A Deal That Is Not A Deal

Love Me Or Leave Me

The EU is a state that is not a state; a single market that is not a single market; a currency union that is not a currency union. So, its no wonder that when those contradictions reached crisis point in Greece, they have resulted in a deal that is not a deal.

The situation facing Greece, for the last six months, is one in which conservatives have presented the options as being to either suck up the austerity meted out, or else for Greece to leave the Euro. Left nationalists, opposed to the EU, who have wanted to see Greece leave the Euro, as merely the first domino to fall, in the break up of the EU itself, as well as all of the ultra nationalist, eurosceptic forces, across Europe, have wanted to present those as being the only available options too. The reason that Syriza represented such a threat to the conservative leaders of Europe was precisely that they refused to accept those as the options.

In reality, its rather like complaining about the poor wages you receive from your employer and being told, well either accept it, and stop moaning, or find another job. For a socialist, or even just for a trade unionist, of course, those are not the only options. There is also the option of staying in the job and fighting for better pay, by organising with other workers in a trade union. That is the option that Syriza has presented, and it is an option that traditionally social-democrats have adopted.

Of course, Marxists understand that, ultimately, workers cannot resolve their problems by just fighting for higher wages. Employers do not pay low wages just out of meanness. There are objective laws, which determine the level of wages. As Engels put it, in general, trades unions can only secure the wage rises that competition, for labour-power, between firms, would anyway have brought about, in times when the demand for labour-power is high, and when the demand for labour-power is low, no amount of trade union struggle will push them higher, because, if firms are pushed into making losses, they will simply close down.

“Such being the tendency of things in this system, is this saying that the working class ought to renounce their resistance against the encroachments of capital, and abandon their attempts at making the best of the occasional chances for their temporary improvement? If they did, they would be degraded to one level mass of broken wretches past salvation. I think I have shown that their struggles for the standard of wages are incidents inseparable from the whole wages system, that in 99 cases out of 100 their efforts at raising wages are only efforts at maintaining the given value of labour, and that the necessity of debating their price with the capitalist is inherent to their condition of having to sell themselves as commodities. By cowardly giving way in their everyday conflict with capital, they would certainly disqualify themselves for the initiating of any larger movement.” 

(Marx – Value, Price and Profit)

Reform and Revolution

And, the same is true in relation to Greece, or any other economy and the EU. In the end, workers can only resolve their problems by replacing capitalist production with socialist production, rather than simply fighting for an amelioration of their condition, by social-democratic, trade union struggle for higher wages. But, equally, the kinds of financial and economic crises that lead to the problems faced by Greece, and other EU economies, can only be resolved by the creation, in the first instance, of a United Socialist States of Europe. But, just as Marx indicates above, in relation to wage struggles, that does not mean that, in the meantime, workers should simply “ abandon their attempts at making the best of the occasional chances for their temporary improvement”. That is especially the case when the aims they are seeking are not just in their own interests, but in the interests of capital itself.

To once more make the comparison between Greece, and a single employer, it is as though an employer, having found that their production is uncompetitive, instead of investing in new machines and equipment, to raise productivity, borrows money to finance their losses, and uses some of that money to redecorate their office, and buy themselves a new company car. When the creditors come knocking for their money, the employer responds, by demanding that their workers agree to their wages being cut, to defer their retirement, and buy their own tools. Then seeing that their productivity drops further, as the best workers leave for employment elsewhere, and the remaining workers suffer ill-health, due to their low wages reducing their ability to eat, or heat their homes, the boss responds to the lowered productivity, by demanding that the workers also work longer hours, and weekends!

Such a strategy is certainly against the workers' interests, but it is clearly against the interests of this capitalist too, because instead of resolving his problem it simply makes it worse. The whole problem could have been resolved had he invested in new machines and technology, in the first place, so as to raise their productivity. That is what Henry Ford realised, when he doubled his workers wages, and introduced a corporate welfare programme for them and their families, alongside investing in new machines, and assembly line production that raised their productivity. It is what big industrial capital as a whole realised, as it introduced social-democratic, welfare states.

Parasitic Money Lenders Despoiling Industrial Capitalists

The cruel irony, is that the policies being inflicted on the peoples of Europe, by the EU's conservative political leaders, as with the same policies being inflicted on British workers, by the Tories, is that, although they cause misery for workers, they are simultaneously against the interests of big industrial capital too, and increasingly even against the interests of smaller productive-capitals. The only interests being served, by these policies, are the interests of the money-lending capitalists, who want their pound of flesh, and want at all costs to prevent a collapse in the astronomically inflated prices of all their fictitious capital, be it in the form of bonds, shares or property.

As Marx put it,

“The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives to this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner — and this gang knows nothing about production and has nothing to do with it. The Acts of 1844 and 1845 are proof of the growing power of these bandits, who are augmented by financiers and stock-jobbers.”

(Capital III, Chapter 33)

Post War Social Democracy and Big Industrial Capital 

It is the interests of these money lenders that the conservative politicians promote, not the interests of big industrial capital. A comparison of the policies pursued by conservative politicians today, after a period when these money lenders have enjoyed considerable global power should be compared with the situation after World War II, when big industrial capital was dominant, and when social-democratic forces, based upon it, held political sway. It resulted then in the creation of a series of social-democratic, para state global bodies, such as the IMF, World Bank and GATT (now WTO); it led to the introduction of the Marshall Plan, which was a huge, Europe-wide package of Keynesian fiscal stimulus to recapitalise and restructure capital across Europe; it led to the repeated use from the late 1940's, through the 1970's of Keynesian fiscal stimulus to cut short every recession, as it started. 

Also, in comparison with today, and learning from the mistakes of the Treaty of Versailles, which imposed massive austerity on Germany, a further part of the strategy was the writing off, in 1953, of Germany's debt, at the London Conference. Germany had 15 billion Deutschmarks written off its debts, going back to the 1920's, or about 50% of its total debt. In addition of the remaining 50%, it was given 30 years to repay, with repayments limited to just 3% of Germany's export earnings.

That is in complete contrast with the deal which Germany and other conservative governments have just inflicted on Greece. It is even in contrast to the approach that Germany itself took, when it was reunified with the GDR. Then Germany organised significant fiscal transfers to the East, as well as making large investments of productive-capital in the East. Germany has implemented a similar policy in relation to its traditional spheres of influence, when those countries escaped Stalinism. Large German firms, like VW, for example, have not only taken over firms like Skoda, in the Czech Republic and Slovakia, but have also pumped large amounts of productive-capital into those businesses. 

Drug Dealers, Pimps and Thieves

Had Germany been providing the same kind of investment in productive-capital, into Greece, over the last 15 years, rather than simply sending reckless loans to Greek banks, so that middle class Greeks could buy Skodas, built in Slovakia, then Greece's debts, and its lack of competitiveness would have been avoided. This is rather like the heroin dealer, who complains they have lost an income stream, because one of their customers dies from a heroin overdose!

The current deal is no better than all the others. In fact, its more like simply offering to sell the heroin at a slightly cheaper price, but demanding that the customer, work directly as a prostitute for the dealer, having been first roughed up a bit, for having dared suggest that they wanted to kick the habit.

Syriza began, in January, by correctly saying that they were not interested in yet another bail-out. Correct, because 90% of all the money from the previous bail-outs had gone straight back out again. They constituted not a bail-out for Greece, but only a bail-out of the banks and other money-lenders, that had recklessly lent to previous Greek governments and banks. What is more, the remaining 10% did not benefit the ordinary Greek citizens, by being used for productive investment, but went simply to provide current liquidity, to help cover interest payments.

But, now, in the current deal, they have been pushed into yet another bail-out, which once again is a bail-out for the countries creditors, not the provision of funds that can be used to reverse the damage that austerity has already caused, or to improve the country's productive capacity, so as to increase its future income, and avoid debt.

The new bail-out, will be €86 billion, and again €50 billion of this will be to simply cover the immediate debts that Greece has defaulted on, or was about to default on to the IMF and ECB. Technically, this is necessary under ECB rules, in order that Greece can get the necessary liquidity required for its banks to open, without there being a bank run. But, lending Greece, €50 billion from the ESM, for this purpose, still leaves Greece with that debt, merely postponed, when in fact, it would have simply defaulted on it anyway!

