CORONA VIRUS PANDEMIC – 27.

Balancing the Books.

In a recent speech, the British Chancellor of the Exchequer, Rishi Sunak explained why he could no longer support all businesses (and jobs) by further financial help. He stressed that it was more important to “balance the books” than support all those in need. He also added that he did not want to pass a high national debt onto future generations. It is hard to identify a more ignorant piece of mis-information spilling out of the mouth of a government representative – and there have been so many during 2020. What he failed to mention is the fact that British Governments, as with the governments of most other countries, have never balanced the books – or intended to – in their entire history.

Even before, the English Civil War in 1641-50, the English monarchy had long spent more than it received. The consequence was an increasing sovereign debt. When Oliver Cromwell and his parliamentary capitalist colleagues defeated the royalists and took control of the UK, the sovereigns debt became in effect the national debt. Moreover, the capitalists in charge then placed making money out of the national debt on an entirely new and expanded footing.

It was a process which accelerated during the Industrial Revolution and has lasted to the present day. From 1692 to 2012 (ie for 300 years!) the lowest yearly overspend successive ruling elites indulged in was never less than 30% more than the GDP. Most years it was much higher.

So not only are the current parvenu political representatives of the British branch of neo-liberal capitalism, incapable of competently managing the Covid-19 Pandemic and Brexit negotiations, they are also unaware of the history of trade and apparently ignorant of the economic methodology of capitalism. The basic fact is that all capitalist countries actually print and coin legal tender (money) and also create credit/debt. Capitalism absolutely relies on these two means of getting things done along with circulating (buying and selling) goods and services. Governments need to print money (bank notes are tokens of credit meant merely for circulation) and create other forms of credit/debt in order to continue doing what capitalist governments do.

So does anyone think that the dual-salaried Rishi Sunak and Bojo Johnson upstarts et al, are suddenly intending to do what no government leaders have actually done for the last 300 years?

Of course not. However, they are going to try to bamboozle the rest of us into accepting that their primary school level of economic pedantry – based on a false parallel of household budgeting – is really how national economic systems work. In reality, the process of how the elite hoover up the nation’s (and other nations wealth) and deposit it into their swollen bank accounts is a bit more complex and obscure than what they tell us.

As workers we are often told (ie by Thatcher and May in the UK) that money doesn’t grow on trees – as if we didn’t know that! However, although money isn’t created by the efforts of tall plants with leaves it is created by the efforts of government printing presses and in the 21st century by central bank digital accounting procedures.

NB. So its a fallacy that governments need our tax money to function. Governments actually don’t need their citizens money. Governments, unlike family households create and print the tokens of credit (money) they need – in as large amounts as they want. True they get some of it back, from multifarious taxes, but not because they need it. It is we that need the governments money in order to live, and pay our taxes.

Therefore taxes are not levied because governments actually need the currency they print and encourage us use – they already have as much of that as they need and can create more if they ever want it. Taxes are levied on practically everything so that ordinary citizens have to work hard in order to get hold of enough money to buy the goods and services produced and to re-circulate the legal tender by paying taxes.

So in 2008 when the banking crisis occurred, of course governments all over the world didn’t visit the rhetorical ‘money tree’ – they simply ordered their central banks to credit the accounts of insolvent banks and financial institutions, etc., with sufficient electronic tokens of credit on their ‘books’ to make them solvent. To obscure what they were doing they called creating these bail-out credit tokens ‘quantitative easing‘. They electronically transferred the new ‘digital credit tokens’ and charged nothing or very low interest rates to any of the too-big-to-fail financial entities (banks, insurance companies, building societies, finance houses etc) they thought should be helped.

These financial institutions then kept a proportion of the credit granted them as reserves and lent credit out to others at interest rates higher than the rates (if any) they were required to pay the government. They also used this politically gifted credit to underwrite financial instruments (specially printed certificates) which were bought by various organisations – including governments.

It’s worth thinking about that for a moment. Governments gave credit money to the ones (banks, finance houses etc.) who had previously spent more than they earned. These financial instigators of the 2008 crisis, then extended this gifted credit to others at interest and sold more financial instruments (bonds etc) to the government and other buyers. Yet as we know, many ordinary people had lost their jobs and houses but after a short lull, the whole finance capitalist system restarted. The culprits in receipt of the bailout credit then gave themselves bonuses and handed out money to their shareholders. In other words, whilst millions of people suffered, those who created the crisis managed to get a two-fold pay out to make up for their self-inflicted losses.

Note also that by this magician’s type trick of distracting the audience by pointing to quantitative easing, the ‘balance‘ of the governments ‘books‘ went further into debt, while the recipient capitalists bank balances went up.

