Labour Party?  Just to put things on the table to start with.  I think that some of the comments that Livingstone has come out with over the years have been highly dubious, as have some of the people he has been associated with.  A lot of that flows from the kind of "idiot anti-imperialism" that has characterised sections of the left for the last 30 or so years, and against which I have argued.  Part also comes from a failure to recognise that a legitimate opposition to Zionism, as a nationalist ideology based upon an oppression of Palestinians, and the maintenance of a confessional state, when it flows over into a demand for the demolition of the existing Israeli state, is itself implicitly anti-semitic, because such a demolition could only be achieved by a terrible violence, which would involve a genocide against the Jewish inhabitants of that state.

But, Livingstone, if he was going to be suspended, should then have been suspended, on that basis decades ago, rather than being welcomed back into the LP by Tony Blair no less, so as to stand for London Mayor.  Why is it that the Blair-rights have only just discovered these aspects of Livingstone's politics, and only now demand his suspension, and indeed permanent expulsion from the party.  The real reason is that the Blair-rights have found a hook upon which to attack Corbyn. Where Blair welcomed Livingstone back into the party to stand as London Mayor, Corbyn has today acted to suspend Livingstone on the same day that he is accused of making anti-semitic statements. But, that has also exposed the real reason for all of the furore and calls for Livingstone's expulsion by the Blair-rights.

The odious John McTiernan who was Blair's spin doctor, and, therefore, no doubt supported his master's warm welcome for the "anti-semitic" Livingstone back into the party, and his candidacy for Mayor, was quick to jump into a TV studio, to attack Corbyn for not acting fast enough, or decisively enough in suspending Livingstone!  Let us remind ourselves that this odious little man who loses no opportunity to attack Corbyn, and thereby the Labour Party's chances for the upcoming elections, was elected by no one to anything within the Labour Party.  The only reason the TV and media invite him on to spout his bile against Corbyn is because he fulfils the role of "useful idiot" for the Tory media in attacking the Labour Party, and it is a role he is more than willing to fulfil.

On BBC News this evening, Livingstone's radio interview was played, in which Livingstone referred to the meetings between Nazi leaders and leaders of the Zionist Federation of Germany.  Livingstone was accused by the Blair-right John Mann of being "a Nazi apologist", which, given the nature of Mann's behaviour, seems to me in itself a case for suspension, for bringing the party into disrepute.  It certainly gave the Tory media a field day of propaganda ahead of the upcoming elections.

The basis of Mann's rather ridiculous accusation was that Livingstone in referring to these meetings was lying, and re-writing history.  But, the fact of those meetings, as Livingstone said, is a matter of historical record.  The details of the Haavara Agreement are contained on Wikipedia, which Mann as a supposed expert on the issue could easily have checked.  Wikipedia states,

"The Haavara Agreement (Hebrew: הסכם העברה Translit.: heskem haavara Translated: "transfer agreement") was an agreement between Nazi Germany and Zionist German Jews signed on 25 August 1933. The agreement was finalized after three months of talks by the Zionist Federation of Germany, the Anglo-Palestine Bank (under the directive of the Jewish Agency) and the economic authorities of Nazi Germany. The agreement was designed to help facilitate the emigration of German Jews to Palestine. While it helped Jews emigrate, it forced them to temporarily give up possessions to Germany before departing. Those possessions could later be re-obtained by transferring them to Palestine as German export goods. The agreement was controversial at the time, and was criticised by many Jewish leaders both within the Zionist movement (such as the Revisionist Zionist leader Vladimir Jabotinsky) and outside it."

In the radio interview, played by the BBC just before they interviewed McTiernan, Livingstone clearly states that Hitler was not a Zionist, that he hated Jews, and killed six million of them.  Yet Mc Tiernan when he came on continued the line that Livingstone had been claiming that Hitler was a Zionist, and that the holocausts was somehow, the fault of German Jews!