Moreover, Greece has been forced to put up its state assets into a fund for privatisation, which is to be used essentially as collateral for this ESM loan. So, in reality this is not even a loan, but a sale of Greek assets to cover its debts, and all experience of such privatisations, is that they amount to simply an opportunity to pick up assets on the cheap, by the same money-lending capitalists. In reality, this is only little less a case of robbery than is the continued possession of the Elgin Marbles by Britain.

Euro Fudge and Hypocrisy

In reality, there was some validity in some of the points raised by former Belgian Prime Minister Guy Verhofstadt, last week, in the European Parliament. Socialists would have little argument that Greece should end the privileges of the Greek Orthodox Church, ensure that the rich ship owners and others pay their taxes, and that Greece's spending on its military be ended. All very well, other than in every other country in Europe, we see large corporations and rich people avoiding tax, and the EU has done nothing to create the conditions to stop it. In fact, EU President Jean Claude Juncker, presided over the development of a huge tax haven economy in Luxembourg, whose banks are like a ticking time bomb, waiting to explode. In many countries across Europe, the Church is given privileges that should have ended centuries ago, and the EU and NATO would be the first to complain, if Greece did the rational thing and saved money by leaving NATO, and selling off its expensive military hardware, let alone rented out its ports and military bases to the highest bidder!

And that is the problem with the way the EU works; it is hypocrisy and bureaucratic manoeuvre, of which this deal is another, example. Juncker declared that there had been no winners or losers from it, “a typical EU solution,” he said. Yet, the truth is that everyone has been a loser from this deal. Greece is the immediate loser because of further austerity being forced upon it, with no measures to provide a way out of it in future, but the EU is also the loser, because it has lost all political credibility as a consequence of its actions. It has undermined every tenet upon which it was supposed to be based, for a handful of silver to be paid to the financial paymasters, of the ruling conservative politicians.

Hollande, Renzi and Gabriel Just Got Butt-fucked By Merkel On World Wide TV

In that process, the real division between those conservatives and social democracy has been exposed, a fact, that even Italian Prime Minister Renzi seemed to have grasped. But, how really could he do otherwise. To paraphrase a line from “Die Hard”, Hollande, Renzi, Gabriel and all the other European Social Democratic leaders “just got butt-fucked” on world-wide TV, by Angela Merkel and the other conservative leaders.

One of the problems the EU politicians have had with Syriza, especially with Varoufakis is that they have not played this bureaucratic game upon which the EU relies. Previous Greek governments, accepted the austerity measures handed down from Berlin and Brussels, but large parts of the package, such as dealing with the tax evasion was simply left undone. Other parts of it, such as the privatisation programme, could not be carried out, because it was resisted by Greek workers.

An element, of that can be seen in the current deal. The privatisation fund that is to be set up is supposed to contain €50 billion of state assets. But, in the last five years, only €5 billion of assets was disposed of, and only a further €7 billion of assets has been identified as potentially disposable. As Paul Mason put it in one tweet,

“In a village I know, 60% of land is in foreclosure. Bank that owns it = bust. How in the €50bn fund will that land be valued?” 

And, of course, that is the truth behind the mirage of all the European banks, that are as insolvent as those in Greece, and in some cases, more so, and only appear solvent, because of bank capital that is massively inflated by astronomical, but unreal property prices used as collateral, along with bonds and equities that are equally inflated. 

A Deal That Will Not Withstand First Contact With Reality

But, not only is this not a deal in reality, because it offers no solution for Greece, whilst undermining the foundations of the EU, it is not even a deal that is going to withstand its first contact with reality. Paul Mason has already reported the opposition to it in Greece, not just from Syriza supporters, but even from conservative supporters.

“... consider the headline of Dimokratia, a conservative tabloid: “Greece in Auschwitz: Schauble attempts eurozone holocaust”.”

No Greek socialist MP could vote for the deal that has been presented to them. Its understandable why Tsipras, may, after being “mentally water-boarded”, during the all night session, have made such a deal, given the conditions existing in Greece, but in the cold light of day, he must now himself call for its rejection, and so must Syriza, just as having won a resounding “No”, in the referendum, they were prepared to still negotiate with the EU leaders, on what had been rejected. Whether he will, or not only time will tell. As I have said from the beginning, Syriza is not a revolutionary party – and as Lenin and Trotsky pointed out, even they have to make concessions, whatever the ultralefts might demand – it is merely a social democratic party, and such parties always tend to place inordinate emphasis on the importance of remaining in office.

The first signs are that a sizeable section of Syriza will vote against the deal if Tsipras puts it forward, and some of its Ministers are likely to resign today in protest. As I suggested five months ago if Syriza, were to make such a deal, it would spell its doom, and the beginning of chaos in Greece, and the rise of Golden Dawn, as the only practical choice for the Greek masses. It would signal the break-up of the EU, as its periphery frayed, and was dragged into the same kind of turmoil already seen on its existing borders, in Turkey, Syria, Egypt, Libya and Tunisia.

That will be so, because there is only so much that a people can stand, before they have nothing to lose. Social-democratic states can only survive, if the basis of social-democracy itself exists. That is that the workers must form a majority of society, and feel incorporated in it, to have a stake in its maintenance. They must be prepared to accept their own exploitation, on the basis of being able to negotiate a steadily and noticeably rising standard of living. Conservative regimes across Europe, have undermined that condition.

The Establishment Bubble

Watching the coverage of events in the bourgeois media, it is apparent how the middle class, pundits simply have no intellectual tools for understanding the real world. Their analysis is rather like that of the old TV repairman. They have a list of common problems that they go through, and if the situation does not fit any of them, they are lost. They exist within an establishment bubble, where the people inside it, all of whom come from a similar background, simply reinforce each others views, and where confirmation bias abounds.

They live in a world which is black and white, a pure duopoly of choices, which even then is no choice at all. They have become so used to a world, where in whatever country, when the masses become restless, the answer is simply to throw out the existing government, and put in the alternative, which is essentially no alternative at all. It is why they are so desperate for the Blairites to defeat Corbyn in the race for Labour leader.

In their discussions now about Greece, they simply see the embarrassment of Tsipras, in being forced into this deal, as meaning simply that he will be swapped out for the alternative of one or a combination of those parties that caused the debt crisis in the first place. They idea that those parties have been even more destroyed than has been the Liberal-Democrats in the UK, and for similar reasons, is simply not within the range of possibilities that their world view can cope with. The simply see it being a matter of a rush to the centre, a centre which in reality does not exist.

It is the same mistake, and failure of understanding that they made in Iraq, in Syria, in Libya. They saw only two options. Get rid of the bad guy, and something to our liking must replace him mustn't it? In fact, as with all those examples, the opposite is the truth. The old centre has collapsed, and the collapse of the Liberal-Democrats, of PASOK, the PSOE and the Blairites within the Labour Party is merely an indication of it.  The conservatives hope that by bringing regime change in Greece, they will deter support for Podemos in Spain, but all they have shown is that Podemos has a better chance of succeeding, where Syriza may fail, because Spain is a much bigger economy.  Where the conservatives were prepared to risk a Greek default, they will not be prepared to risk a Spanish default, especially if in the intervening period, a similar politics spreads to Italy, Portugal, and France.

The actions of the conservatives have been rotting that centre for the last 30 years, an illusion of health that was only maintained, during all the time, by the blowing up of huge asset bubbles, that really represented a growing level of private indebtedness, whose limit has now been reached. The solution will now be resolved by forces outside that centre. In Greece, Syriza will split if Tsipras tries to push forward these proposals with the support of other parties. The supposedly revolutionary sects in Greece, connected to sects in the UK like the SWP and SP, have no more influence in Greece than their UK counterparts have here, because their sectarian stance towards Syriza, has left them isolated from the working-class, just as that same stance towards the Labour Party, has isolated them from the working-class here.

