Alexander Baron: Can Capitalism Liberate The Underclass?

There was a joke in the bad old days of the Cold War that under capitalism, man exploits man, while under communism it is exactly the other way around. The Cold War between Western Capitalism and Soviet-led Communism is now long over; Capitalism has won, but every war has its victims, and the victims of the "triumphant" capitalism can be found everywhere, both East and West.

Capitalism v communism has always been an ideological struggle for the "intellectuals": historians, academics, politicians and other power brokers. But for the average person - the proverbial man in the street, the housewife, etc - ideology has generally been of little or no consequence. What concerns ordinary working people is what happens in their daily lives. For most people this means a decent standard of living, clean, safe streets, a reliable health service, a high standard of education for their children, provision for old age, freedom from state interference, security of their property and person, leisure time including holidays, and so on. Both the capitalist and communist systems aim to deliver these things: the former by appealing to self-interest (greed if you will); the latter by appealing to idealism. Communism may have failed, but capitalism hasn't exactly succeeded, it has won the ideological struggle only by virtue of the fact that it has not failed as abysmally as communism. So what is wrong with capitalism?

The succession of Margaret Thatcher first as leader of the Conservative Party and then as Prime Minister was a landmark in British and indeed in world politics. She was the first woman to become Prime Minister of Britain. It has been said that she was elected by the women of Britain, although many women came later to bitterly regret her tenure. But the battle of the sexes played second fiddle to the real Thatcherism. The new Conservative ethos was the downsizing of the state and the privatisation of public services, if not all of them then as many as possible. Some referred to this contemptuously as "selling off the family silver". The telephone system was split off from the state-run Post Office and sold to the public as British Telecom plc.

The socialist parties protested long and loud against privatisation, claiming that in the long term it would benefit only the rich. This was not true, the privatisation of the telecommunications network has been spectacularly successful. Telephone bills plummeted; the explosion in mobile phones and particularly in Internet communications would never have happened without privatisation. There were many other success stories too, but almost always it was the entrepreneurs and the middle classes who reaped the rewards of Thatcherism. Complementing the rising standard of living for the privileged few was a large and growing underclass.

State benefits were cut drastically, especially for the young, and for the first time in living memory, the ranks of rough sleepers were swelled by the young and destitute. Whereas before "dossers" were primarily older men with drink, drug and mental problems, young people emerged on the street as down and outs and beggars simply because they had been denied benefits and could not afford accommodation. This was not unique to the capital; street beggars could be and were found the length and breadth of the country.

Although new Labour under Tony Blair has adopted and adapted many of the policies of Thatcher (continued under John Major), the new Labour government has made sincere attempts to lift the poor out of poverty by what Chancellor Gordon Brown referred to as "a hand up, not a hand out". Tax credits for low income families, and a rough sleepers' initiative aimed at helping the chronic homeless are just two of the more innovative ideas that have been put into practice. Scrapping the charges for visiting museums is another. But laudable though these efforts are, and sincere though they may be, they do not even begin to tackle the root causes of the problem. So what are these root causes?

There are of course many things wrong with the current system, and it would be foolish to try to simplify it as do the Trotskyites for example with their incessant whining about "the profit motive" and "the ruling class", but the main cause of poverty and the growing underclass is one that is not unique to capitalism. This is the financial system, in particular the creation and control of money.

Money comes into existence primarily as an interest-bearing debt, and a creation of the banking system. For many years such claims were laughed at or ignored, but nowadays even mainstream economics text books acknowledge this fact. The national debt in Britain began with the founding of the Bank of England in 1694, which in spite of its name was a private company, and remained so in practice if not in theory after its nationalisation in 1946. The banking system as a whole continues to create credit out of nothing and to lend (in reality to sell) it to the rest of the world.

Socialists (the extreme left) advocate the nationalisation of the banks so as to bring them under "workers' control", but it is not the actual ownership of the financial system that is important, rather the method of creating credit. This created credit continues under capitalism, communism, even under so-called Islam. The net result is that the world is drowning in a sea of debt. The winners are those who have capital to invest; the losers are everyone else, especially the underclass.

The iniquity of this system can best be illustrated by another joke. In 1999, when Bill Gates (then and still the richest man in the world) was estimated to be worth $100 billion, it was said that if he were to drop a thousand dollar bill in the street it would not be worth his while to bend down and pick it up. Invested at a mere 3% per annum, Gates' wealth would accumulate at over $95 per second. So if he wasted eleven seconds picking up that note he would suffer a net loss of around $45.

The moral of this story is that the debt-based money system is a siphon which drains wealth from the poor - debtors (individuals and nations) - to the rich, rather than vice versa. Taxation is not an attempt to redress this siphon as represented in left wing propaganda, rather it is a largely unnecessary system of plunder stealing from both rich and poor alike.

