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.

Wednesday, 27 April 2016

Capital III, Chapter 32 - Part 11

Marx then turns to the question of how the development of credit-money affects the definition of money as the universal equivalent form of value. As he sets out in Capital I, value is labour, and the measure of value is labour-time. But, just as the measure of length cannot be based on actual human feet, because they are all different, but can only be based on an 'abstract' foot, so the measurement of value cannot be based on actual concrete labour, but can only be based on abstract labour.

But, this then begs the question – what is an hour of abstract labour? It is resolved in practice, by the continual measuring via the market, of the value of one commodity against another, and by this same process, therefore, the relation between complex and simple labour is also being continuously determined. But, as Marx says with the development of money, in the shape of a money-commodity, such as gold, the issue is resolved. The money-commodity becomes the representative of all commodities, the representative of value itself, and, therefore, the labour required for its production becomes the representative of abstract labour.

“It is a basic principle of capitalist production that money, as an independent form of value, stands in opposition to commodities, or that exchange-value must assume an independent form in money; and this is only possible when a definite commodity becomes the material whose value becomes a measure of all other commodities, so that it thus becomes the general commodity, the commodity par excellence — as distinguished from all other commodities.” (p 516)

But, the preceding analysis has demonstrated that capitalist development increasingly means the replacement of money with credit. The role of money, as means of circulation, continually declines, whereas the role of money as means of payment continually rises. But, where exchanges are conducted on this basis, i.e. the provision of credit, as a means of exchange, money is only required to settle the balance of the competing credit claims. As described earlier, today, with most people having bank accounts, and payments being made electronically, the requirement for money has been reduced even further.

But, its this which draws out the nature of money and credit that much more clearly, whenever credit contracts or stops, as in a credit crunch.

“In times of a squeeze, when credit contracts or ceases entirely, money suddenly stands as the only means of payment and true existence of value in absolute opposition to all other commodities. Hence the universal depreciation of commodities, the difficulty or even impossibility of transforming them into money, i.e., into their own purely fantastic form. Secondly, however, credit-money itself is only money to the extent that it absolutely takes the place of actual money to the amount of its nominal value. With a drain on gold its convertibility, i.e., its identity with actual gold becomes problematic. Hence coercive measures, raising the rate of interest, etc., for the purpose of safeguarding the conditions of this convertibility. This can be carried more or less to extremes by mistaken legislation, based on false theories of money and enforced upon the nation by the interests of the money-dealers, the Overstones and their ilk. The basis, however, is given with the basis of the mode of production itself.” (p 516)

In order to defend the nature and value of money, and credit-money, therefore, the value of commodities must be diminished. In previous modes of production, such a money crisis could not arise, because money acts as means of circulation, not means of payment. The inner connection between the value of commodities, as determined by the labour required for their production, remains more visible. But, under capitalism, commodity fetishism reaches its height.

“As long as the social character of labour appears as the money-existence of commodities, and thus as a thing external to actual production, money crises — independent of or as an intensification of actual crises — are inevitable.” (p 516-7)

By contrast, so long as the bank remains solvent, an extension of credit can act to reduce the panic, whereas any contraction of credit will act to intensify it.

Tuesday, 26 April 2016

BHS As Microcosm

The failure of high street retailer, British Home Stores (BHS), after nearly a century of trading, is a microcosm of the British economy, and the issues I have been discussing in relation to it over the last decade, and more.

In my recent response to an article by Mike McNair of the CPGB, I made the point that the last quarter century has been an anachronism. There have been many occasions, in the last 200 hundred years, when rising rates of profit, led to low and falling interest rates, which fuelled speculative booms. But, in the past, those speculative bubbles burst, and money-capital returned to investment in productive activity, which is the only sustainable means of increasing the mass of profits, out of which the increasing amounts of rent and interest can be paid. Ever since the financial crash of 1987 that has been different.