The actions of the conservative EU politicians has forced the Greeks towards a belief that the only solution to their problems will be outside the EU, and that is the message that will be pushed forward by Golden Dawn, just as it will be pushed by the FN in France, UKIP in Britain, and by ultra nationalists and fascists in Spain, Italy, Portugal and elsewhere. The EU is being pushed towards politics which will be far from those that these pundits are used to within the establishment bubble that has existed for the last 30 years.

The EU Is Dead. Long Live The EU

Today, the conservative leaders of the EU, led by Angela Merkel, signed the death warrant for the EU as it currently exists. It will be up to workers to construct a new EU capable of meeting their needs.

Syriza, in calling the referendum to continue to oppose austerity, but to remain within and fight for the creation of such a new EU, destroyed the remnants of the conservative forces in Greece that are responsible first for creating the debt crisis within the country, and then for imposing the austerity upon it, which, in the last five years, has destroyed its economy. In January, those conservative forces, along with conservative forces across Europe, sought to force Syriza into an alliance with To Potami, so as to cripple it, and force it into implementing yet more austerity measures. They have sought to destroy Syriza ever since it defied that wish.

Instead, it has been the forces of conservatism of New Democracy and of To Potami that have weakened over the last five months, whilst Syriza has become significantly stronger. It was the leader of New Democracy that resigned after the referendum resulted in a 61-39 victory for the No vote, not Tsipras.  Immediately after the vote, Syriza began to similarly create the conditions for the destruction of the conservatives in the rest of Europe. They did so, by removing every possible excuse they might dream up for not providing Greece with the support that an EU member state, in difficulty, should naturally be entitled to receive from an institution whose core value is supposed to be solidarity, and mutual support.

First, Yanis Varoufakis resigned immediately, thereby removing the conservatives objection on personal grounds.  Then Syriza more or less agreed to the terms that Jean Claude Juncker had presented once the decision to organise the referendum had been announced, on condition that in return, the EU agreed to the kind of write off of Greece's debt that the IMF, under pressure from the US was now demanding, before even it would be part of any new deal. When the conservative leaders of the EU even signalled rejection of that, Syriza drew in Francois Hollande who according to Paul Mason, then sent in one of his top advisors to draw up plans that the EU could not find objectionable.

In doing so, Syriza has now exposed the true dividing lines in Europe between conservative nationalism, and social democracy. Already, in the most acute circumstances in Greece and Spain, the Blairite, bureaucratic and often corrupt social-democratic parties like PASOK and the PSOE have been swept into the dustbin of history, replaced by new social-democratic parties prepared to oppose the old conservative mantras of austerity.

Elsewhere in Europe that is happening too. In Scotland, a Blairite Labour Party offering austerity-lite politics as its alternative to the Tories was decimated by the SNP, as a nationalist party that was only offering traditional social-democratic verbiage. Even in England, the evidence is that many who failed to vote Labour did so, not because Labour's message was too left-wing, but because it was not sufficiently distinct from that of the Tories. Even some of those who voted UKIP, did so as a protest against Labour's lack of a radical alternative to austerity. In Ireland, the petit-bourgeois nationalists of Sinn Fein have won rapidly increasing support on the basis of the same kind of radical anti-austerity, social democratic rhetoric used by the SNP.

According to the latest reports, Jeremy Corbyn, offering a traditional social-democratic agenda, as opposed to the Blairite, austerity-lite message of the other three leadership candidates, already has the second largest number of nominations from CLP's, whilst the large unions are backing him, with UNITE having already signed up 50,000 registered supporters, most of whom will back him. Syriza has shown the future to all of the conservative and Blairite elements within the traditional social-democratic parties across Europe. Their day is over, and if those parties themselves do not slough off those elements, the parties themselves will be eclipsed by new parties emerging to replace them.

By rejecting the offer that Hollande's representative had himself drawn up on behalf of Greece, Merkel and the other conservative leaders have thereby snubbed Hollande, and simultaneously exposed the deeply fractured nature of the EU project. With the FN, itself presenting itself as a radical anti-austerity party, which stands to suck the lifeblood from the French Socialists, Hollande himself faces an existential threat. He came to office talking left, and then veered sharply right. Unless the French Socialist Party itself adopts a radical anti-austerity stance, it will be destroyed, losing support to the FN, as well as to parties to its left.

The same is true in relation to the Italian Socialists. The conservative leaders may force a defeat on Greece, but it will only be at the cost of promoting the real battle of conservatism and social democracy across the whole of the EU. They have already exposed the fractured and flawed nature of the EU, whose contradictions must now be resolved, by its radical reconstitution.  If they have achieved nothing else, then Syriza will have achieved a great deal in hastening that confrontation.

The conservatives, because they are locked tightly within the stranglehold of petty-minded nationalism, have always sat awkwardly at the head of an EU, whose central thesis is the need for international solidarity, and mutual support. The EU, was always a flawed concept, in that regard, in terms of its construction. It was a state that is not a state, a monetary union that is not a monetary union, a single market that is not a single market. The demands of conservatives, to meet their own national interests, was always going to blow those contradictions apart at some point. The decisions of those conservative leaders, has now brought that to pass.

Having had all of the possible reasonable excuses removed from them, as to why they would not agree a deal with Syriza, those conservative leaders still rejected it. And as Paul Mason has described on Channel 4 News, it is not just that those conservative leaders have then put forward proposals that Syriza could not agree. Syriza has backed them into a corner, whereby in order to justify not making a deal, the conservatives have had to come up with proposals that not even To Potami, or even New Democracy could agree!!!

The ridiculous proposal that was floated by Herr Schaeuble that Greece should be basically asked to exit the Eurozone on a temporary basis, like someone getting a pass out from a nightclub, and which everyone said would not fly, because it had not been approved by the SPD, now appears to have been incorporated into the conservative leaders main proposals. In other words, besides Merkel snubbing Hollande, and the social democratic leaders from Italy and elsewhere, it appears that she has openly snubbed the SPD leaders, who are a part of her own coalition government. The writing is on the wall for them too. Either the SPD walks away from the coalition with Merkel, or it too will go the way of PASOK, and the PSOE, with Die Linke already standing by to take votes away from it.

The conservative leaders, effectively having attempted to send Greece into penury and humiliation, with their proposals, now want Greece to co-operate with them in avoiding the financial chaos which rationally flows from their decision. The proposal for a planned exit from the Euro, is designed to avoid the kind of defaults and contagion that is likely to collapse banks and financial institutions across the continent, and spark a new global financial crisis.

Everyone has concentrated on the €360 billion of Greek sovereign debt, but the real problem for those banks and financial institutions, across Europe, is actually the additional €360 billion of Greek private debt. Whilst a lot of the former has been transferred from private hands into the hands of states across Europe, the Greek private debt is almost entirely in the hands of European banks, and private individuals. If the Greek banks default, most of the Greek private debt will default along with it, and that will produce a cascade of payment failure, and activation of credit default swaps, of an unknown, but undoubtedly much greater magnitude than just the nominal €360 billion. Germany's Deutsche Bank, for example, is reported to have debt hidden away in various derivatives amounting to the equivalent of the entire global GDP. Clearly, only a fraction of that will be Greek debt, but as 2008 demonstrated, once these derivatives begin to collapse, they are like a set of collapsing dominoes, each one causing a series of chain reactions.

A look at China, where the state has intervened to stop any large shareholders from selling shares, has pumped billions of Yuan into circulation, opened the sluice gates of credit, and bought huge quantities of bonds and shares itself, but where the market still continues to crash, shows that the global financial system is teetering on the edge.

So, why would Syriza help out the conservative leaders? No reason whatsoever. The course now seems set. There is no basis for any kind of deal. Even if Tsipras and the right-wing of Syriza wanted to implement it, the rest of Syriza would reject it. As I said months ago, Syriza cannot buckle, because if it does, chaos will ensue, and out of that chaos will rise Golden Dawn, and a spread of chaos into Turkey and beyond. Even if a majority could be cudgelled together to vote through such measures, the Greek workers and peasants would simply resist it in the streets. Once again chaos would ensue.