All of this comes after the suspension yesterday of Naz Shah, who Livingstone had defended.  Shah was suspended for some social media posts she had made back in 2014.  My first reaction when I saw the TV coverage of that controversy yesterday was that the interpretation of the posts was at the very least open to question.  The post where she places a map of Israel in the middle of the USA is rather silly, but not in itself anti-semitic.  Before the state of Israel was created after WWII, for example, the leaders of world Zionism looked at several places where they might establish a Jewish state.  No one would have accused them of being anti-semitic clearly for drawing lines on maps, inside the existing borders of other people's countries.  And indeed, the fact is that the state of Israel was created in precisely that way, by being forcibly located within the borders of Palestine, at the expense of the existing Palestinian inhabitants, who were thereby displaced.

If something like that were to happen today, the "international community" would have no qualms about describing it as an act of genocide, and a war crime.  Indeed, many of those who were at the forefront of establishing the Israeli state were themselves terrorists.

Marcus Garvey, the American black nationalist, argued for the setting up of a black homeland, carved out of the United States, to which black Americans could move, but no one suggests that Garvey was, thereby a racist!  And, of course, the carving out of such homelands in the United States is not new. The US itself, having carried out a genocide against Native Americans, moved the remaining tribes onto their own reservations, just as also South Africa sought to move black South Africans into Bantustans.

As I have written many times before, I think that all of those nationalist solutions to the problems faced by various ethnic groups of oppression are ultimately reactionary and divisive.  But, the reality is that the state of Israel is an historic fact.  It exists, and the job of Marxists is not to act like some kind of moral guardian of history, putting right what once went wrong, but to fight in the here and now for the greatest unity of the working class across the globe, to resolve our current problems in a progressive manner.  That is what is wrong with all those who can't get beyond their abhorrence that the state of Israel came into existence in the way it did, and who therefore, can't get beyond a wish that it did not exist.  Such a perspective is from the start necessarily divisive, it sets the Palestinian and Arab working-class against the Jewish working class, and is thereby implicitly, and sometimes explicitly anti-semitic.

Naz Shah's second post was set within the context of the Israeli attacks on Palestinians in 2014, attacks which were themselves condemned by the UN and others.  It mistakenly equated Israel with apartheid South Africa, and commented, that the actions of Hitler had been legal.  My interpretation of that, when I saw it on the TV, in that context, was that it was saying, that we should remember that just because a government has been elected, as the Nazis were, and just because their actions are thereby legally sanctioned, that does not make those actions morally defensible.  It is a concept that students of politics are familiar with, the concept of the tyranny of democracy, that a majority can always vote to oppress a minority.  It is why the concept of democracy, even bourgeois democracy can never be simply about voting, or the right of a majority to rule, but also has to include basic democratic freedoms for all, including the right not to be persecuted, even by a majority.

On the basis of what I have seen from those posts I can see nothing that is overtly anti-semitic.  And that is the other point here.  A few years ago when I was learning Spanish one of the language discs I listened to made the distinction between someone who is drunk and someone who is a drunk.  That is someone might be drunk, as a one off or infrequent occurrence, but that is different to a drunk who is habitually drunk.  Someone who breaks the laws on speeding has committed a criminal offence, but that does make them a criminal in the sense that crime is for them an habitual aspect of their behaviour.

Someone who supports immigration controls, as all the Blair-rights do, supports a racist policy, because it seeks to place the blame for capitalism's ills on foreigners.  But, that does not make the supporters of immigration controls overtly racist.  If it did, most members of the PLP would have to be expelled forthwith.  There is a difference between someone who supports policies whose implications are implicitly anti-semitic, and someone who is explicitly anti-semitic, in that they hate Jews because they are Jews, just as there is a difference between someone who supports immigration controls, which are implicitly racist, and someone who is explicitly racist because they hate foreigners.

All of this also comes on top of the attacks launched by Blair-rights against new NUS President Malia Bouattia.  The AWL who are renowned on the left for their pro-Zionist positions have themselves attacked the Blair-rights for distorting Bouattia's positions and statements.  And this gives the real clue as to what is going on with Livingstone's suspension.

