For almost half a decade, the Bank of England has pursued a policy of asset purchasing known as ‘quantitative easing’ (QE) in response to problems created by the global financial crisis. In the bank’s own words, the intention behind this strategy, which has accounted for more than £375bn of government spending, “was and is to inject money directly into the economy in order to boost … demand” and to keep inflation from falling below 2 percent.
“Furthermore, the asset purchase programme is not about giving money to banks. Rather, the policy is designed to circumvent the banking system. The Bank of England electronically creates new money and uses it to purchase gilts from private investors such as pension funds and insurance companies.
“These investors typically do not want to hold on to this money, because it yields a low return. So they tend to use it to purchase other assets, such as corporate bonds and shares. That lowers longer-term borrowing costs [ie, by increasing the amount available to borrow in relation to those needing to borrow money – thus putting downward pressure on the amount of interest that can be charged] … and encourages the issuance of new equities and bonds [encourages institutions and governments to borrow more] to stimulate spending and keep inflation on track to meet the government’s target.” (Bank of England, ‘Quantitative easing explained’, 2014)
Leaving aside the question of the success of QE for a moment, it has been revealed that the policy has caused some unintended side-effects, as “Britain’s richest households have each reaped a £215,000 windfall”. (‘Bank boost was windfall for the rich’ by F Elliott, Times, 2 May 2014)
The banker whose study revealed this outcome, Rob Thomas, now director of research at the Wriglesworth Consultancy, concluded that “QE has created a significant redistribution to the rich – effectively a Robin Hood tax in reverse.” (‘Bank of Englands 375bn QE a Robin Hood Tax in Reverse’ by S Croucher, International Business Times, 2 May 2014)
This would seem to add weight to the mainstream ‘centre-left’ view, and one that is also shared by some self-professed Marxists, that the policy responses to the financial crisis – quantitative easing combined with various austerity measures – are primarily ideologically driven. The ruling class, if we are to believe this view, has decided on a whim to redistribute wealth upwards in an organised fashion. But while there has quite obviously been a transfer of wealth, we should not mistake cause for effect.
Capitalism has been in crisis ever since its post-war ‘golden age’ came to an end in the 1970s and the welfare-state concessions of Keynesian social democracy came to be fetters that were holding back continued capitalist expansion. The global capitalist system was faced with yet another crisis of overproduction, as the impoverished masses were unable to buy all the capitalists’ stockpiled goods.
As a result, capitalists found themselves having more and more trouble finding profitable productive outlets for the investment of their capital, and the consequent rise of neo-liberalism was a direct response to the real problems faced by the capitalist class in this context, not merely a ‘conspiracy’ of the rich.
However, the neo-liberal responses to the crisis – privatisation, extending the role of the market and spreading private credit – did little more than temporarily paper over the cracks that were appearing in the financial system. Moreover, underneath the paper, the cracks were getting bigger, as real wages went down and the ability of the world’s masses as a whole to consume continued to fall.
Even with the short-lived bonanza provided by the looting of the former socialist countries of eastern Europe and central Asia, neo-liberalism failed (and could not but fail) to restore an adequate rate of profit, since cut-throat competition and ever-increasing mechanisation continued to lead to greater and greater concentration of capital into fewer but ever-more gigantic corporations. (Andrew Kliman, The Failure of Capitalist Production: Underlying Causes of the Great Recession, 2012, p49ff)
Now that the underlying problems of capitalist production have resurfaced in dramatic fashion in the shape of the recent global financial crisis, it has become clear to even the most ardent fan of the system that they had only been kicked down the road, not cured. Policy makers are once again desperately looking for quick fixes, and QE needs to be understood in this context.
Specifically, it is a response to the dangerously high level of money hoarding that occurred following the initial outbreak of the crisis. As Marx pointed out in volume one of Capital, a certain amount of hoarding is necessary to keep circulation running smoothly, as “the reserves created by hoarding serve as channels through which money may flow in and out of circulation”, but an excessive amount of it can disrupt the circulation of commodities. Therefore it seems likely that QE was a genuine attempt on the part of the capitalist class to solve the problems it faces, albeit an inevitably short-sighted one. (Karl Marx, Capital Vol 1, Penguin, 1990, p232)
Of course, none of this absolves the class enemy of any blame, as the capitalists are ultimately the ones making the decisions. They may be acting primarily to keep their system going, but the fact that they are willing to implement policies that have such an upward redistributive effect and to accept all the consequences for those at the bottom of society tells its own story – namely, that the system itself can only exist by enriching the few whilst impoverishing the many, and that this is, in fact, the very purpose of its existence.
And considering that the only way that meagre levels of economic growth could be restored was through such measures, it becomes very clear that there is something seriously wrong with capitalism, and that the concessions granted to workers in the imperialist countries after 1945 were not compatible with capitalism in the long term.
Of course, as Marxists, we know that no amount of tinkering will solve a crisis of overproduction. There are only two ways out of it: either the destruction of enough value to restore the rate of profit to adequate levels, so that accumulation can begin anew; or socialist revolution.
On the eve of the 100th anniversary of the beginning of the first world war, we should be wary of the fact that last time around it took two horrendous wars to rejuvenate capitalist expansion – and even then the temporary stabilisation of the system only lasted for a few decades.
But times of crisis and war can also serve as world-historical openings for the conscious intervention of working-class and revolutionary leadership. While our masters are busy trying to revive a 1914 spirit of jingoistic patriotism that is designed to carry us on their side into the next devastating round of world wars, we would do better to follow the example set by our Russian brothers and sisters in 1917 and save our fire for the real enemy at home.