Syriza, therefore, has nothing to lose from fighting to the last man. The first thing is to allow the Greek banks to fail, so that a collapse of private debt ensues. Once private money lenders begin to suffer huge losses, as a result of rolling defaults, and collapsing financial markets, it will focus the minds of those financial interests, and the conservative politicians that rest upon them. The next thing to do, is to transfer the bad debts of the banks into a bad bank, and to encourage the bank workers to take over the remaining banks and run them as co-operatives.  These co-operative banks, along with credit unions and other community based organisations, and in conjunction with the production and distribution co-operatives can begin not only to build a worker owned sector of the economy outside capitalist control, but to create the kinds of payments systems that remove the reliance upon foreign controlled currency.

Greece can stay in the Euro, resisting the attempts of the conservative politicians to force it out.  It can continue to denominate its prices in Euros, and outside ECB control it can print as many electronic Euros as are required to meet its needs for currency, and the funding of anti-austerity programmes.

A series of co-operatives and other mutual organisations have been established spontaneously by Greek workers and peasants to meet their needs, Syriza should facilitate the coming together of those co-operatives into a national federation. They together with members of co-operatives across Europe, should begin to forge links, and merge their operations. In fact, this provides the vision of the kind of new EU European workers now need to build to replace the empty husk of the old EU. It is an EU, built from the bottom up by workers across Europe, truly based on the principles of solidarity, mutuality, co-operation and democracy, that the bourgeoisie has now so signally failed to achieve.

IMF Exposes Dogmatic Marxism - Part 2 of 2

A couple of weeks ago, Eddie ford wrote an article, in the Weekly Worker, about the situation in Greece, in which he argued that there was no possibility that the EU leaders, ECB and IMF would agree to writing down Greece's debt. Once more the notion of an overriding capital-logic lies behind this claim. They would not agree, Eddie claimed, because if they cancelled Greece's debt, then Spain, Portugal, and Italy would want similar treatment and, “there is no way, either politically or economically, that Germany could afford to foot the bill.”

But, as I pointed out in a letter in response this is a rather strange argument. For one thing, Germany, along with other creditors, including the IMF, had already written off large amounts of Greek debt, without any of the problems claimed. Although large amounts of Greek debt held by private individuals and institutions had been bought by states across Europe, private bondholders had still already agreed a “voluntary” 30% haircut on those bonds.

Secondly, everyone knows that Greece will never repay the €360 billion of sovereign debt – and if that goes in a forced default, the €360 billion of private Greek debt, will quickly follow it, posing a much greater problem for European bondholders, particularly already insolvent European banks. In that case, why make an issue over writing off a debt that will never be repaid?

Thirdly, it makes no sense to say that Germany could not afford it. The debt represents not real capital, but only fictitious capital. It would only make sense if Germany were itself to compensate the owners of all of this fictitious capital. But, there is no reason why they or anyone else should! If you lend money-capital to a company, by buying a share or bond, issued by that company, you take the risk that you might not get repaid, or that you might get back less than you lent. The same is true if you lend to a country. The extent of that, and the proportions can be understood, when the €750 billion (sovereign and private debt), of Greece, to be written off, is compared with the approximately $8 trillion wiped of Chinese shares since 12th June, $2 trillion of that wiped off just on Friday!

In fact, the main reason we have austerity being imposed in the UK, Ireland, Spain, Portugal and Greece is precisely because the banks in those countries went bust, but instead of making the share and bondholders in those banks and other companies lose their fictitious wealth, the state in each of these countries bailed them out, and is now forcing taxpayers and citizens in general to replenish the state's coffers.

Fourthly, such a policy cannot be said to be even in the interests of capital. It is certainly in the interests of those individuals who own large quantities of fictitious wealth – in the short term, because the inflated prices of their shares, bonds and property are maintained – but, in no sense, is it in the interests of productive-capital, which sees resources drained away from it, for speculation, as well as seeing surplus value drained in interest payments.

In his reply to my letter, Eddie has put forward an even stranger argument. His main argument, that the debt could not be cancelled, because Germany could not afford it, has been dropped like a hot potato. Instead, having let go that argument, Eddie seems to have quickly cast around, and picked up another that was lying around, to replace it.

Eddie now wants to claim that well yes, not only could Germany afford to pay, after all, and yes it would actually be beneficial for capital to write off the debt, so that there could be capital accumulation, and restructuring. You might think that after such a reversal of opinion then that Eddie would draw different conclusions, but no, in order for the conclusion to remain the same, the argument itself has to change. So, now Eddie writes,

“If you wanted to begin a new round of capital accumulation, that is exactly what you would do. But who the hell is going to actually do it? Germany will not, nor will the United States. There is no hegemon capable of imposing such a plan or refashion the world in that way.” 

So, now we have gone from an argument whereby a debt that everyone knows will never be repaid cannot be formally cancelled, because it is not economically in the interests of capital, particularly German capital, which “could (not) afford to foot the bill.” to an argument whereby Germany COULD afford it after all, it would be beneficial for capital, and exactly what capital would do, rationally, the only problem being that capital cannot find anyone to pull the trigger, and act in its interests. Unbelievable.  Its worth remembering that there was also no hegemon that organised the $8 trillion dollars that were wiped off Chinese shares, and so disappeared into thin air, the fictitious wealth of those shareholders!

It was, perhaps, unfortunate for Eddie that, on the very day that he was telling us there was no possibility of Greece's debt being written down – which should be further written down – because there is no global hegemon who could do it, on behalf of capital, the IMF came out with a clearly and strongly worded statement, obviously backed by Washington, which has been vocally critical of the stance taken by conservative politicians in the EU, and in the ECB, which argued for precisely that!!!

The IMF is one of those global social-democratic bodies established after WWII, that reflected the fact that an increasingly global capital really needed a global state to act as its Executive Committee, but in the absence of which, it would instead have to settle for a series of quasi-state global bodies. The IMF has come out, contrary to Eddie's assertion of what is possible, to say that not only does Greece need an additional loan of $50 billion, but its debts need to be written down, and effectively written off for the next 40 years.

Eddie's argument flows from a further logic presented by the comrades of the WW that Syriza should not have taken office, because it could not legislate socialism in Greece, and it is only socialism that could have provided a solution to the problems in Greece. But, as I have written in response, in their paper previously, this position confuses a number of important points.

They base their argument on a number of concepts. Firstly, on the basis of Engels' argument in The Peasant War in Germany, about a revolutionary party not taking power in conditions where the material conditions are not ripe for socialism. They argue that socialism, in Greece, is not possible in isolation, and so socialists should not take power until the possibility of socialism across Europe exists.

The problem here is that Engels was talking about a revolutionary party taking state power. In fact, the reason why Marxists opposed the slogan “Labour Take the Power”, put forward by left reformists in the past, is precisely that it confuses the taking of governmental office with the taking of state power.

There has never been any chance of a Labour government in Britain, including in 1945, being anything other than the temporary custodian of governmental office, whilst the state power itself resided firmly in the hands of the Dictatorship of the Bourgeoisie. For Labour to “Take The Power” would have required that such a government begin to smash that state apparatus and transfer state power into the hands of workers, organised into Workers Councils and backed by a Workers' Militia. But, unless workers already were organised into such bodies, and with the necessary transformation of the consciousness of the active majority of the working-class, any such demand would be adventurist in the extreme.

In other words, a demand such as “Labour Take The Power”, only has any meaning in a condition of dual power, where it is tantamount to the demand for a Workers Government. The AWL's repeated demand for a Workers' Government, over recent years, is a similarly meaningless demand, which previously they would have ridiculed, because, under current conditions, it can only be interpreted as a demand for a right-wing, reformist Labour Government!

To raise the demand “Labour Take The Power” outside those conditions, can only be interpreted either as a dangerous piece of adventurism, which invites a reactionary response, from the state, or fascist forces, or else it is a purely reformist demand for a Labour government, which sows confusion about the nature of the state, and sows illusions about what such a government might or could achieve.

But, Syriza is not a revolutionary party, any more than the Labour Party is a revolutionary party. Not even the conservative bourgeoisie have attempted to describe it as such. Some British Tory MP's, including former Chancellors, have said they have met Varoufakis and others and found them to be very clever people, and so on. Syriza is a social-democratic party in the mould of past Labour governments, or the German SPD. There is nothing in its economic programme that is significantly different than Obama has been pursuing in the US. At no time have they suggested that their aim is a socialist reconstruction of Greek society, or anything beyond modernising its economy firmly within the bounds of capitalism, and a capitalist EU.

