(d) The Banks

It is not part of our plan to discuss the details of any particular sphere of socialization. But in dealing with the role of money in connection with socialization, a glance at the banking system cannot be avoided.

We have seen that under the capitalist mode of production, capital must assume the money form at the beginning of every enterprise and every transaction. The more money there is at the capitalist’s disposal, the more comprehensively he can organize his enterprise and the greater will be the mass of surplus value which it yields him, and the better will be his prospects of emerging victoriously from the competitive struggle. Consequently every industrial or commercial capitalist strives to extend his undertaking as much as possible, and for this purpose to secure control of as much money as possible. He is not satisfied with putting his own money into the undertaking, but seeks to utilize the confidence, the credit, that is reposed in him and his property, in order to borrow as much money as possible for investment in his enterprise. He gains from this operation when the profit which this money enables him to earn is greater than the interest which he must pay for its use. And this is generally the case.

The dimensions of present-day capitalist production could not be maintained without the assistance of credit.

The function of granting credit is performed by the financial capitalists, those capitalists whose capital always retains the form of money and never assumes another form. This function is to-day chiefly performed by the money-dealers, the bankers, and no longer by the old usurers, who merely exploited the needs of embarrassed persons in order to extort exorbitant interest from them. The modern banker, on the contrary, fertilizes industry, promotes the development of the productive forces, and thus appears to be a benefactor of mankind.

But like the industrialists and the merchants, the banker seeks to extend his business beyond the limits imposed by his own capital. And this endeavour soon becomes one of his chief functions.

More than other people, the bankers are obliged to take measure to safeguard the supplies of money which they possess.

As money is a commodity which everybody accepts, it is also an object which the thief prefers to take, the more so as it is easier to transport and conceal than most other, articles of use. Nobody would steal a factory of a barn. It is easier to steal the money of the manufacturer or of the farmer if they have no strong safes to put it in.

The great financial capitalists have ever been distinguished by the arrangements they make for the protection of their money.

They have every reason to do so, inasmuch as other possessors of large sums of money entrust them with these on deposit. What the bank does with the money is all the same to the depositors, provided they can obtain repayment in full whenever they ‘demand it. The banker does not leave the money lying idle, if he has an opportunity of lending it to a trustworthy business man at good interest. Thus the deposits increase his own capital and the credit which he is able to grant to trade and industry.

The high rate of interest which he receives enables him to pay interest to his depositors, of course on a more modest scale, and thereby attract ever larger sums of money from the strong-boxes and the stockings and other hiding-places where they have been lying idle.

The more commodity production supplants the other. forms of production, and thereby extends the employment of money, the more the sums of money grow which the individual accumulates, partly as a consumption fund, which he does not need at the moment, but which he will later expend on the purchase of food, furniture, articles of luxury, partly as a production fund which, as soon as it is large enough, will be devoted to the renewal of means of production, or to the extension of the business by means of supplementary means of production.

In this manner immense sums of money are accumulated by the whole body of saving individuals, which are not intended for immediate employment, and are meanwhile entrusted to the banks, through which medium they flow temporarily to industry and commerce. A huge stream of money flows unceasingly through the banks, or properly speaking two streams. The one consists of deposits which are paid in and lent out to numerous undertakings; the other consists of the monies lent by the banks which are repaid them, and those deposits which are repaid by the banks to the customers.

The sum-total of this money far exceeds the resources of the bank. Its own capital only serves to adjust various disturbances, when for instance more money is paid out of than is paid into the bank.

The larger the amount of money which thus streams from the bank to industry and commerce, the more the latter are able to extend their operations, and the more they become dependent upon credit. This colossal stream of money exerts an increasingly determinative influence upon the organization of industry and commerce. It is not the money of the banks, but the alien money entrusted to them which thus controls to an increasing extent the economic life of the nation. It is, however, the bank magnates, especially those of the few leading large banks, who direct the stream of money, who control the alien money as if it were their own, and thus become more and more the masters of the whole of capitalist enterprise.

It is an obvious conclusion that a Labour regime would be obliged first of all to secure control of these great banks, in order to break down the domination of the finance magnates, and at one stroke to secure a determining influence upon the whole of economic life, even upon those spheres which were not yet ripe for socialization.

I used to think, with a number of my friends, that this would certainly be the case. I was strengthened in my conviction by Marx’s observations upon the subject. In the third volume of his Capital we read:

“Without the factory system arising out of the capitalist mode of production, the co-operative factory could not develop, nor without the credit system arising out of the same mode of production. The latter is not only the principal basis for the gradual transformation of capitalist private enterprises into capitalist stock companies, but also a means for the gradual extension of capitalist enterprises on a more or less natural scale. The capitalist stock companies, as well as the co-operative factories, may be considered as forms of transition from the capitalist mode of production to the associated one, with this distinction, that the antagonism is met negatively in the one, positively in the other.” (Capital, Vol.iii. p.513)

In these observations, penned in the sixties of the last century, productive co-operation, the “co-operative factory,” at any rate in conjunction with others upon a graduated scale, is regarded as the only form of an undertaking of an “associated mode of production.” Possibly they exaggerated the part which credit would play in the development of the new mode of production. But that it will be an important one, and that a socialist regime must endeavour to master this instrument, cannot be doubted.

Experience and a closer examination of the question, however, do not support the contention that the nationalization of the capitalist banks is the proper method to adopt, not even if this operation were conducted less crudely and with more knowledge than was the case in Soviet Russia.

First of all, what part of the banks is to be nationalized? Their own capital? This, however, is relatively insignificant, and does not lend them their position of dominance.

