Sunday, 16 February 2014

We Should All Become Pay Day Lenders

The Archbishop Of Canterbury has vowed to put Pay Loan companies out of business , by supporting Credit Unions. UNISON has also committed itself to developing credit unions. But, the real answer is for all of us to become Pay Day Lenders.

The Pay Day Loan sharks are the other side of the coin to the policy of low official interest rates pursued by the Bank of England . The Governor of the Bank of England is no more capable of setting the price for money (rate of interest) than he or any other government bureaucrat is capable of setting the price for anything else. The catastrophe of the attempt to do that in the USSR, and many other places should be sufficient testament to that fact. That a Tory Government, that wears its belief in the power of markets on its sleeve, and a capitalist media steeped in a belief in neo-liberalism, is placing its hopes on his ability to do so, shows just what deep shit they are in! 

What the Bank of England and other central banks can do, is to print money and thereby destroy the value of the currency. The manifestation of that is the astronomical bubble in asset prices, such as the property market, stock market and bond market, all of which are in a once in a century size bubble. What he can do, is to set official interest rates so low that they act as a deterrent against saving, thereby encouraging people to spend. The policy by encouraging people to spend and discouraging them to save, drives them increasingly into bigger and bigger amounts of debt, and increasingly the only way they can obtain that credit is by going to lenders who charge higher and higher rates of interest. So, we have the ludicrous situation that millions of savers get nothing on their deposits, whilst millions of borrowers end up paying 30% p.a. on their credit cards, and 4,000 % p.a. on their pay day loans!!!

The obvious solution here is to bring the two together – what is called arbitrage. The only thing really preventing this at the moment is monopoly and friction. If you had the odd grand occasionally available as savings, wouldn't you like to earn 100% p.a. interest on it for lending it out for a week? If you have a pay day loan, on which you are paying 4,000% p.a., wouldn't you like instead to be able to borrow for a week at just 110% p.a.? The Trades Unions and the Credit Unions have the possibility to bring this about by using the technology used by the peer to peer lenders .

A Trade Union could simply take in the savings of its members, store them in a fund, and make them available to its members, as described above. A 110% annual rate of interest might seem a lot to charge borrowers, but it is considerably less than that charged by either the pay day lenders, or banks for very short term loans or non-negotiated overdrafts. The difference between that and the 100% paid to savers, would cover the unions administration costs. If unions joined forces with credit unions, they could extend this saving and borrowing on a much wider basis that really would undermine the position of the pay lenders, and eventually the capitalist banks too.

The only reason this does not happen is because of friction and monopoly. We all feel a bit unnerved about putting our money into something new such as a peer to peer lending company, so only a few people do. They generally do well out of it, but the resources generated are not enough to challenge the pay day loans companies. The majority feel safer sticking to what they know and keeping their money in the bank that is ripping them off left, right and centre, and which is being supported by the Bank of England, whose monopoly allows it to set the maximum rate for savings offered by those banks.

But, a system backed by the power, resources and confidence that workers have in their trades unions is a way around that limitation. Far better that we should develop our own peer to peer lending scheme organised by the Trades Unions and Credit Unions, and into which we can all save, and from which we can all borrow than that we count on the capitalist state putting any kind of meaningful restrictions on the pay day lenders, or providing us with decent returns on our savings.


Jacob Richter said...

I can see the merits of something like this when the currency is in LETS, "Ithaca Hours," and Bitcoin, but not when the currency is in government money.

Right now there is a blatant lack of public management over the money supply, not least because private banks can computer-generate money at will, subject to fractional reserve limits. The emphasis on credit unions makes no difference in addressing this problem, since again there is no public management over the money supply.

When it comes to government money, public management over the money supply is most effectively achieved through public banking, and better yet public monopoly on all financial services (i.e., the central bank replaces all other financial institutions).

Boffy said...

Actually, neither the government nor private banks can create money. They can only create money tokens, or in the case of the banks credit money.

All this does is to depreciate the value of the money tokens in circulation. I fail to see what this has to do with workers taking control over the question of borrowing and lending to each other, rather than that control resting in the hands of private capitalists or their state!

Boffy said...

By the way, good luck with trying to impose a "public monopoly" on all financial services in a capitalist economy. When that was attempted in Eastern Europe even, it led to a massive black market in money as with the black market in the shortage of all other goods. When I went to Bulgaria in the 1980's, a walk down any street would confront you with any number of citizens wanting to be their own financial services operation, offering to exchange currency at around 10 times the official exchange rate.

The Chinese central Bank has been unable to maintain any kind of monopoly, as easy money has led to the development of a huge shadow banking industry.

In Britain, the Tories maintain their belief in central planning in pinning their hopes on Carney to determine the price of money. He can't. The BoE has an "official" 0.5% rate, but mortgages are at 6% and rising, bank loans at around 8%, credit card interest at 30%, and Pay Day loans at 4000%. If you need more credit, then beyond that are the back street lenders, who will break your legs when you don't pay, the even more extortionate rates!