So, the issue of “Syriza Take The Power” no more arises than at every election time socialists argue for a vote for Labour. In fact, the WW's position of asking workers to vote for Syriza, but then demanding that Syriza refuses to take office is daft. If in 1945, Attlee had been told by Marxists that he should not take office because the conditions were not ripe for Socialism in Britain, I can only imagine what my dad, and thousands of others returning from the war would have been - “we've seen leadership like that from tossers in the army brass.”

Just because you can't win the war, immediately, doesn't mean you can't win the odd skirmish, or battle, here and there, in order to advance your positions, and to the extent that social democrats wage such struggles, Marxists should give them critical support, not stand like sectarians carping from the sidelines of history.

In fact, just as the experience of repeated Labour governments provides the basis for Marxists to have been going through that experience with workers inside the party, so as to illustrate the limitations of its programme, so Syriza's experience in the last five months has thrown a spotlight on the nature of the conservative politicians running Europe and the ECB; it has opened up divisions between the French and German governments, as well as between the US and Europe; and it has illustrated the limitations for any state in Europe, in dealing with the issues of debt and growth within the present structural limitations of the EU, and the continued influence of national and conservative forces. 

The other backdrop to the WW's position is the experience of Chile. But, again, its necessary to understand the clear difference between Chile, in the 1970's, and Greece today. Back in the 1970's, the USSR still existed; there was a Cold War, in which the US was determined to cede no quarter to its opponent, even in terms of a potential or tacit support from countries that may be of strategic importance, still less those in its own backyard.

The US was infused with anti-communist paranoia, and a belief in the domino theory, whether in South-East Asia or Latin America. What is more, although Popular Unity was itself a Stalinist, reformist party, unlike Syriza, it was actively seeking to make significant changes within society. More than 40 years on, the USSR has gone, and capitalists have plenty of experience of dealing with reformist parties like Syriza, as well as with Stalinists, without fretting that they may pose an existential threat to the interests of capital. In fact, during that time, it has been imperialism itself, in a range of the more advanced of these developing economies, that has acted as a facilitator of a change of political regime, from Bonapartism of some form, towards social democracy.

The attitude of the US towards Syriza is in marked contrast to the attitude towards a range even of purely radical nationalist regimes, such as the Sandinistas and so on, in the 1970's and 80's.

Moreover, in Greece itself, there has been absolutely no sign of the kind of mobilisation of the state or fascist forces against Syriza, after it came to power, that was seen against Popular Unity. Quite the contrary. As Paul Mason has reported, there is a marked difference between the rather peaceful nature of protests taking place today, with a lack of the kind of heavy handed policing and tear gas that was typical prior to Syriza's victory in January. Not only, has the victory in the referendum, by such a large majority, sent the conservative parties into confusion and dissipation, but Golden Dawn seems to have been increasingly marginalised over recent months.

In fact, it is not the potential for the success of Syriza's programme that is likely to lead to a strengthening of, or a resort to such forces, but the opposite. If Syriza is able to win a cancellation of debt, and even a lessening of austerity, so that the economy can begin to grow, the fascists will be made irrelevant, because that will go a long way to resolving the immediate economic crisis facing productive and merchant capital in Greece that is being caused by that austerity, and the constriction of the economy by the debt stranglehold.

But, if Syriza is unable to push forward with such a solution, if it then either resigns, splits, or is forced from office, what then? The people have lost all faith in PASOK and New Democracy, whose corrupt politicians created the crisis in the first place. To Potami and other centre right parties have no great support, and are as tainted with the failures of the past, as PASOK and New Democracy, from which they have come. In fact, the 61-39 result understates that, because many of those who voted Yes, have openly stated that they did so with a heavy heart, feeling that they had no alternative.

So, even had there been a Yes vote on Sunday, or even if the Troika continues to play hard ball, so that Syriza calls new elections, or stands down, or even if it were to split, with a section of Syriza forming a national government, so as to implement any of the austerity measures that have been so resoundingly rejected, the Greek workers and peasants themselves would resist them, as they have until now. The difference being that the forces of social-democracy having been so weakened, as the force of argument turned to an argument of force, resolved in the street, the focus would turn once again to the blame being placed upon foreigners, in Germany and northern Europe, imposing austerity on the country, on other foreigners, immigrants flooding into the country from across the Mediterranean, again caused by the actions of those northern Europeans, and the support for the fascists would soar. 

With part of the blame for that also being placed upon the rise of Neo-Ottomanism, in Greece's historic enemy Turkey, as it supports the forces of clerical-fascism across the region, and with a sharp rise in support for those same clerical-fascists in Bosnia, the conditions would be set for a new Balkan conflagration, similar to that of the start of the 20th century, with Greece looking once more to its historic ally, Russia, for support under such conditions. See: Lessons Of The Balkans.

The argument against taking office could be made that, because reformist governments are forced to oversee attacks on the workers they thereby become discredited. But, Syriza has not increased the attacks on workers. Instead some public sector workers have been taken back on, privatisations stopped, some pensions restored and so on. As Paul Mason has reported, Syriza has also carried out other social measures that strengthen the position of workers, as well as carrying out reforms against the most hated sections of the police.

Rather than Syriza being blamed for the current situation, even amongst many of those who voted Yes, it is the institutions who are being blamed for blackmailing the country, and bullying it into submission. If an election were held tomorrow, its almost certain that Syriza would obtain an outright majority.

None of that means that Syriza will obtain the backing from the European working-class required to face down the conservative politicians that rule Europe in the interests of the money lenders. Nothing in life is certain. But, if you do not fight, its certain you will not win.

61-39, Syriza Bursts The Dam

What Syriza and the Greek workers have sown, over the last five months, the European Labour Movement should now reap. Syriza did not promise a socialist revolution in Greece. They simply proposed what any traditional social-democratic party should have been proposing, over the last few years, which is to oppose the stupid policy of austerity that was being imposed upon economies, and which has wreaked such havoc in destroying real wealth, real productive-capital, and the potential for profits and growth. That Syriza's simple, social-democratic agenda has been presented as something any more radical than that is simply an illustration of the extent to which appearance and reality has got out of whack. Social-democratic parties, across Europe, in the last three decades, have themselves become captive to conservative ideas, which is why those parties core base has declined, why they have fragmented, why in the most acute conditions, such as Greece, those social-democratic parties, like PASOK, have been destroyed, and new social-democratic parties emerged to replace them. It is why nationalist parties that adopt a social democratic verbiage, like the SNP, have eclipsed the traditional social-democratic parties, it is why, for example, when the institutional and organisational lid is lifted, a candidate like Jeremy Corbyn can attract large amounts of support.

The paucity of political analysis on the left is illustrated by this comment from Michael Roberts.

“... the majority ‘no vote’ is a huge defeat for the Troika and big capital in Europe...”

The reality is that the large “No” vote is an indication of real material changes that have been taking place in economies and society at a subterranean level, changes which have begun to undermine the power of money-lending capital that has grown over the last 30 years, and once more to swing back in favour of big industrial capital. The Troika, and the various conservative parties across Europe, have not acted as the representatives of “big” capital, as Michael suggests, but as the representative of that section of society they have always represented – the financial and landed oligarchy, whose power comes from vast amounts of fictitious wealth, from the small capitalists, who represent the remnants of the monopoly of private capital, that Marx describes as representing a fetter that must be burst asunder, and of the backward sections of the middle and working-class still enthralled by nationalistic pride.

The “No” vote is not a “huge defeat” for big industrial capital, but a huge victory. It does represent a huge defeat for money-lending capital, and its conservative political representatives, but they are the enemies of big industrial capital, and as Engels points out, in his later Prefaces to The Condition of the Working Class in England, they have been from the last part of the 19th century, from the time when bourgeois liberal democracy was replaced by bourgeois social democracy, from the time when big industrial capital took the form of socialised capital, with the development of the limited liability, joint stock company, and co-operative, and when the functioning capitalists in these enterprises, the professional day to day managers, themselves increasingly became drawn from the ranks of the working-class, as public education was extended.

