Critique Journal of Socialist Theory
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Marx(ism) and Public Debt: Thoughts on the Political Economy of Public Debt Marcelo Dias Carcanholo To cite this article: Marcelo Dias Carcanholo (2017) Marx(ism) and Public Debt: Thoughts on the Political Economy of Public Debt, Critique, 45:3, 303-317, DOI: 10.1080/03017605.2017.1337960 To link to this article: http://dx.doi.org/10.1080/03017605.2017.1337960
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Date: 31 July 2017, At: 11:31
Critique, 2017 Vol. 45, No. 3, 303–317, https://doi.org/10.1080/03017605.2017.1337960
Marx(ism) and Public Debt: Thoughts on the Political Economy of Public Debt Marcelo Dias Carcanholo
This essay aims at providing the basis for an approach to public debt consistent with Marx’s theory of capitalist economy. The starting point for this theory is the value theory, and it upholds that public debt is a specific type of fictitious capital and that the latter is the outcome of a dialectical development in the substantiation of different types of capital. It is argued that fictitious capital validates the current valuation in capitalism, allocating a crucial role to the so-called public debt. Along these lines, the essay links public debt to Marx’s theory of the capitalist State, outlines its historical and logical role in the reproduction of capital, details its own features as a type of fictitious capital, clarifies the way the modern tax system bolsters division amongst social classes, and debunks the rise in public indebtedness as the root of the current crisis of world capitalism, as well as conventional therapies based upon orthodox fiscal adjustments. Keywords: Public Debt; Marxian Theory; Fictitious Capital; Capital Accumulation; Social Class; Crisis
1. Marxism and State Theory: Absence or Assumptions? It is not unusual to hear that the absence of a State theory in Marx has consequences, both from a political theory point of view and regarding a potential extension of the State/economy relationship to the economic sphere. Concerning what matters to us in this context, it seems as if Marx did not have much to say about the role public debt would assume in a capitalist economy. Nevertheless, some Marxists pursued the issue later on. We should start by stating decisively that such Weberian-shaped criticism is wrong. There is indeed a political theory, a theory of the State, in Marx. It simply is not what its Weberian critics would like it to be. Plus, such theory is not only to be found in the so-called ‘political and conjuntural texts’, but rather also in some of the later works, such as Capital, albeit in unfinished form. © 2017 Critique
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The first question to ask is how to approach the State issue, since, according to the index, its arguments were be put forward in the last book of Capital, the one we all know was never finished. The answer could not be more dialectical: the State would only show up as such (i.e. as the unfolding of social legalities within capitalism) in the last book indeed, but it is assumed from the beginning! As far as Marx is concerned, it only made sense to introduce the State in its most specific features once they were fully developed, and never when abstraction levels were extremely high. There are plenty of examples, but most would drive us away form our target.1 For all that matters here, it suffices to remind that, for Marx, the capitalist State is much more than the simple dominance of one class over another, the condensation of power relations, or even coercion. It is primarily class dominance, power condensation and, mostly, concentrated violence, thus expressing a power balance which changes according to the different conjunctures. The interests of the ruling classes do prevail, but that does not rule out the possibility of such supremacy displaying limits and contradictions at times of (political) crisis. As a primordial instance in capitalist social relations, the State tends to generate power and change its distribution in favour of the capitalist ruling class. It is not—regardless of what a certain type of mechanistic Marxism might believe—a mere reflex of class struggle, but part and parcel of that struggle.2 Moving closer to what brings us here, the capitalist State is the sole institution that makes it possible for the interests of a few (the ruling classes) to be put forward as if they were everybody’s, as collective interests instead of individual. Above all, they are embodied into an instance that describes itself as if outside of (above) the frame whereupon individual interests may clash. The capitalist mystification (collective interests severed and independent of individual ones) that conceals and masks the capitalist essence of the State (capitalist interests embody capital society’s meaning, for they are its personification) is here seen at its fullest.3 As there is indeed a difference between a given individual interest and what would amount to the collective interest, the former sees the latter as something weird, mystified, alienated. When the time comes for these individual interests to clash, the State, as the ‘representative’ of collective interest, wins legitimacy to settle such conflicts— class struggles, in Marxist terms. Therein lies the tangible and real ground for the mystification, the exasperation of its guise.