Even if you could enforce it, it would require the installation of an even more totalitarian regime than those imposed by Stalinism.

Jacob Richter said...

The private banks don't print money. That's the job of the central bank. However, they very much create M3.

With respect to borrowing and lending to one another, I raised alternative currencies because they present the possibility of borrowing and lending to one another with benefits but without profit. "Self help" should be focused on non-profit transactions. The 100% interest rate you suggested is the kind of extortion one sees from non-payday loan sharks (not as bad as the payday parasites, but still very bad).

Public monopoly in finance is what Marx and Engels called for in the Demands of the Communist Party in Germany, hardly a monetary regime "more totalitarian than Stalinism." In the context of the European Union, aside from credit unions dealing exclusively with alternative currencies, this would mean a public monopoly on all financial services (even insurance, in addition to commercial and investment banking and so on) by the European Central Bank, fullest public management over the money supply.

Boffy said...

Central banks don't print money either. They print money tokens, or more precisely create electronic money. Its impossible to "print" money. As Marx makes clear "money" can only be created. It is the universal equivalent form of value. The quantity of money in the economy can only be a manifestation of the actual value created in the economy.

If more of a money commodity is put into the economy than that, it gets hoarded, i.e. removed from circulation. If a money commodity is replaced by money tokens or credit money, which cannot be withdrawn, then these money tokens simply become devalued in proportion to their excess in circulation.

I don't see what difference the type of money token makes as far as borrowing and lending. If I lent to you in bit coins I would probably require a very high rate of interest to cover the fact that I might not get paid back at all when the bitcoin bubble bursts, and to cover the fact that from one day to another the value of the bitcoin can fall by up to 50%!

If self-help is based on non-profit, its impossible for workers to achieve socialist primary capital accumulation! 100% is not a particularly high rate of interest for very short term loans. But, I made that point to emphasise just how much room there is for arbitrage between current saving and lending rates. Current peer to peer rates are more like 8%.

Marx and Engels raised many demands in the CM when they were still young and still moving away from Liberalism and statism. They abandoned those positions as they grew older, even though people like Lassalle continued to advance the statist aspects. For example, Marx emphasised the importance of the workers retaining their Friendly societies, and opposing the state getting its hands on them.

A public monopoly on finance would certainly mean that the capitalists state made more powerful by such means would kill off bitcoin, and force any other such alternatives into the underground to provide sustenance for the activities of criminals, as happened in E. Europe with currency exchange.

It would facilitate the kind of thing seen in Cyprus where such a state then confiscated workers savings and pension funds to pay for the debts of the capitalist state. It would lock on the payment of low savings rates and high borrowing rates as a means of turning workers into debt slaves alongside being wage slaves, in just the same way as the state monopoly on things like pensions and other forms of welfare has meant workers paying over huge sums to it, only to find that the state then fails to pay up when the time comes, or provides a very poor service when it does.

Jacob Richter said...

Boffy, Marx wrote at a time when money was gold-backed and not based on fiat. Other than the circulation of capital, he didn't have any theory of money per se.

"Socialist capital accumulation" is an oxymoron, as the new mode of production should do away with M-M', C-M-C', M-C-M', and M-C...P...C'-M'. As noted by Bordiga, this wasn't achieved in the Soviet Union.

Boffy said...

If you think Marx did not have a theory of Money, I really don't know what to say. Clearly, you haven't read "The Contribution To A Critique of Political Economy", Capital I, Chapter 3, Capital II on where money comes from, and how it circulates, or all the Chapters of Capital III, on money and credit, all of the sections of Theories of Surplus Value on money and credit, and why money tokesn and credit money only disguise the underlying value relations etc!!!!!!!!!!

If you don't understand the difference between Marx's theory of the circulation of capital from his theory of the circulation of money, you certainly haven't read or understood what he says in Capital II, where he spends a considerable amount of time explaining precisely that difference. And. of course, in Marx's time it was certainly no longer the case that money tokens were backed by gold rather than being a fiat currency, which is why he was able to explain in "The Contribution" why it was that "gold circulates because it has value, but paper tokens have value because they circulate", and why he is able to describe how commercial credit arises between different capitals ahead of the development of bank credit.

As for socialist accumulation, your argument assumes that its possible to go straight from capitalism to socialism. It isn't and neither Marx, Engels, Lenin, Trotsky or any of the other classical Marxists ever thought it was. Marx says it will come about only gradually as Capitalism itself is unwound gradually, just as it had arisen (Grundrisse).

In fact, the problem with all of your theory is that it is based on the day dream world you seem to inhabit, where we have already achieved the Socialist nirvana, and all we have to do is put forward solutions relevant to it - for example your arguments about state control, which fail to recognise that the current state is a capitalist state not a workers state!

The whole point is that we have to address the reality of the world we inhabit, not the one we want to create. In that word, the circuits of capital and of money continue to operate, and they will, as Marx points out continue to operate for some considerable time even after we get to a position of the Dictatorship of the Proletariat.