Objectively, the interests of this big industrial capital are antagonistic to the interests of money-lending capital, and the personification of that antagonism, as Marx describes, in Capital III, is represented by the professional managers on the one hand, paid a wage like every other worker, and the shareholders and bondholders on the other, whose manifestation is the imposition of tiers of Directors, above the professional day to day managers, to monitor their activities on behalf of the shareholders and bondholders who have lent money-capital to the company.

It is the interests of the latter, and above all the interest of maintaining the hugely inflated prices of their fictitious capital that became more dominant over the last 30 years, as against the interests of big industrial capital. As Engels describes, it is the fact that the representatives of the latter require the social weight of the working-class, and after workers get the vote, their electoral weight that defines social-democracy. It is what led to the establishment of welfare states in the 20th century, but likewise, it was the ending of the long wave boom in the mid 1970's that caused a crisis for that social democracy, and led to the increasing influence of conservative ideas, as the money-lending capitalists became more powerful, and fictitious wealth exploded.

Just as conservative parties became hostage to social-democratic ideas, in the 1950's and 60's, so now social-democratic parties became hostage to conservative ideas, witnessed in the steady rightward drift of all those parties across Europe. But, that in itself represents a contradiction. Capitalism is ultimately driven by profits. As Marx sets out, merchant-capital and money lending capital are antediluvian forms of capital, that are antagonistic to industrial capitalism. So long as the former are dominant, Marx says, the latter cannot develop. Moreover, wherever the former are dominant, conservative and reactionary ideas are also prevalent, which is one reason that industrial capitalism cannot then develop. But, merchant capital, as capital, shares in the profit created by productive-capital, whilst money-lending, or interest-bearing capital (in the form of shares, bonds and so on), sucks surplus value out of productive-capital in the form of interest (dividends, bond interest). Capitalist landed property, which itself is historically tied, by family connections, to the financial oligarchy, likewise sucks surplus value out of productive-capital, in the shape of rent.

Ultimately then, capitalism depends upon real productive-capital accumulating, and increasing amounts of surplus value to be created by it. But, the form of productive-capital, under modern capitalism, is that of socialised capital, of the limited liability, joint stock company, not of the private capitalist property of the early 19th century, and certainly not of the small private capitalist property. As Marx describes in Capital III, the private capitalists who had expropriated the direct producers, and even smaller capitalists, themselves become expropriated by this giant socialised capital, that stands increasingly in opposition to it.

Social democracy and conservatism are the political reflection of this division, with the workers and big industrial capital on the one side, and the money lending capitalists, landed property, and private capitalist property on the other. Two great class camps confronting each other across the social divide. Without big industrial capital, there is no production of surplus value, and the production of that surplus value, increasingly depends upon social democracy, so that the modern capitalist state is founded upon social democracy. The modern capitalist state is a bourgeois social democracy, just as the capitalist state of the early 19th century was a bourgeois liberal democracy.

But, the state is not the same as the government. As Lenin describes, the Tsarist state in Russia was a capitalist state, it was driven by the objective needs of capital, but the political regime was feudal. The state in Chile was a capitalist state, but Allende's government was proletarian. Different laws govern the election of governments and nature of the political regime, to those which determine the class nature of the state, and for periods the two things can conflict. It is not at all surprising then that the political regime can at times represent class fractions that are based upon reactionary forms of property rather than upon those fractions that are based upon the progressive forms of property. The relation between economics and politics, between material conditions and ideas is not a mechanical one.

Syriza's victory is a reflection of changed material conditions. It means the dam of conservative and nationalist ideas that stood in the way of progress has been breached at its weakest point. It is now up to workers and the organised labour movement to push through that breach, and create the flood that has been held back for so long. The response of all those social-democratic politicians across Europe, that have been in thrall to conservative ideology, will increasingly be exposed for what it is. They will be swept away in the flood, just as those politicians have been swept away in Greece, and are in the process of being swept away in Spain, and elsewhere.

Syriza's victory has highlighted the contradictions referred to above, and the contradiction at the heart of the EU itself. The EU from the beginning, like all modern capitalist states, was established as a bourgeois social democracy, and yet its political regime has itself been captured by conservative politicians. That contradiction resides behind the political crisis that the EU has faced, and which has been acute since 2010. Greece exploded that contradiction of a state that was not a state, a single market that was not a single market, a monetary union that was not a monetary union, a central bank that was not a central bank, because none of these things had a single state and polity standing behind them.

It is no surprise that Euroseptic Tories, UKIPPERS and nationalists across Europe have welcomed the No vote in Greece. They see it as reflecting the inevitable break up of Europe, and a return to the conservative nationalism they represent. The ball is in the court of European social democracy, either it can confront all of those contradictions it has allowed to develop over the last 30 years, and resolve them, as it should have done long ago, or else, those contradictions will destroy the EU, and the conservative nationalists will triumph.

Syriza and and the Greek workers have done the heavy lifting. They have ploughed the fields, and scattered the seed. They are reaping the benefits of what they have sowed, but for the harvest not to be wasted, it is now up to social democracy, and the European working class to take over the burden of the work.

Greece and the Money Myth - Part 5

This fear of having your currency circulation held hostage by what amounts to alien forces, simply illustrates the fragility of the Eurozone as currently constituted. It is what will blow the Eurozone and the EU apart unless it is addressed.

It is the problem of a central bank and currency that does not have a single state and single fiscal and debt issuing authority standing behind it. It is the problem of separate states and fiscal regimes that do not have the necessary control over their own currency. Greece has merely illustrated this contradiction at its most acute point, but it will undoubtedly manifest itself in Spain, Portugal, Italy and other eurozone economies until either it is resolved, or until the Eurozone itself is destroyed.

There are various immediate solutions that Greece could adopt. It could, for example, choose to use Bitcoin for its currency. That would be jumping from the frying pan into the fire. There are two obvious problems with Bitcoin. The first is that although it has a price (which itself is a problem because it varies by huge amounts on a day to day basis) it has no value. Bitcoin is the product of labour, but not necessary labour. Gold, for example, is a use value in its own right. It has exchange value, because people desire it as a use value (for jewellery etc.) and because it has value as the product of labour. But, Bitcoin can only ever be used as a money token, no different from a £10 note.

The price of Bitcoin is derived from the fact of its scarcity, and the fact that it is traded, or really we should say is the object of speculation. In fact, one reason that the price of Bitcoin varies so widely, is precisely because it does have no value, which can act as the locus around which its market price fluctuates. For most commodities, the market price fluctuates within fairly limited ranges around the price of production, that is the cost price plus average profit. If the market price rises much above this, the producers of that commodity make higher profits, which encourages additional capital into its production, pushing the market price back down to the price of production. But, for any commodity that does not have value, like land, for example, there is no price of production. If the demand for land rises, it cannot cause a production of more land! And the same applies to Bitcoin, which thereby causes speculation, and spikes and collapses of its price.

But, by the same token someone can and has created other virtual currencies, so that the scarcity of one is neutralised by the plethora of many different such currencies.

Secondly, Bitcoin would simply replicate the unnecessary problems caused by an artificial constriction of the currency that the ECB is now inflicting on Greece. Bitcoin is much loved by the Libertarians and adherents of the Neo-Austrian School of von Mises, precisely because it takes control of the currency out of the hands of the state, and places it into the straitjacket of “sound money” based on artificial constraints.

Another option is to reintroduce the Drachma, with Greece then simply printing whatever currency the circulation of commodities and capital within its economy requires. All other things being equal, that would certainly have been a better option for Greece in 2010, than the five years of austerity and destruction of real wealth that has been imposed on it by the Troika.

The evidence of that can perhaps be seen in Iceland, which allowed its capitalist banks to go bust, leaving the capitalist shareholders and bondholders, who had lent money to those banks, to pick up the tab for the reckless actions of those banks. Having done so, and not thereby wasted taxpayers money on bailing out the money lenders, it was able to provide the currency its economy required, so that it quickly recovered, and has continued growing since.