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One outstanding reference for the theory of State in Marx and its contrast to Weberian interpretations can be found in El Estado en el Centro de la Mundialización: la sociedad civil y el asunto del poder (México: Fondo de Cultura Económica, 2004). 2 For Marx, the capitalist State, unlike the Weberian State, is not a coherent and homogeneous entity, with its own instrumental/bureaucratic rationality and devoid of contradictions. The relevance of social classes as a category allows Marx to evade the rupture—assumed by a large share of Marxism—between the ‘political’ and the ‘economic’, as well as, from a theoretical apprehension perspective, that between ‘economicism’ and ‘politicism’. 3 K. Marx and F. Engels, The German Ideology. Critique of Modern German Philosophy According to its Representatives Feuerbach, B. Bauer and Stirner, and German Socialism According to its Various Prophets, Vol. 5 (New York: Collected Works, 1975).
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If required, the capitalist State takes over the so-called ‘monopoly of force’ when standing for the notorious ‘collective interest’. At least for Marx, the latter is nothing but the ‘capitalist interest’ incorporated into the State as if it was (for it does indeed sound like it) collective and essentially social. Yet, what has all of this to do with public debt? First of all, it is enough for us to realise that even the term ‘public debt’ portrays it as collective debt, whose responsibility falls on the collectivity. Therefore, paying for it should be everybody’s obligation. Some questions come to mind: (a) what is the share of each class’s contribution for public expenditure (the financial face of that collective responsibility); and (b) how did public debt come about—was it on behalf of collective interest? In order to provide the answers, it is paramount to understand the role of public debt in reproducing one historic time—capitalism.
2. The Role of Public Debt in the Reproduction of Capital Public debt becomes a central issue in the early history of capitalism, which Marx addresses in Capital in the chapter dedicated to the original accumulation of capital. In perhaps the most famous passage of that chapter, Marx argues that: The public debt becomes one of the most powerful levers of primitive accumulation. As with the stroke of an enchanter’s wand, it endows barren money with the power of breeding and thus turns it into capital, without the necessity of its exposing itself to the troubles and risks inseparable from its employment in industry or even in usury. The state creditors actually give nothing away, for the sum lent is transformed into public bonds, easily negotiable, which go on functioning in their hands just as so much hard cash would. But further, apart from the class of lazy annuitants thus created, and from the improvised wealth of the financiers, middlemen between the government and the nation – as also apart from the tax-farmers, merchants, private manufacturers, to whom a good part of every national loan renders the service of a capital fallen from heaven – the national debt has given rise to joint-stock companies, to dealings in negotiable effects of all kinds, and to agiotage, in a word to stock-exchange gambling and the modern bankocracy.4
We have here plenty of items to understand the role of public debt in the process of original accumulation of capital.5 First of all, Marx demonstrates how public debt makes it possible to transform unproductive money (money with no room for valuation) into capital that can valorise. With no need to get into the capitalist creation of added-value as such, State creditors are able to resale public debt bonds, turning them into money capital again, and, depending on the markets’ temporary situation, capital 4
K. Marx, The Capital: A Critique of Political Economy (New York: International, 1967), pp. 754–755. P. Nakatani, ‘O Papel e o Significado da Dívida Pública na Reprodução do Capital’. Primer Simposio Internacional sobre Deuda Pública, Auditoria Popular y Alternativas de Ahorro e Inversión para los Pueblos de América Latina. Observatorio Internacional de la Deuda, 2006, http://cadtm.org/IMG/pdf/Paulo_Nakatani.pdf. He argues that this long Marx passage on original accumulation of capital and the role played by public debt on the process contains the main factors to explain the conversion of money into monetary capital (against interest) and the development of both the credit system and rentiers. 5
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earnings. Besides, they take their share of the appropriation of surplus value, in interests paid by the State. This whole process enabled the enhanced concentration of capital, one of the cornerstones of original accumulation. But that is not nearly all. Public debt is the basis for a whole area of financial valuation—shares companies, in Marx’s terms —but it can be extended in order to comprise all sorts of debt securities in financial markets, as he well knows. Although it is not explicit on the aforementioned passage, public debt also becomes an operating mechanism for public spending, which can—as typically happened throughout the process of original accumulation of capital—be directed towards State investment, for instance, in the infrastructure that capital’s logistics depend upon for its circulation procedures. Investments comprising a very high share of means of production (constant capital) in relation to the workforce (variable capital) tend to have lower