So the winners in this 2008 rigged credit/debt lottery were the bankers and shareholders and the losers the workers and those small businesses without tax avoidance schemes. Taxes were raised supposedly in order to help bring the national debt down – but that wasn’t the real reason – and it didn’t. But it does demonstrate how capitalists utilise national debt to line their own pockets

Historically, institutions and governments frequently needed to spend money before any money rolled in. So they started the practice of coining and printing tokens of credit and borrowed some from those with spare cash and paid the latter back with interest. So a capitalist with a few thousand units of whatever currency was legal in their country could lend them to a government who would pay them back the loan plus interest. Therefore, without doing an ounce of value producing work the investing rich could sit at home or do ‘the tour of Europe’ while the money kept rolling in at regular intervals.

With enough invested in government bonds and subsequently rolled over, generations of rich people and their children have lived off the proceeds of servicing government debt via ‘bonds’ (large tokens) without doing anything useful – unless it amused them to do something useful. This is why the capitalist class and their pro-capitalist supporters have never wanted to substantially reduce the national debts and they never will. Lending to governments still funds, or in some cases part-funds, their lavish life-styles. Many of the rich absolutely depend upon taking a free ride on the financial merry-go-round of servicing government debts, stock exchange speculation or by exploiting workers in factories, offices or in fields.

As long as capitalism and national debts continue to exist, the only questions arising are the following; ‘for what purposes should money be created and thus the national debt be allowed to increase?’ In 2008 the political and financial elite of most countries thought the purposes should be to save the life-styles of the managers and shareholders of the banks and financial institutions mentioned earlier. So they did save them from bankruptcy and the national debt in the ‘books’ of most countries rapidly increased.

Similarly, in March 2020 during the global pandemic, the political and financial elite of most advanced capitalist countries thought that money should be again created by printing or digitally enhancing bank accounts and the national debt should be again allowed to rise. The reason? So that most of the countries big businesses could be assisted by grants and loans to survive. However, that opinion has now changed in the UK and only businesses viable in the long term will be serviced via a 2/3 contribution toward salaries and wages, and of course their much needed and cherished darling national debt will remain.

But note that in 2020 just as in 2008, money will not be created and the largely deliberately manufactured national debt will be allowed to rise not in order to support the essential workers, so recently hypocritically applauded by the elite for keeping the country going and risking their lives while the rich and famous sheltered in relative luxury amid the ravages of Covid-19. No!; the printing press and digital enhancement of their bank balances is again to be reserved for the already privileged elite.

And also note that Rishi and Boris and the rest of the British ‘establishment’ will not have their over £100, 000 per year salaries reduced by 2/3 . Furthermore, those on £150, 000 per year even IF it were reduced by 2/3 would still be left with an eminently manageable £100, 000 per year or roughly £2, 000 per week! Whilst a 2/3 reduction of a low paid £17,000 per year worker (getting £326 per week ie £8 per hour x 40 hrs x 52 weeks) would leave them with £218 per week. How are they supposed to food bank manage on that?

Just think of the disproportionate prejudice involved in this type of new furlough policy piled on top of the unfairness of a system in which many millions are on minimum wages, part-time or zero-hours contracts whilst keeping our basic economic and social infrastructure moving. Contrast that with a super rich class who are in receipt of millions if not billions like the Bezos, Gates and Zuckerberg’s et al, who wallow in far too much of everything with little or no conscience.

Furthermore, if we think about the cheap and easy strategy of printing sufficient paper money or the even quicker digital enhancement of bank accounts, in order to pay off the debts and solve the funding worries of the rich, then two pertinent questions arise. 1. Why not print sufficient money or digitally enhance the accounts of all working citizens fully in order to solve the food and rent problems of the working classes (white-collar and blue-collar) for many are already in actual existential crisis? 2. If the elite were really worried about passing debt on to future generations, why not print sufficient money to pay off the national debt or simply officially ‘write it off’ and digitally reduce or even eliminate the amount of debt on the government books?

Although these two suggestions are possible, I know they will not be done. Those who staff the Tory and Labour; Republican and Democrat parties and their counterparts internationally, still benefit from the existing set up so will strive to keep it going. Moreover, to implement these suggestions would begin to undermine the economic foundations and monetary illusions on which capitalism rests, and they are not going to risk that. Endless commodity production and consumption along with endless national debt are the actual foundations upon which middle class lives and occupations have been built. Implementing such radical measures as above would also require them to consider what is for them, as yet unthinkable – an alternative mode of production! One which would be socially and ecologically egalitarian, humane and humanist.

Roy Ratcliffe (October 2020)

PS. Apologies for the length of this article. For some time I have been trying to condense my blogs, but recent Covid related events have been unusually full of ruling class nonsense.

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