It has been said that a reintroduction of the Drachma would inevitably see that currency collapse in value, with a consequent sharp rise in import prices and devastation of Greek living standards. That is more than likely, but on the basis of what has been said above, that possibility should not be overstated.

If we consider what causes the value of money tokens such as the Drachma or the Euro to fall, it is that too many of these tokens have been put into circulation, relative to what is required for the circulation of commodities. As Marx puts it,

“How many reams of paper cut into fragments can circulate as money? In this form the question is absurd. Worthless tokens become tokens of value only when they represent gold within the process of circulation, and they can represent it only to the amount of gold which would circulate as coin, an amount which depends on the value of gold if the exchange-value of the commodities and the velocity of their metamorphoses are given... The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity. Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity."

(A Contribution To The Critique of Political Economy)

The reason the Bank Act was introduced in 1844, besides the fact that it was based upon false economic theory, and was a reflection of the growing power of money lending capital relative to productive-capital, is that fear still existed in England, following a series of bank runs in the 18th and early 19th centuries, due to commercial banks printing excessive amounts of banknotes, which they could not honour. People wanted gold currency or a paper currency backed by gold to assuage this fear.

But, as Marx and Engels set out, it was a fear that had never affected Scotland. In Scotland, not only had gold never formed a significant element of currency circulation, but the Scots preferred the circulation of a paper currency to that of gold and found the constraints of the 1845 Bank Act an imposition.

“As mentioned before, the Scottish banks were forced by the Bank Act of 1845 into a system resembling that of the English. They were obliged to hold gold in reserve for their note issue beyond the limit fixed for each bank. The effect of this may be seen from the following testimony before the C. D. 1848/57. 

Kennedy, Director of a Scottish bank: 

"3375. Was there anything that you can call a circulation of gold in Scotland previously to the passing of the Act of 1845? — None whatever." — "3376. Has there been any additional circulation of gold since? — None whatever; the people dislike gold." — 3450. 

The sum of about £900,000 in gold, which the Scottish banks are compelled to keep since 1845, can only be injurious in his opinion and 

"absorbs unprofitably so much of the capital of Scotland."”

(Capital III, Chapter 34, p 562)

Marx goes on to give further such testimonies as to the way a gold backed currency imposed unnecessary restrictions on the Scottish banks and economy.

The amount of money put into circulation, as Marx sets out in “A Contribution To The Critique of Political Economy”, is a function of the value of commodities to be circulated, and the velocity of circulation of the currency, together with the value of the money commodity.

“The law that, if the speed of circulation of money and the sum total of the commodity-prices are given, the amount of the medium of circulation is determined, can also be expressed in the following way: if the exchange-values of commodities and the average speed of their metamorphoses are given, then the quantity of gold in circulation depends on its own value. Thus, if the value of gold, i.e. the labour-time required for its production, were to increase or to decrease, then the prices of commodities would rise or fall in inverse proportion and, provided the velocity remained unchanged, this general rise or fall in prices would necessitate a larger or smaller amount of gold for the circulation of the same amount of commodities...

Since the quantity of gold in circulation depends upon two variable factors, the total amount of commodity-prices and the velocity of circulation, it follows that it must be possible to reduce and expand the quantity of metallic currency; in short, in accordance with the requirements of the process of circulation, gold must sometimes be put into circulation and sometimes withdrawn from it. We shall see later how these conditions are realized in the process of circulation.” 

Of course, as Marx described in the quote provided earlier, this relation is stood on its head when paper currency replaces precious metals, as the more paper put into circulation, the lower its value, and so the higher the level of commodity prices. If in 2010, Greece had not had to comply with the austerity measures imposed upon it, in order to obtain liquidity from the ECB and IMF, it would not have suffered a 25% contraction of its economy. Instead, its economy may have grown by say 10% over that period.

In that case, it could have undertaken a 30% expansion of notes and coins in circulation compared with today without that having any inflationary impact on the value of its currency. Likewise, a return to the Drachma may not have the damaging effect that is being predicted. For example, suppose the government tomorrow reintroduced the Drachma, and announced that all deposits were secure, and enough Drachma would be supplied to banks to meet all withdrawals.

There may still be a surge of withdrawals, but once people were sure that whenever they went to the ATM, there would be drachma in it, they would tend to stop panic withdrawals. If the government had the Drachma it required to pay wages and other bills, it could begin to employ more people. They would have money in their pocket to spend with the small trader, who would expand their business and so on.

In other words, just as happened in 1847, when the Bank Act was suspended, and more notes and coins were put into circulation, which caused an increase in economic activity, so too that could be the consequence in Greece. Following a 25% contraction of economic activity, with 25% unemployment/60% youth unemployment, there are significant under used economic resources that could be put to work, and which would thereby justify an increased currency circulation without causing inflation.

The main problem, in that respect, however, is the devaluation of that currency in foreign exchange markets. This is really, the answer to the point raised at the beginning about how notes and coins can disappear from the economy. One reason is that people hoard the currency so it disappears from circulation, but the other is that if the economy is uncompetitive, it imports more than it exports, and so the difference is made up by an export of capital. In the past, that was symbolised by an outflow of gold. But, today importers may exchange domestic currency for the foreign currency of the country from whom they want to import so that thereby the domestic currency flows out and ends up in the foreign currency reserves of the exporting country.

A country that controls its own currency can print more notes to cover the outflow, but this then leads to the problem of inflation discussed earlier. The problem that Greece faces currently, however, is that not only has the country lacked the resources to import commodities, because its own industry has been decimated by austerity, making exporting more difficult, but large chunks of its capital has gone to repay debt. Moreover, the problem it has faced more recently is that, without currency, importers are unable to obtain foreign currency to be able to import anyway. Ironically, although this has been causing severe problems for pharmacies etc., who cannot obtain drugs, it does represent a self-stabilising mechanism. Over recent months, for example, when Russia has not only faced restrictions on its imports, but also a depreciation of the Rouble, this has acted as an incentive for domestic producers to fill the gap in the market, and has also led foreign businesses to establish businesses in Russia for the same purpose, which thereby strengthens the Russian economy, making it less dependent on imports, or on oil exports to finance them.

The policy of austerity has been a totally illiterate economic policy imposed on the country by the ECB, EU and IMF, that has seriously damaged the economy during that period. But, the policy of austerity has had the same effect everywhere it has been applied. It has destroyed real capital and the ability to produce profits, solely in order to maintain the fictitious wealth of money lending capitalists, a policy which ultimately will cause an even bigger crash of those fictitious capital prices.

But, in the meantime, there seems little need for Greece to risk the potential downside from a reintroduction of the Drachma, as I've set out before. Nor does it need to introduce any further Euro denominated IOU's, in addition to those already in circulation in the shape of Euro notes and coins, bank cheques and so on.

The Euro is merely a symbol of measurement of value, and so of a given quantity of labour-time. There is no more need of these symbols to be in circulation for prices to be denominated by this unit of measurement than there is for gold to be in circulation.

The advantage for Greece at the moment is this. If it were using the Drachma as its currency, the quantity it put into circulation would be constrained by the value of commodities to be circulated. Put too many Drachma into circulation and they become devalued, reflected in inflation, too few and there is money hoarding, a credit crunch, higher interest rates and economic contraction.

But, Greece could have its central bank print electronic Euros in exchange for Greek sovereign bonds. At the moment this is not possible because only the ECB is allowed to determine which bonds are acceptable as collateral. So, it restricts the ability of banks to create money. However, that gate swings both ways. If the ECB cuts Greece adrift, which by maintaining but not increasing ELA it has so far been careful not to do, then Greece is free to set its own rules on what bonds its central bank will take as collateral.

So, Greece could continue to consider itself part of the Eurozone, in so far as Euros are its standard of prices, and legal tender, but it would be outside the control of the ECB, just as it has to borrow money in capital markets, on its own terms, rather than as a member of the Eurozone, like Germany.

On that basis, the Greek government, with its bank account filled with these electronic Euros could lift the austerity. It could begin to undertake the work needed to rebuild the Greek economy, once again putting Greek workers back to work, creating real wealth.