interest rates, and are thus less attractive for private investment. They are usually left to the State, and public debt might became a financing mechanism for this kind of spending. Such material production, which is necessary for the valuation of capital, is quite present on original accumulation. If the State is, despite all contradictions it implies, an instance of the manifestation of capital’s private interests, the so-called public debt system reinforces it. The need for private funding forces the State into submission to capitalists’ interests. All of this gives us a better understanding of the real concrete grounds for the capitalist rhetoric, which remains trite nowadays, according to which private enterprise is held hostage by the State when it takes possession of a share of private production (in taxes) and private income is thus reduced. On the other hand, the State’s lack of efficiency leads to debt accumulation, increases the demand for lean capital, and that brings along higher interest rates. Therefore, (neo)liberal rhetoric argues that tax adjustments aimed at cutting public debt lead to lower interest rates and more private investment.6 Regardless of what (neo)liberals say, it is quite the opposite: the State is held hostage by private enterprise, because it depends on commercial credit and its interests. This true public debt system is rather notorious nowadays, when the State deceives society by claiming that fiscal adjustments and structural reforms are the only feasible measures to face sovereign debt crisis. What is left unsaid is that those are the sole feasible measures indeed if the aim is to meet those (capital’s) private interests that hold the State hostage—at least in capitalist logic’s terms. Still within the scope of capital’s original accumulation, Marx states that As the national debt finds its support in the public revenue, which must cover the yearly payments for interest, &c., the modern system of taxation was the necessary complement of the system of national loans. The loans enable the government to meet extraordinary expenses, without the tax-payers feeling it immediately, but they necessitate, as a consequence, increased taxes. On the other hand, the raising 6
This is precisely the liberal argument used since the 19th century and the Ricardian Taxation Theory, but it remains valid in neoliberal modernity in theories such as that of Ricardian equivalence.
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of taxation caused by the accumulation of debts contracted one after another, compels the government always to have recourse to new loans for new extraordinary expenses. Modern fiscality, whose pivot is formed by taxes on the most necessary means of subsistence (thereby increasing their price), thus contains within itself the germ of automatic progression. Overtaxation is not an incident, but rather a principle.7
The State satisfies its creditors through the public budget, which, at the end of the day, comprises taxes levied. This being so, the modern tax system is a required complement to the loan system—in other words, the credit system. Public debt enables the State to fund additional expenditure. And as it must be paid for, taxes are raised, even though tax payers are often not aware of where the expenditure comes from. If new taxes are not sufficient, the State will then pile more debt to the private sector, which brings along higher debt service costs (interest plus amortisation of principal debt) as time goes by. Thereby, the modern tax system tends to rest on levying taxes on basic means of subsistence, making them more expensive, something Marx labelled super-taxation. This is the starting point for the whole discussion on who does indeed pay taxes in capitalist society. (Neo)liberal rhetoric wants us to believe the main burden is on the private sector, whereas the truth is that neoliberalism tends to aggravate the working classes with increasingly regressive tax systems (be it through indirect taxes or direct taxing mechanisms that affect labour income more than others). The answer for who pays taxes becomes clearer when one understands the regressive essence of today’s tax system. Concerning another angle, namely that of state expenditure, Marx had by then figured out what is now known as the public debt rollover mechanism. Whenever the State is unable to meet its—increasingly financial—expenses, it is forced to issue more debt, enacting a process of automatic progression on the public debt stock: debt is issued in order to pay back the servicing of overdue debt. Both the debt stock and its service tend to rise. We now have straight answers for our questions. It is not the capitalist class who provides the most for public expenditure, in proportion to its income. The regressive nature of the tax system warrants it. Furthermore, public debt growth through the rollover mechanism means that the share of financial expenses within public expenditure is rising, bringing along more revenue for creditors. We can then ascertain that public debt was not restricted to an historic time—now gone—when the capitalist economy was coming to being. Quite the opposite: its own logics of seemingly automatic growth, as well as the need to fund State spending, either to sustain rentism or invest in infra-structure, place public debt at the core of the reproduction of capital, whatever its stage. Another rather common (neo)liberal argument concerns currency issuance and its connection to inflation. For that line of thought, whenever the State is unable to fund 7