Rather than the period after WWII, up to the mid 1970's, being an anachronism, it is the period over the last 25 years which in many ways has been an anachronism, because it has been a period, where instead of being concerned with maximising that interest on money-capital, or rent on land, i.e. yield, the owners of this fictitious capital have instead been concerned with maximising speculative capital gains, a process which is unsustainable, and has only been sustained thus far as a result of the unprecedented levels of state intervention to keep asset price bubbles inflated.”

Increasingly, what we have seen, during that period, is that people do not buy shares in order to draw a regular amount of interest from them as dividends, or bonds to obtain coupon interest, they do not become landlords to obtain a regular amount of rent. They buy these assets in the expectation that the prices of these assets will rise, and usually rise sharply, irrespective of economic conditions.

For example, the period from the early 1980's, was one of repeated crises, followed by stagnation. Unemployment in the UK rose to well over 3 million, as high as 5 million on some estimates, and led to the People's Marches for Jobs, echoing the Jarrow March of the 1930's. The early 1990's saw further economic crises. That picture could be seen in the US and across Europe and Asia. Yet, despite this prolonged period of economic weakness and crisis, the Dow Jones Index rose between 1982 and 2000 by 1300%! By comparison, US GDP rose by just 250% in the same period. Other stock markets rose by similar amounts. In Britain, house prices quadrupled during the 1980's, despite the mass unemployment and economic stagnation.

So, its not surprising that people came to think that these asset prices always rise by huge amounts irrespective of what the economy may be doing, and to reinforce it, whenever those asset prices did fall, central banks intervened to slash interest rates, and prop them up, and governments intervened to blow up house price bubbles. It was central to an economic model whereby previously skilled, higher paid jobs in industries like steel, coal, shipbuilding and a range of engineering based industries like car production, had moved to Asia, as increasing automation had meant that the work could be done by machines which only required low skilled, low paid workers.

In place of these jobs, there grew up a large number of jobs in the UK that were low-paid, low skilled jobs in retailing, and sections of service industries. The jobs were often filled by the wives and children of the male, skilled workers who had lost their jobs in the old traditional industries. I set out this process, in my first book

As far as retail is concerned, merchant capitals, like BHS, obtain a share of the surplus value produced by productive-capital. Because the capital involved in selling commodities is a part of the total capital required for the production and distribution of commodities, and thereby realising the value and surplus value, i.e. it forms part of the reproduction circuit of capital, it forms a component of the total advanced capital, upon which the calculation of the general rate of profit is based. So, manufacturers as a whole sell their output to merchants at its price of production (cost price plus average profit), but this is less than its value (c + v + s), because the latter is made up of the cost price plus the total surplus value. The difference is the profit on the advanced merchant capital.

Manufacturers are prepared to sell their output to the merchants, because the merchants, as specialists reduce the costs of selling, and thereby reduce the total capital that must be advanced. As a result, although the merchant capital does not create new value, or surplus value, by reducing distribution costs, they, thereby raise the amount of profit realised, and raise the overall rate of profit.

It doesn't matter whether the manufacturer is based in the UK, and selling to BHS, or is based in China, and selling to BHS. The process is the same, and the basis of the merchant's profit is the same. A Chinese manufacturer of shirts, for example, probably even more requires a British merchant to take on the costs and responsibility of selling their shirts than does a British manufacturer, for obvious reasons arising from selling into a foreign market. BHS and other British retailers thereby obtain a share of the surplus value produced by Chinese workers, because they reduce the costs of the Chinese producers of selling their output, and realising their profit. They reduce the total amount of capital the Chinese producer has to advance, and thereby increase the rate of profit for the Chinese producers.

And, because of this there is a degree to which this is a self-sustaining model. The labour expended by shop workers in BHS and other retailers, that sells the Chinese products, may not create any new value, but it is nonetheless necessary labour. Without it, the commodities would not be sold, and without being sold their value is not realised, so they would be worthless. Similarly, as Marx describes, that labour may not produce surplus value per se, but for the same reason it does act to increase the amount of surplus value that is realised, both because without it, the value of the commodity would not be realised, and because it acts to reduce the distribution costs of commodities, and thereby increases the amount of realised surplus value, compared to if the manufacturer had to try to sell their commodities directly to consumers.