Then the deposits which are entrusted to the bank must be nationalized. How is this to be done? By means of compensation? But this would mean something quite different with the banks than with industry. In the latter case, means of production would be acquired for money; in the former case, money would be exchanged for money, a perfectly absurd transaction. But is it intended to compensate the depositors, not by means of cash, but by means of State bonds? In this case they would be deprived of their economic function, which can only be performed in the shape of money, and the whole economic life would be brought to a standstill.

There would be an even greater objection to simply confiscating the deposits, for what are to-day deposits in the bank will to-morrow be used to continue and extend production, so far as they are not diverted to the ends of consumption, and production will still to a very large extent be conducted upon capitalist lines. Confiscation of deposits or cancellation of the claims of depositors would not nationalize, but kill the banks. Nobody would any longer entrust them with a deposit. With this cessation, the banks would lose the means of granting further credits, and would not be able to continue functioning. If the whole of capitalist economy cannot be confiscated and nationalized at one stroke, if capitalist undertakings must be allowed, at least in part, to continue functioning, then it would be inequitable to deprive them of that portion of the means necessary to their functioning which they have temporarily deposited with the banks.

Nobody who has properly considered the question would now advocate the socialization, by whatever means, of the capital which lies at the banks. What is advocated is merely the nationalization of the apparatus of banking.

Otto Bauer makes the following reference to this subject in his Weg zum Sozialismus:

“The socialization of the banks presents quite a different problem from that of large-scale industry or of land. Here it is not a question of transferring land and the means of labour to society, but of wresting from finance capital the power given it through its control over the alien capital which is placed at the disposal of the banks, and investing that power in society. Consequently no act of expropriation is called for in this case; it is sufficient to transfer the power which the shareholders of the banks now exercise through the boards of directors which they elect to the representatives of the community. This can be effected by passing a law which prescribes that the members of the directorates of every large bank should. no, longer be elected by the shareholders in general meeting, but by the bodies which the law sets up for this purpose. The law might determine, for example, that a third of the members of the directorate of every large bank should be chosen by the National Assembly, and the other two-thirds by the industrial associations, the agricultural co-operative societies, the consumers’ co-operative societies, the trade unions, and the vocational associations. A legal control of this kind over the composition of the board of directors would suffice to socialize the power over millions at the disposal of the banks.”

Such an institution is certainly possible. Only one thing must not be forgotten: the banks are institutions which not only grant credit, but which need credit themselves. Their whole power rests not upon their own money, but upon the alien money which is entrusted to them.

Now we must make up our minds to it that the capitalists will offer the strongest opposition to the socialist regime.

Democracy does not alter this fact. The effect of democracy is that the capitalists are deprived of the resources which would enable them to offer military opposition with any prospect of success, or even at all. They will therefore only be able to fight with peaceful weapons, with the lies and calumnies of their press or with economic resistance. It will depend upon the wisdom and determination of the workers whether these methods of capitalist resistance are successful or not.

Under these circumstances, it is scarcely to be expected that the capitalist will voluntarily place their money under the control of an institution if they anticipated that it would not be an instrument of capitalist expansion, but of Labour emancipation. The more the bank appears in this light, the sooner will the capitalists cease depositing their money with it, the sooner will they withdraw the deposits already there, and the socialized bank will be stranded.

Would the capitalists be compelled to place deposits in the socialized banks? This could hardly be done. They would withdraw their custom from the socialized large banks and bestow it upon the smaller private banks.

Would a State banking monopoly be introduced? This would offer considerable difficulties. And capital could easily create substitute organizations of money capital and credit.

The purpose of the foregoing is to point out the difficulties which beset the proposal, not to declare it to be impossible. Its success would depend upon the social atmosphere at the time of socialization. If the capitalist class formed a compact mass, its prospects would be very dreary. On the other hand, it might well be successful if a considerable section of productive capital were in antagonism to the bank magnates, and felt their domination to be oppressive. In that case, the banks organized on the lines of Bauer’s proposal might embark upon a prosperous career.

Yet a socialist regime would not be able to adhere permanently to a regulation of banking which depended upon the goodwill of at least a section of the capitalist class.

Only under favourable circumstances could a Labour regime ensure that socialized undertakings would participate in capitalist credit. Under all circumstances, however, it would be in a position to establish banks, which would relieve the workers, their institutions, and the socialized undertakings, of the necessity of placing their temporary accumulations of money at the disposal of capitalist banks, to be used for capitalist purposes.

With their private savings and their trade unions, cooperative societies and sick funds, the workers already possess not inconsiderable funds, which will grow with the increasing extension of their institutions and the elevation of the working classes. In addition, there will be the socialized municipalities with their undertakings, and the enterprises which are socialized by the State.

For the advantageous investment of all the funds which the above-mentioned factors accumulate for special purposes and must have at call, there now exist only the capitalist banks, which utilize the money so deposited for the extension and strengthening of capitalist economy.

If the working class and the Labour State power have their own bank, it may become the means for promoting socialist undertakings and rendering them independent of capitalist credit.

The socialist bank would of course have to pay interest on the deposits entrusted to it, in order to be able to compete with the capitalist banks. Consequently it would also have to take interest for the money which it lent. But this last-named interest would not serve the ends of profit. It would have to be higher than the interest paid to depositors to cover the administrative charges and the element of risk. It would, however, be considerably less than that of capitalist banks.

With the extension of socialization, there would be a growth in the strength of these banks, and also of their capacity to accelerate the pace of socialization.

Thus the complete nationalization of the banking system, which it was thought would form the starting-point of socialization, might be regarded as its termination.

When this stage has been reached, money would entirely cease to be used as capital, and consequently the banks as organizations of money capital, as well as the necessity for credit, would disappear.