K. Marx, op. cit., p. 756.
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its expenditure, it has another means at its disposal: issuing currency, with direct impact, still according to that same reasoning, in inflation. From the point of view of money supply only, that is not necessarily true, for the adjustment might take place in terms of both an increase in production and a slowdown in the circulation of money, not necessarily implying a rise in prices.8 The criticism on the quantitative theory of money can be found on Chapter 3 of Book III of Capital. We must bear in mind that at that time the golf commodity was the general equivalent. So, it acted as money to measure values, price standards, the circulation environment, means of payment (and hoarding) and world money.9 Since then, the international monetary system has let go of the gold-standard, moved to a dollar/gold system and arrived at the present day with a flexible dollar standard, a fiduciary system no longer backed, be it in gold or in dollar-gold. A great deal has been argued over the validity (or lack of it) of Marx’s money theory in these times of fiduciary monetary standard, whereupon the State, the backbone of the credit system, carries out monetary policies according to its own debt pattern.10 Meanwhile, this process of wealth dematerialisation—more specifically, of the general representation of value, the main feature of capitalist wealth—was figured out a long time ago, even by Marx. In Grundrisse, the author highlights the propensity within capitalism to dematerialise wealth (value) and its general representation. In Capital, namely on Chapter 3, Book I, when Marx addresses the value sign/symbol, he establishes that the break-up of nominal content (that which the monetary symbol represents) from the real content (the gold equivalent of the commodity’s value) leads to the material existence of money absorbing its functional existence, so that the mere symbolic representation of currency would suffice to fulfil money’s role in relatively independent terms. It is also a dematerialisation of wealth in a monetary standard that, apparently, operates with no backing. I say apparently since, even nowadays, universal money is represented by the dollar, and although it is not backed in gold, the American currency is not totally unbacked. This is so because the dollar represents the currency used to designate the USA’s debits. Therefore, American public debt’s need for funding and the monetary issuance
8
There is also a question of causality at stake. As conventional wisdom has it, an increase in currency supplies causes a rise in prices. However, Marx demonstrates that the tendency is for the rise in prices (because commodities are worth more and/or money is worth less) to require higher levels of money in circulation. 9 Marx labels as world money the dialectical synthesis of all other money functions (general means of payment and purchase; absolute social materialisation of wealth). Synthetically, it is one of the ways for the author to establish that the law of value tends to operate on capitalist markets in a worldwide scale. On the relationship between the law of value and the world market category, see S.L. Pradella, Globalisation and the Critique of Political Economy: New Insights from Marx’s Writings (London: Routledge, 2015). 10 We could quote several references here. To name just a few, see D. Foley, ‘Marx’s Theory of Money in Historical Perspective’ in F. Moseley (ed.) Marx’s Theory of Money: Modern Appraisals (Basingstoke: Palgrave Macmillan, 2005); L. Paulani, ‘A autonomização das formas verdadeiramente sociais na teoria de Marx: comentários sobre o dinheiro no capitalismo contemporâneo’, Revista Economia, 12:1 (2011), pp. 49–70; and E.F.S. Prado, ‘Da controvérsia brasileira sobre o dinheiro mundial inconversível’, Revista da Sociedade Brasileira de Economia Política, 35:junho(2013), pp. 129–152, http://www.sep.org.br/revista/download?id=265.