In other, words, the profits of the merchant capitals are very real profits, and what they pay out to the landlords that own the premises they rent, is thereby a very real rent, just as the interest that the shareholders, bondholders and banks, who lend money to the merchant capital, receives is very real interest. Finally, the wages that the workers in the shops receive in exchange for their labour-power is equally very real wages. In other words, all of these are real revenues, and able to be used for the purpose of consumption.

As revenues, in the initial form of wages and profit, it is value. It is value that has been paid by Chinese capital in exchange for the fact that British merchant capital has advanced capital, thereby saving Chinese capital that expense, and in exchange for the labour expended by British shopworkers, paid out of the variable capital of the British merchant capitals. As value, as revenue, it can be expended for the purchase of commodities, as can all other revenue, including for the purchase of those very commodities imported from China, and sold by those same workers, and from which the merchant obtains their profit, and out of which they also pay rent, interest and taxes.

Taking the world as a global economy. It is, in this respect, no different than a national economy. Because the labour involved in selling commodities is necessary labour, it will always be the case that a proportion of the total capital will be involved in distribution, rather than production, and that a proportion of the total labour will be employed in selling commodities rather than producing them. Theoretically, if the proportion of capital and labour employed in distribution is 20%, it does not matter whether this 20% is made up of 20% of the capital and labour in each country, or whether 80% of the globe was involved solely in production, and the other 20% was involved solely in selling that output. The profits, rent, interest, taxes and wages obtained by this 20%, would be able to be exchanged for the commodities it required for its reproduction just the same.
In practice that is not possible, because every manufacturer also needs to employ a certain amount of capital and labour in distribution – people employed in marketing offices, in offices dealing with sales of commodities to merchants, people employed in offices dealing with the purchase of productive-capital, and so on. Besides, no economy could rationally avoid producing some of the things it requires. But, that leaves a great deal of scope of variation.

At the latter part of the 1980's, in particular, as the global rate of profit rose sharply, and as that higher profit was increasingly derived from the surplus value produced in China, and a number of other developing economies, the scope opened up, for those profits to be produced in China, and realised in the UK, US, and Western Europe. Larger masses of profit were produced, but to realise these profits, embodied in increasing volumes of commodities, those commodities had to be sold, and the main markets for those commodities were in the developed economies. So, not only the potential of, but the requirement for a massive expansion of merchant capital in the developed economies was created.

That was the basis of the relentless growth of retailing from the late 1980's onwards, with the mushrooming of massive retail parks, shopping malls and so on, with what seemed like an unending duplication of stores all selling the same ranges of commodities. The problem is, as Marx describes, in order for each merchant capital to enjoy a higher rate of profit, individually, it must turn over its capital more quickly, which in turn involves selling in ever rising volumes. But, this process, as he describes, also involves a reduction of the profit margin, and a consequent effect on selling prices.

A merchant capital that advances its capital of £1 million five times during the year (£5 million of laid out capital), with a general rate of profit of 10%, operates with a profit margin of 2%, i.e. it produces £20,000 of profit on its advanced capital of £1 million, five times during the year, totalling £100,000 of profit, equal to 10% of the advanced capital. However, if it turns over its £1 million of capital ten times during the year (£10 million of laid out capital), it operates with a profit margin of just 1%, if the general rate of profit remains 10%. Even if, this capital, by so doing, was able to obtain a higher than average rate of profit of say 12%, its profit margin would still fall to 1.2%.

Similarly, the selling price of its commodities would originally have been £5 million plus 2%, equals £5.1 million. Doubling the turnover means that the selling price is £10.1 million. If the number of commodities sold was 5 million initially, that means a unit price of £1.02, and if 10 million are sold when the turnover is doubled that means a selling price of £1.01, or a near 1% fall in the selling price of commodities. The problem for retailers from such a process is fairly easy to see, especially when the global rate of profit stops rising.