The Blair-rights have been casting around ever since Corbyn was elected Leader for a hook to hang their opposition to him on.  They seem to have thought that by continually rushing into the media to denounce him, and undermine, and to ferment the idea that he was just a wose version of the disaster that was Michael Foot in 1983, they would quickly undermine support for Labour in the polls, which would then provoke a membership backlash, which could be linked up with their conspiracies within the PLP, ahead of a palace coup to remove him.

Unfortunately, for them not only did these manoeuvres only expose their own bankruptcy and treachery, but it saw Corbyn and McDonnell's support in the party grow even stronger.  What was worse for them, Labour's standing in the opinion polls did not fall either.  In fact, had they actually studied history rather than believed their own propaganda, they would have known that the same thing happened with Foot too.  After he became Leader, Labour's standing in the polls rose to a high point of 56%, something that not even Blair could match.

Things got worse for the Blair-rights, because when the first test of Corbyn's Leadership came with the Oldham West by-election, rather than a Corbyn Labour Party getting hammered, it increased its already large majority!  In recent weeks, as Corbyn has become more accomplished at PMQ's, and the Tories have gone into melt down over Europe and Academisation, and face problems over the steel industry, and a weakening economy, Corbyn's own personal standing in the polls has gone above that of Cameron.  

The likelihood is that, especially in traditional Labour areas, a Labour Party that has returned to its traditional roots, is winning back not just LP members, recruiting new ones, but is also winning back the Labour voters that were lost during the Blair/Brown years.  The Blair-rights were counting on a bad result in the local elections to reinvigorate their hopes of undermining Corbyn.  The more it looked like Labour would do well, the more desperate the Blair-rights have become.

The current attacks seem to be a belief that they have found a crack in Corbyn's armour.  As with the old Stalinist amalgam tactic, they seek to join together the dots of some statements that they can present as anti-semitism (some of which are and some of which aren't explicitly anti-semitic) and to tar Corbyn with the same brush.  Bringing in Livingstone at this point seems deliberately designed to try to cause Labour to lose votes in the London mayoral elections, because it links up with, and plays into the attacks on Sadiq Khan launched by Goldsmith and the Tories, who have accused him of being a radical, connected with various unsavoury characters.

The Blair-rights clearly calculate that if they can do sufficient damage to the Labour Party, so that Labour loses in London, and does badly in the English and Welsh Council elections (no one expects Labour to do well this time in Scotland after years of Blair-right damage done to the party there) then they can have some hope of provoking a membership backlash so as to undermine Corbyn.  The odious McTiernan made that clear in his interview on BBC News, where he blamed Corbyn for the statements of Livingstone and others, saying that Corbyn was not a friend of Israel.

And that again shows just how far the Blair-rights are prepared to go in causing collateral damage, just so as to further their own short term political agenda.  By making that kind of equation between opposing Israel and being ant-semitic, the Blair-rights undermine the real opposition to anti-semitism. It equates being Jewish with being Israeli, and being a defender of the Israeli state and its actions.  But, how could any democrat let alone socialist or social-democrat support the actions of the Israeli state?  The policies of the Israeli state in undertaking their decades long oppression of Palestinians, the brutal bombings and killing of Palestinians, that have even been condemned by the UN and described as war crimes, are not defensible.

Attacking anyone who criticises those actions, and who supports the rights of Palestinians, as being in some way anti-semitic can only link in the minds of others the idea that it is Jews who are thereby responsible for the plight of Palestinians and not the Israeli state.  But, just as the Blair-rights appear to have no compunction about undermining the Labour Party in order to further their own short term aims of undermining Corbyn, so they seem to have no compunction about undermining the real struggle against anti-semitism, in order to use whatever means they can to attack Corbyn, for the same ends.