The debt-based money system has created the phenomenon of poverty amidst plenty. While most of us measure wealth in terms of money: cash, credit, shares, etc, real wealth is measured in the goods and services society as a whole can create and distribute. And herein lies the paradox, because in real terms the world has never been richer. Probably the ultimate example of this is a resource that more and more of us are coming to take for granted: the Internet.

Once you are connected to the Internet you have at your fingertips free, or virtually free, almost unlimited knowledge: encyclopaedias and other databases, music, photographs, near instantaneous communications, it is as though you had a million libraries and all the entertainment media and electronic services of the world on tap. Yet many people can't tap into this free system simply because of a lack of money.

During a depression, shops and warehouses can be literally full of goods, while simultaneously millions of trained and highly skilled workers stand idle. Again, all because of a shortage of money. Yet in war-time, enormous resources can be mobilised virtually at the drop of a hat; young men rush off to die on foreign battlefields, enormous damage - in both fiscal and more importantly human terms - is wrought, and consumer goods, capital goods, and infrastructure are replaced often as fast as they are destroyed. Yet no one questions how.

Clearly it is not capitalism so much as the financial system that is at fault. Under the current system, goods and services can be produced only if they are financially possible. A sound financial system would allow anything that is physically possible to be financially possible.

Returning to Bill Gates, startling as it is that the super-rich can grow richer simply by sitting on their wealth, at least Mr Gates and his kind are wealth creators. Gates is one of the most hated men on this planet, reviled as a capitalist parasite simply because he is so rich, but leaving aside his commitment to philanthropy * he is undoubtedly one of the great benefactors of mankind. His company Micro$oft has been in the forefront of the computing revolution that has put cheap, affordable PCs on office desktops and in homes across the world empowering ordinary people (in Gates' own terminology). But there is another breed of capitalist that truly is a parasite. This is the breed of "capitalist" that makes money without creating wealth.

Granted that there is a role for speculation in any economy, and that speculators are entitled to make profits for the risks they take, there exists a vast army of money changers and share dealers who do not manufacture computers, grow food or create anything productive, but simply shuffle money and shares about, buying and selling either on their own account or on behalf of their wealthy clients, in the latter case skimming off a lucrative commission from each transaction. Almost all of said transactions take place in cyber-space or in some other imaginary medium - electronically or as book entries. The money concerned has no tangible existence, and no real wealth is created, however many transactions are processed, and however much money some individuals or corporations may accumulate.

This speculation is more accurately termed gambling, because the losses incurred rather frequently by the unwary, the trusting and at times the just plain greedy, are very real. These extend from the South Sea Bubble of the early 1720s to the most recent fiasco, the 1995 privatisation of Railtrack. Most of the people who bought shares in the new rail company - largely ordinary members of the public - have now lost virtually all their money. Parasitic though speculation is, it is often far more rewarding than productive capitalism, for entrepreneurs invest real money: time, effort and resources, in their endeavours to create marketable products, while speculators risk only credit that has no real existence, credit that has been created out of nothing, credit that often as not does not rightfully belong to them. The amount of money the banks simply write off every year is phenomenal.

In order for capitalism to liberate the underclass, the creation of credit ex nihilo must be taken out of the hands of private corporations. The money supply must come into existence not as an interest-bearing debt, but as a gift, debt-free, interest-free, and spent into circulation to benefit the entire community.

Many subsidiary proposals have been annexed to this, but the most important is that the dividend should progressively replace wages and salaries as the main source of purchasing power. In practice this would mean the abolition of all means-tested state benefits and the payment of a national dividend (better known as a basic income) to all citizens as a right. The most noticeable effect of this would be the elimination of the poverty trap which denies those on low or no incomes the opportunity to top up their pittances by taking low paid work.

Opponents of the national dividend chant parrot fashion that "printing money" leads simply to inflation. This is nonsense, inflation is caused by too much money chasing too few goods. Clearly the underclass do not have too much money, and in contrast with communism, under capitalism the shops are never empty; it is not goods and services that are in short supply, but the wherewithal to pay for them.

Socialists - Trotskyites and others - would do well to abandon their unremitting class war and all the spurious and misleading campaigns they support uncritically such as "ethnic monitoring", minimum wages and equal opportunities, and campaign instead for the abolition of usury, and the institution of a basic income for all. But Dogmas die hard, and it is doubtful if this will happen, at least in the near future.

* Through the Bill & Melinda Gates Foundation, he and his wife have become the world's largest individual donors to charitable causes. Other super-rich "geeks" have followed in his footsteps.

** Most money exists as credit and has no tangible existence.

Exclusively for PRAVDA.Ru by Alexander Baron