This highlights another point made by Marx, which I discussed recently in my response to Mike McNair, which is that both merchant capital and financial capital are subordinated to productive-capital. As Marx points out, if the amount of capital employed as merchant capital becomes too great, the rate of profit in that sphere will fall, and capital will leave it, in order to become productive-capital. The same thing is ultimately true in relation to financial capital, but as I stated at the beginning, the last 25 years have been an anachronism, from that perspective, because during that period, the yield on financial assets, and on land has been continually declining, as the prices of those assets have been sent into one more inflated bubble after another. But, that cannot continue forever. Once again, BHS, demonstrates that fact admirably.

The whole basis of capitalism, as analysed by Marx is that capital is forced not just to physically reproduce itself on the same scale, but to accumulate additional productive-capacity. A farmer who cultivates 100 hectares of land, and employs 10 workers, might, for example, sow 1000 kg of seed. In order to continue operating on the same scale, and to continue to employ the ten workers, which are the source of his surplus value, then if productivity remains the same, he will have to continue to cultivate the 100 hectares, and out of his current output, he will have to set aside 1000 kg of grain as seed, so as to produce again next year.

Indeed, because his workers will continue to need to consume on the same level, he will need to set aside as much of his current output to provide for their needs, as they consumed this year. But, as Marx points out, in Capital III, discussing rent, the farmer knows that each year, population tends to rise, and this rise in population creates a demand for additional food. The farmer knows, therefore, that if he has the ability, he needs to rent additional land, to sow more seed, and to employ more workers to meet this increased demand. He needs to do so, because if he doesn't, other farmers will, and they will capture this larger market share. As a good capitalist farmer, he also knows that it is by being able to produce on this larger scale that savings in capital can be achieved, which means that more profits can be made, which means that more capital can be accumulated as part of a virtuous circle.

Each farmer, thereby, comes to cultivate more land, and to sow more seed out of their surplus, and to employ more workers, which soaks up the increase in population, and provides them with incomes, out of which they then buy the farmers increased output of grain. As Marx points out, its not just the capitalist farmer that is led to act in this way, but every capital.

But, looking at China recently is also instructive. The BBC recently had a report about the activities of some small Chinese peasant farmers, who for years followed this pattern described by Marx of utilising their profits to invest in increasing the output of their small farms. But, with the spectacular rises in the Chinese stock markets over the last couple of years, some of these farmers had, not surprisingly, concluded that their money profits could bring them a much better return by gambling on the purchase of shares. And, of course, that is fine for so long as those spectacular capital gains continue. But, when the Chinese stock market collapsed, those farmers lost a large chunk of their money. In the meantime, that money, which otherwise would have gone into expanding their farm, employing more workers, buying additional machines and so on was lost, and along with it was lost the economic growth and expansion of capital that would have gone with it.

BHS, is illustrative of the same thing. In 2000, the speculator Phillip Green, bought the company for £200 million. Let's be clear what “buying the company” means in this context. It does not mean buying all of the shops, the stock and other elements of the company's capital. It really means buying the controlling shares in the company. In 2000, BHS was a public limited company, but Green turned it into a private company after he bought it.

The £200 million paid for the company was, therefore, not for the purchase of additional capital, in order to increase its activities, sales and profits. It was simply a transfer to the former owners of shares in the company. The money-capital that shareholders provide to a company, like the money-capital that bondholders provide, or like the money-capital that a bank provides via a loan, is precisely that, a loan of money-capital, no different than a mortgage from a bank provided to someone buying a house. Economically, it entitles the lender to the average rate of interest. If we were to take an average rate of interest as being 5%, it would entitle Green to £10 million of interest as dividends each year.

But, illustrating another point I have discussed in my response to Mike McNair, the reality of the current state of UK company law is that shareholders can be paid any amount of money in dividends, and other capital transfers that the directors of the company decide. And, because of the state of company law in relation to corporate governance, the directors of the company are not elected by the company itself, as a separate legal entity, but by the majority shareholders, who are nothing more than people who have lent money-capital to it!