Brexit and The Looming Sterling Crisis

The latest opinion polls continue to show that the Leave and Remain camps are neck and neck in the EU Referendum.  But, as described recently, that means that the chances are that the actual vote will be to leave, by a sizeable majority, because history shows that in low polls it is the fanatical nationalists who will turn out to vote.  Economists have forecast that a Brexit vote would lead to a fall in the value of the Pound by around 20%.  But, if the polls stay as they are, such a sterling crisis is likely to happen long before the actual vote.  For one thing, if you are a foreign holder of sterling or sterling assets, why would you wait until everyone else rushes for the exits before you got rid of a depreciating asset?  But, there are other reasons why such a sterling crisis is likely prior to the vote.

If sterling drops by 20%, and the drop could be more than that, it would have several effects. Proponents of Brexit argue that such a fall could be beneficial, because it would make British exports cheaper, and so help the ever widening trade deficit be reduced.  That is unlikely.  Firstly, a large part of British exports is in the realm of professional services.  Demand for such services tends not to be particularly price sensitive, so low UK prices for such services is not likely to increase demand for them significantly.  If demand only rises by say 10%, whilst the price charged falls by the 20% caused by a lower Pound, then the consequence is actually a reduction in income of around 10%, which would act to increase rather than reduce the deficit.

In terms of other exports, Britain's manufacturing exports have been reduced to a core of more higher value commodities, and again, demand for these tends to be less price sensitive.  As far as other manufactured commodities, the trade deficit can be affected both by the ability to export more, or to substitute for imports with domestic production.  But, the reason British manufacturing production has become concentrated on the high value core output is that economies like China have such a competitive advantage that it is almost impossible to breach.  That is the case with volume steel production, as I set out recently.  British steel production is a tiny fraction that of China.  As with many other types of mass production, China not only has plants using the latest equipment, situated in purpose built industrial zones, providing efficient infrastructure and supply lines for inputs, but also has the benefit of still relatively cheap labour-power compared to an economy like Britain.

Even though wages and living standards in China have risen massively in the last couple of decades, they are still way below those in the UK.  On top of that, it has all these benefits of the economies of scale that come from capital being based in a huge single market, such as that which exists in China, the US or the EU.  A British steel industry is never going to compete for mass produced steel with a Chinese or a US or EU steel industry.  That applies to trying to compete for exports on a global scale with the industries from those economies, or simply trying to compete against imports from those countries. The only way that UK mass produced steel could compete against steel from these other economies would be via the imposition of import controls or tariffs.

But, that would have two consequences.  Firstly, the Brexiters claim that the EU would want free trade with Britain, because they export more to Britain, than Britain exports to the EU.  True, but as I pointed out a while ago, that is exactly why it would be Britain that would need to impose import restrictions on those cheap EU exports that would then flood into Britain!  As soon as Britain imposed these import controls to protect the British steel industry, and all the others that would find themselves incapable of competing against the much larger capitals operating out of these much larger economies,  Britain would find itself facing concerted retaliation, reference to the WTO and so on.

But, also those import controls would raise the cost of inputs for other British production.  That was what the US found some years ago when they imposed import controls on steel.  It meant that US carmakers and other manufacturers, faced much higher costs for the more expensive steel they now had to buy, which meant that either they had to absorb that higher cost from their profits, reducing economic growth, or else they had to pass on those higher costs in their own prices, which then made their production less competitive, and to the extent it went into domestic consumption, acted to raise the cost of living and reduce US living standards.

The same would be true for Britain on an even larger scale, because of the relatively small size of the UK economy.  The Brexiters boast about Britain being the fifth largest economy, but as I set out recently, it is a mirage.  Compared to the US economy, Chinese economy, EU economy, and the other economic blocs developing across the globe in Asia, Latin America and Africa, the UK economy is tiny.  Moreover, the UK economy is in long term relative decline, as it has been for more than a century.  Even compared with individual national economies, Britain could sink from fifth place to fifteenth place within a decade behind economies like Mexico and South Korea.  Outside the EU, that is almost inevitable.

