The Banks Couldn't Save Themselves

We have been going for over a hundred years and over that period have come across all sorts of theories as to the cause of and solution to the problems facing society and wage and salary workers in particular. One set are those who say that the answer lies in some reform of the monetary system and who are known, perhaps ungenerously, as "currency cranks". They go back a long ago way, and were even found amongst the Chartists in Britain in the 1830s and 1840s.

They argue that banks are the problem: that they can create credit (money, purchasing power) by a mere stroke of the pen, which enables them to exploit the rest of society through charging interest on this. With our knowledge of how capitalism works -- how surplus value, the source of all rent, interest and profit, is created by workers at the point of production -- we have always argued that this is not the case. Banks are just intermediary financial institutions, borrowing money from some to lend to others. They have no special powers to create purchasing power out of nothing. They merely redistribute it. Only the government can create extra token money.

The present financial turmoil, in which some banks are heavily involved through taking over dodgy loans to not very credit-worthy house buyers in the US, confirms this. One person with practical experience of how things work, Steve Russell, "investment director at Ruffer, the London-based asset manager", was quoted by the FInancial Times (11/12 August) as worrying about the effect on banks: "The more serious issue is the risk to the day-to-day business of borrowing money and lending it out. Just being able to make a reasonable margin on that business could be hard".

If banks really did have the special power to create money for themselves by a mere stroke of the pen, how could they ever get into such trouble? All they would need to do would be to take a pen and create a credit line to to cover their losses or expected losses.

But they didn't because they can't. Instead, governments, through their central bank which alone can put extra money tokens into circulation, have stepped in to lend the banks money to meet their potential obligations. More often than not this has been enough to calm the situation and prevent a stock market "correction" turning into a "crash". In fact, whenever a central bank has refused to do this then a crash has resulted. Not that any amount of central bank intervention can avoid a crash if there's overproduction (in relation to the market, not real needs of course) in some key sector of the economy. But this doesn't seem to be the situation at the moment.

So, the banks are not the villains of the piece. It's the whole capitalist system which duplicates the actual process of production by a superstructure of profit, money, interest, etc which stands in the way of the rational use of the means of production to satisfy people's needs. Once these means are owned in common, then there'll be no need not just for profit but not for money or banks either.

ALB