Its notable that on the same day that the institutions were trying to impose further austerity on Greece, President Obama and President Rousseff were doing the opposite, announcing major programmes of fiscal expansion in both the US and Brazil, to put workers back to work, building roads and bridges and undertaking the other infrastructure work that their economies require, and Obama was also announcing that millions of US workers would from now on be legally entitled to overtime pay, who previously lacked that right.

The Greek government with the currency it requires could begin to put people back to work. They would have incomes to spend, which would enable a range of Greek businesses to expand, and for Greece to be able to build the capital it requires to meet its needs, rather than relying on imported goods. Indeed it could begin to build the capital it requires to be able to export goods so as to pay for its imports without exporting capital.

The advantage of doing this whilst continuing to denominate prices in Euros is that it avoids the dislocation a return to the Drachma implies, and because any increase in money supply it brings about would be tiny compared to total Euro money supply, it would have no inflationary impact. That is why I have been arguing for the latter course of action. If the Greek people vote No today, as seems likely, Syriza should not let this be interpreted as a vote to leave the Euro. It is a vote to reject austerity, and to provide, by whatever means necessary, the currency required to end it, and to put the Greek and European economy back on the path of growth from which austerity has derailed it.

Greece and the Money Myth - Part 4

In Part 3, the question was raised, why is so much being made of the shortage of money? Why are people queuing at cash machines to take out notes?

The answer to the first question is easy. Particularly in the last 30 years, when wealth has been almost exclusively associated with the possession of money, it takes on a mystical, god-like power. Even in the shape of worthless bits of paper, people, including economists, bow down before it. By contrast, if I were a Greek worker, or the Syriza government, I would say you can take as many bits of paper out of the country as you like, but leave the land on which we can grow agricultural commodities; leave the tractors and other machines required to plant and harvest the crops; leave the factories, shops and offices; leave the machines required to process the materials; leave the stocks of food and materials we require. We, the workers, will take those things off your hands for free, and run them as co-operatives, to directly meet our needs. If we need them, we can print whatever bits of paper we need!

As for the second question, of why people are queuing to get money out of ATM's, the answer is more complicated. In part, its similar to the answer to the first question. People over a long period have been brought to believe that these worthless bits of coloured paper actually have some value. As Marx puts it, “A Contribution To The Critique of Political Economy”,

“Gold circulates because it has value, whereas paper has value because it circulates.”

The money tokens, like a €100 note, have no value, apart from the value of the paper and ink. They are mere representations of value, a claim to a portion of the product of total social labour. But, those seeking to take out the €60 maximum, each day, believe these bits of paper do have value. Part of the reason they want to take out these bits of paper is the same reason that, in the past, people wanted to trade in such bits of paper for the gold they represented. That is that they fear that the bank itself may collapse, and so their funds, deposited with it, will be confiscated. The latter reaction is more rational than the former, because gold, at least, does have value, whereas the Euro notes have none.

The other reason is that many of those queuing are pensioners, who do not have, and do not know how to use a bank card. But, the other reason for people to want actual notes and coins is because this is always what happens when there is a credit crunch, artificially induced as a consequence of restricting the amount of currency put into circulation. Its what happened in 1847, as a consequence of the Bank Act. Its why Phillippe Legrain, is quite right in describing the actions of the ECB, as directly political in restricting the ELA provision of notes and coins to the Greek banks. It is an act of political blackmail.

In 1847, Britain had a crop failure, which caused it to import food. It paid for it with gold. At the time, Britain had just entered upon a long wave boom, that started in 1843, and was to run until the late 1860's. But, the 1844 Bank Act forced the Bank of England to reduce the quantity of banknotes it put into circulation, as a result of the reduction in the gold reserves. That restricted the ability of other banks to discount Bills of Exchange, which were the main form of commercial credit, and discounting them was the main way businesses obtained banknotes. But, with fewer Bank of England banknotes made available, the other banks and discount houses found it harder to carry out this function, and so charged a higher commission to discount the bills.

Interest rates then rose, and credit shrank. Suppliers required payment in cash rather than on credit, and anyone who had notes and coins tried to hold on to them, for payment. The crisis was quickly resolved when the 1844 Bank Act, was suspended, and additional Bank of England banknotes were thrown into circulation. A similar thing happened globally in 2008, and in the Eurozone in 2010, and the same thing is being induced now in Greece, as a result of the actions of the ECB, in limiting its funding of the Greek banks.

This is one of the reasons that sovereign states have wanted to retain control over their currency. The actions of the ECB and EU leaders, is playing strongly into the hands of the conservative nationalists such as UKIP, and the FN, who use these kinds of examples, to demonstrate why each country should be outside the Eurozone, if not outside the EU itself. Rather than Draghi doing everything necessary to save the Eurozone, he along with Jean Claude Juncker and Angela Merkel appear to be doing everything necessary to blow it apart once and for all.

The actions of the ECB in not providing the required funding for the Greek banks, to meet the currency needs of their customers for withdrawals is quite grotesque. It is designed to cause the kind of bank runs that were seen with Northern Rock in 2007, for which the Bank of England was criticised. That is particularly the case as right-wing politicians and the right-wing media have been trying to encourage such a bank run over the last week, to put pressure on the government, and to create a climate of chaos ahead of the referendum on Sunday. The ECB's actions would not be tolerated in any other country, and represents an overtly political act.

One of the functions of a central bank, like the ECB, is to act as lender of last resort, and thereby to provide the currency required to prevent such bank runs. If customers of Eurozone banks have funds in their account, they are entitled to withdraw notes and coins up to the limit of the value of those funds, and it is the fiduciary duty of the ECB as the issuing bank, to ensure that sufficient notes and coins are supplied to its member banks to meet those requirements. After all those ECB issued notes and coins, like all other such fiat notes and coins, are merely a token of value that it has issued in place of real money.

Without that fiduciary duty being upheld by the ECB, no one can have any confidence that any Euro-denominated account is secure, and therefore, no one can have confidence that the Euro is a secure currency. It is as though people have taken a load of real money in the shape of gold to an ECB member bank, been given notes issued by the ECB with a promise to exchange them again for gold on demand, only to find that the ECB has chosen not to honour that promise in a particular country!

If today I have €100 in a Greek bank account that I cannot get hold of, because the ECB does not provide the required Euros to my bank, how can I have any confidence that tomorrow that will not be the case if I have an account in Portugal, Spain, Italy Cyprus, Malta, Ireland, Luxembourg or any of the other Eurozone economies, particularly those whose banks have been shown to be even moreexposed than were those in Cyprus. The banks in Luxembourg, for example, where Jean Claude Juncker, was involved in developing an economy that, like Cyprus, was built more or less on similar principles to a Ponzi Scheme, that attracted funds, on the basis of being a tax haven, have been shown to be more than twice as exposed to a potential crash, as those in Cyprus; a fact that the IMF itself drew attention to some time ago, given the interconnectedness of the banks in Luxembourg.

The problem of pensioners not having debit cards is perhaps easy to resolve. I'm surprised Syriza, as a party with grass roots connections, has not resolved it already. The obvious answer is to take action to get pensioners and everyone else to have debit cards, and know how to use them; organise credit unions with collective access to funds, run by people who understand finance, and have access to debit and credit cards that can act to make payments collectively by electronic means.

This really is a reflection of the extent to which socialists have become tied to statist conceptions, and reliant upon the mechanisms of the capitalist state rather than building up their own worker owned and controlled mechanisms in parallel to it. It really would be quite easy to achieve on the basis of nominal book transactions where commodities were supplied by worker owned co-operatives, and payments were effected via worker owned co-operative banks.

But, even in the immediate term, pensioners could make payment by cheque rather than cash, if they do not have a debit card. The government may have to take measures to ensure that payment can be made by such means rather than businesses bringing on a credit crunch by demands for cash payment, action which itself may be political, by some business owners.

The real reason for the queues at ATM's is a fear that deposits may be sequestered. That is a fear that conservative politicians and media have been fostering in order to create a bank run, and credit crunch ahead of Sunday's referendum.

I will conclude this analysis in Part 5 tomorrow.