The UK, could compete in the production of the relatively low output, high value, specialist steel production, where what counts is quality, and skilled labour.  But, again in those types of production price is not a decisive factor, so there would be relatively little benefit from lower prices resulting from a sterling devaluation.  In fact, it could mean that actual export earnings fell as a result of a lower pound.

But, the other obvious effect of a sharp fall in the pound is that the cost of imports would go up. There would undoubtedly be some import substitution as a result of that, but again the cost would be that this would raise domestic prices.  If British clothes manufacturers, for example, were then able to compete against Chinese manufacturers, it might mean that they would be able to expand production of suits etc.  But, the effect would be the same as if an import duty had been placed on the imported commodities.  British clothes manufacturers would only be able to compete, because the price of imported suits had been raised by 20%.  But, whilst some people might find employment in clothes production, as a result, the further effect would be that British consumers would face a higher cost of living as the price of suits rose by 20%.  That in turn would cause the value of labour-power to rise, which would mean that either real wages fell, if nominal wages failed to rise, or else all other costs of production would rise, making British made commodities more expensive, once more, and thereby removing any competitive advantage that might have resulted from the devaluation.

In the end, devaluation of the currency, like imposition of import controls can only be beneficial to the domestic capital in terms of gaining competitiveness, if the higher costs are born by falls in real wages by the workers in the importing country.  And, the fact is that Britain has a huge trade deficit, because it is reliant on importing large quantities of commodities, including energy.  The reason for that is not just the long-term relative decline of the UK economy, but the fact that starting from the 1980's, and continued by every government since, the UK has focussed on the creation of a low-wage/high private debt economy.

Although, in the 1980's a section of the economy drew in capital into high value production of services, and some high value products, too little capital was accumulated in those spheres.  Instead, large amounts of capital was sucked into low value service industries, and retailing, as described recently, in relation to BHS.  The blowing up of asset price bubbles, on the back of which the private borrowing was based, effectively destroyed capital - as, for example happened with pension funds, leading to the current pensions black holes - but also, there was in effect a mammoth process of asset stripping, as dividends and capital transfers were paid to shareholders not out of profits, but out of paper capital gains.  It is what lies behind the UK's atrocious levels of productivity.  And without productivity there can be no real competitiveness, no growth in real living standards, and no growth in real profits.  Brexit, will make those problems worse.

Even a 20% devaluation is unlikely to reduce UK imports, because its unlikely to be able to substitute for those imported commodities.  Consequently, a 20% devaluation will simply increase the import bill, and make the trade deficit widen even further.  In the absence of being able to pay for your imports by the export of goods and services of equal value, a country has to export capital, to bridge the gap.  But, a country that sees such a drain of capital, is on a path to destruction, because as Marx, following Adam Smith, realised, the wealth of nations comes from the accumulation of ever increasing amounts of capital, not its consumption.

The effect of that will be that as capital flows out of the country, the price of that capital, the rate of interest will rise, because the price is a consequence of the interaction of supply and demand for it.  As interest rates rise, the process of capitalisation will cause the price of revenue producing assets such as shares, bonds, and property, to fall.  Because interest rates in the UK are at such historically low absolute levels, any rise in rates will have a huge relative effect on those capitalised prices.  If the average rate of interest is 2%, for example, and doubles to 4%, the consequence is to halve the price of revenue bearing assets.

One means of effecting the transfer of capital would be that foreign capital could buy up British assets at knock down prices.  The prices of those assets would have fallen not just because of this process of capitalisation, but also because of the devaluation of the pound.  If an hectare of land produces £1,000 a year in rent, and currently has a price of £50,000, with interest rates at 2%, if interest rates rise to 4%, the capitalised value of the rent is then just £25,000.  But, if the pound falls by 20% against the Euro, the effect is also that Eurozone buyers could pick the land up for the equivalent of just £20,000.