As the prices of shares have soared in the last 25 years, bubbled up on the back of money printing by central banks, so the yields on shares, as with bonds have fallen closer and closer to zero. To make up for that, company boards have simply increased the amount of money paid out as dividends, out of all proportion to the rise in company profits. And, as with the Chinese peasant farmer, the more money was paid out of profits into dividends, which were then used to buy more of the existing bonds and shares, rather than additional real capital, so the growth of capital was slowed, and the growth of profits was slowed.

But, also, the more this recirculation of dividends into the purchase of financial assets, including property, blew up those asset price bubbles, which in turn reduced the yields produced by those assets, which meant an even greater proportion of profits had to be devoted to dividends rather than productive investment, which meant that capital accumulation was slowed, and profit growth was slowed, and so on, creating a vicious circle. According to Bank of England economist, Andy Haldane, in the 1970's, the proportion of profits going to dividends was around 10%, whereas today that figure is around 70%!

But even that is minor compared to the dividends that Green and his family drew from BHS. Having bought the shares in the company for just £200 million, he and is family are reported to have received around £400 million in dividends between 2000-2004, and his wife Tina is reported to have received a dividend of a staggering £1.2 billion in 2005 alone! .

This illustrates the problem with UK company law, and the reason it needs to be changed, as was proposed by the Bullock Report in 1975. Legally, a company is a corporate individual. Bullock proposed that in line with that legal reality, corporate governance should be such that company boards should be comprised of those that worked in the company, elected by the trades unions, in equal measure to those appointed by shareholders. That is already the case for companies of more than 2000 employees in Germany. It was also proposed by the EU as part of its Draft Fifth Company Law Directive in the 1970's, which was never implemented.

In fact, there is no logical reason why shareholders should have any right to elect directors of a company, or to have any say in its operation. They are only lenders of money-capital to it. If company boards were elected on a democratic basis from all of the employees in a company, the kind of ridiculous situation of shareholders being paid massive amounts in dividends and capital transfers, and of company directors acting in the interests of those shareholders being paid astronomical salaries, and other payments, would be ended overnight.

Company boards made up of those who work for the company would have an incentive to pay only what was needed to employ corporate executives, if it was felt necessary to employ such people at at all. Similarly, they would only pay out such amounts in dividends as were required to be able to obtain money-capital through the sale of shares, i.e. equal to the average rate of interest. That would leave a large amount of the company profit that could then be utilised for actual reinvestment in productive capacity.

The final aspect of the BHS story I want to touch on is in relation to the company pension scheme. A problem in selling the company, as with the problem of selling the Port Talbot steelworks, is the massive pension deficit and liabilities to workers for future pension payments. In the case of BHS the pension deficit amounts to around £400 million, and that for Port Talbot is of a similar figure.

But, as I set out recently this is not a different phenomena, but the same one in a different guise. The reason that many companies have these huge pension deficits is because of the astronomical rise in share and bond prices in the 1990's and 2000's. The money that workers pay into their pension funds each month as a fixed amount has to be used to buy shares and bonds. The more expensive shares and bonds become, the fewer of them those fixed monthly contributions can buy.

With fewer shares and bonds being added to the pension funds, the less can be earned from the dividends and interest on them, and it is from those dividends and interest that pension are actually paid. That is compounded by the fact that with that same rise in asset prices, the yields on those shares and bonds has continually declined to near zero. What made that worse, was that in order to avoid contributing to these pension funds, when stock and bond markets were soaring in the 1990's, companies took contribution holidays, and so even less was paid into them, so even fewer stocks and bonds were bought. Instead, pensions were paid not out of revenue but out of capital, as the pension funds sold some of the shares and bonds they held, and used the proceeds to cover pension payments. It meant covering current pension payments at the expense of future pensioners.

Again, this would not arise if the workers and managers in companies exercised democratic control over them, and over the pension funds. It is high time the labour movement revisited the questions of industrial democracy, and corporate governance.