The ironic consequence of Brexit would then be not to bring the greater domestic sovereignty and control that the Brexiters claim, but far greater foreign ownership and control of British assets and capital.  The Brexiters have referred recently to the takeover of the London Stock Exchange by the German Deutsche Bourse, claiming that this shows that EU businesses are keen to invest in the UK. But, again as described recently, in relation to BHS, this is to misunderstand investment.  Deutsche Bourse is not investing in the London Stock Exchange, in terms of advancing capital to buy additional buildings, computers and so on to be used in the Exchange.  That would be actual investment.  But, instead what Deutsche Bourse is doing, rather like Philip Green when he bought BHS, is not to make any such investment, but rather to simply buy a controlling number of shares in the company.  That does not involve any capital going to buy one single additional machine, or employ one additional worker.  It is really just a payment of money from one money-lending capitalist to another, in exchange for the shares they own.  In the process, Deutsche Bourse obtains the ability to drain profits from the London Stock Exchange business, and to use them to actually invest in additional capital in the German Stock Exchange.  It means that if Brexit were to happen, Deutsche Bourse would be in a position to increasingly make Frankfurt the financial centre of Europe, with London playing an increasingly diminished role.

So, its clear why a vote for Brexit would act to seriously devalue the pound, leading to a rise in inflation, an outflow of capital, a sharp drop in asset prices, which could then be bought up on the cheap by foreign capitalists, able to asset strip what they have bought.  But, its precisely for that reason that no sensible capitalist is going to get left holding the baby at the time of a Brexit vote, they will all, as the vote comes closer, want to offload that risk.

But, there is another reason why a sterling crisis is likely if the polls stay as they are.  For the reasons given previously, unless the polls suggest a 2:1 vote in favour of Remain, there is a strong possibility of a vote to leave, as the Brexiters are far more likely to vote than the supporters of remain.  Cameron and his supporters can offer no real positive view of remaining in the EU, because essentially they share all of the same ideological positions as the Brexiters, as his renegotiation showed, and as Theresa May showed in her recent speech.  Only socialists can offer a positive view of a future EU, but that positive view involves not more independence for Britain (and logically, therefore, other economies within the EU) but much further integration of the EU, the creation of a United States of Europe, with all of the centralised state functions, and requirement for democratisation of institutions that go with it.

Logically, a condition of British continued membership of the EU should have been that it joined the Euro when it was established.  As Paul Mason commented in his interview on the Daily Politics recently, the logic of the current position, is that Britain would leave the EU ultimately, however the referendum goes, because the Eurozone must form an ever closer political and fiscal union.  There can be no rational single market without that transformation, as every national economy discovered in previous centuries.  So, Britain outside the Eurozone is ultimately untenable, as is the existence of other EU economies outside the EZ.

In the past, such greater integration often came out of a crisis.  It is not beyond the realms of possibility that if Britain were to vote to leave, and then see its economy fall into a severe crisis following a sharp devaluation of the Pound, crash in UK stock, bond and property markets, as interest rates rose, and inflation soared, it would have to quickly apply for readmission to the EU for safety. That could even happen within the two year period when the negotiations for its separation was occurring.  Under those conditions, the EU would no doubt require the UK to give up its existing concessions, including its continued use of the Pound.  It would provide the basis for the creation of the kind of European state that is required to take the EU forward, and would be consistent with the bureaucratic, behind the scenes methods it has moved forward by in the past.

But, for the same reasons it is quite possible that such a sterling crisis could occur before any referendum vote, if the polls remain as close as they are now.  If all the above scenario were to play out, at the end of May, with the Bank of England having to step in to prop up a collapsing Pound by raising the official interest rates, which caused a collapse in share, bond and property prices, it would be a far more effective "Fear factor" than Cameron and his cronies have been able to muster in words, and it is the kind of manoeuvre that has been used many times in the past to persuade votes to vote vote the right way.

Capital III, Chapter 32 - Part 12

In the relations between two individuals, if one is a creditor to the other, then reciprocally the latter is a debtor to the former. But, things are not so straightforward in the relations between nations. Country A may have a trade surplus with country B. yet, country A may have a Balance of Payments deficit with country B. That is because the two balances measure different things. The Balance of Trade measures the value of goods and services exported to country B compared with the value of goods and services imported from country B. But, the Balance of Payments compares the flow of capital between the two countries. Although country B may make a payment to country A in gold to cover the deficit on the Balance of Trade, country A may send capital to country B, for other purposes.

Country A may make loans to country B; it may buy shares or bonds, issued by companies or the government of country B, for example.

“The balance of payments differs from the balance of trade in that it is a balance of trade which must be settled at a definite time. What the crises now accomplish is to narrow the difference between the balance of payments and the balance of trade to a short interval; and the specific conditions which develop in the nation suffering from a crisis and, therefore, having its payments become due — these conditions already lead to such a contraction of the time of settlement. First, shipping away precious metals; then selling consigned commodities at low prices; exporting commodities to dispose of them or to obtain money advances on them at home; increasing the rate of interest, recalling credit, depreciating securities, disposing of foreign securities, attracting foreign capital for investment in these depreciated securities, and finally bankruptcy, which settles a mass of claims. At the same time, metal is still often sent to the country where a crisis has broken out, because the drafts drawn on it are insecure and payment in specie is most trustworthy.” (p 517)

Marx then returns to Overstone's claim that the supply and demand for money-capital is synonymous with the demand and supply of productive-capital. If this were true, then the rate of interest would be high when the price of commodities used as productive-capital was high, and vice versa. Marx gives examples of times when the price of cotton was low, in 1845, which did coincide with a period of low interest rates.

“But to judge by the yarn, the rate of interest should have been high, for the prices were relatively high and the profits absolutely high.” (p 518)

The only time Overstone's claim could be correct, Marx says, is if there were no money lenders. Then, all capital that was loaned, would have to be in the form of actual commodities, required as productive-capital.

“Under such circumstances, the supply of loan capital would be identical with the supply of elements of production for the industrial capitalist and commodities for the merchant. But it is clear that the division of profit between the lender and borrower would then, to begin with, completely depend on the relation of the capital which is lent to that which is the property of the one who employs it.” (p 518-9)

In fact, the rate of interest is determined by the demand and supply of money-capital, as described earlier, and this demand and supply can move in different directions at different points in the cycle. To the extent that the Bank of England possesses actual money-capital – a fact that Overstone denied, saying 'it is no place for capital' – it can act to reduce interest rates by lending out a greater portion of it.

“Thus the same Mr. Weguelin says that the Bank of England exerts great influence upon the rate of interest in times, when "we" [the Bank of England] "are holders of the greater portion of the unemployed capital".” (p 519)

But, this is a loan of existing money-capital, and not the same as attempts, via QE, or money printing, to reduce interest rates. Such attempts do not increase the amount of money-capital, thrown into supply, but only represent an increase in money-tokens. Rather than reducing interest rates, all such measures can do is to reduce the value of the money tokens themselves, and thereby cause inflation, which if anything will cause longer term interest rates to rise above where they would otherwise have been.

Measures like QE may be used to manipulate some interest rates, e.g. by buying 10 Year Treasuries, thereby raising their price and reducing the yield. But, this manipulation only means that other interest rates rise. In a global economy, this may not mean that it is US interest rates that are raised as a result of this policy, as money moves from other countries bonds into US bonds, as they are seen to have been underpinned by the central bank. This is no different to the way Marx explains that the 1844 Bank Act had implications internationally, and not just in Britain.

So, even where the supply of potential money-capital was adequate to meet the demand, an artificial restriction of the supply of money itself necessarily causes an artificial restriction of money-capital, because it cannot take any other form but the money form. The 1844 Bank Act, required that when the Bank of England bullion reserve contracted, it reduced the quantity of notes in circulation. This artificial reduction in the money-supply, thereby caused an artificial reduction in the supply of money-capital, causing a credit crunch, a spike in interest rates, followed by an economic crisis.