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of dollars are related, both via the direct link between the monetary basis (of the State’s responsibility) and the State’s expenditure and in the relationship between public bonds, owned by private sector banks and the latter’s capacity to create payment means (lending). It is so much so that, for instance, government bonds are one of the credit system’s features of the global demand for loan capital. From a Marxist perspetive, public finance fulfils more than the role of providing for public expenditure. On the one hand, it is meant to regulate the credit system, once tax reserves are part of the currency reserves, which, in turn, establish the dynamics of loan capital. On the other hand, issuing public debt serves the purpose, as highlighted by Marx, of extending an area for valuation of interest capital and to absorb the mass of capital, perhaps super-accumulated, which, if it was not for that area, would add up to lower average profit rates and the outbreak of systemic crisis. In this regard, the State’s intervention in that financial sphere became pivotal for contemporaneous capitalism, and not just in an alleged initial stage of original accumulation of capital.11 3. Public Debt as a Type of Fictitious Capital If public debt plays such a central role in today’s capitalism, not only as the ultimate backing for the whole credit system, but also as one of the shapes capital takes in its valuation process, what does that shape amount to in the end? Once again, Marx will help us: public debt is one of the traditional forms taken by fictitious capital. In order to understand fictitious capital in Marx, one must look at what he labels as the autonomisation/substantiation of the forms of capital. Contrary to popular belief, this topic is not the corollary of the general laws on total capital, which could be used as as reference for specific shares of capital, with their own particularities. For Marx, the legality of total capital encompasses the relative functional autonomy its forms assume at distinct phases of its circulation. The forms used by capital-matter to express itself on the flow of commodities (money and commodities) and on the productive process (productive-capital) substantiate. In other words, they turn from mere adjectivations of substantive capital into something with their own inner logic, subjected to the whole capitalist mode of production—albeit dialectally, of course. It is possible to evince how fictitious capital is the dialectical outgrowth of what Marx named commercial and money-dealing capital, from interest capital to fictitious capital—in the sense that capitalism’s contradictory unit, as expressed on the production and value appropriation processes, increases. Whenever the mindset of lending a certain capital mass in return for compensation in interest becomes widespread in capitalist society, every income based on a certain interest rate will be perceived as the outcome of owning capital with that potential. Ultimately, entitlement to appropriate future income, no matter where it comes J.R.B. Trindade, ‘Dívida Pública e Teoria do Crédito em Marx: elementos para análise das finanças do Estado Capitalista’ (PhD dissertation, Post-Grad programme in Economic Development, UFPR, 2006). 11
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from, will be perceived as a remuneration for the ownership of capital, regardless of it existing or not. At the end of the day, it may even be passed on (sold) on the market to other individuals, who acquire that right to future appropriation, in return for a share of the capital-value. For instance, for a 10 per cent a year market interest rate, it is assumed that all anual fixed income of 10 derives form a capital of 100, when the later, in reality, does not even exist. To put it in another way, it is established (and then exists) on the grounds of a promise to appropriate a share of value that has not yet been produced. For the individual owner, who bought the right to appropriate value in the future, it is, indeed, his capital. However, from the point of view of the whole of capitalism, it amounts to fictitious capital, since its base is just the expectation of something that might never come to exist at all. This process of capitalisation of future income is the basis for the establishment of what Marx called fictitious capital. Fictitious capital is dialectal in nature, in the sense that it plays a role in the process of capital reproduction while complicating the boundaries of that same process. If, on the one hand, it allows for ways of funding (credit) capital that could not exist otherwise (for instance, owing to the high mass of capital required), on the other hand it highly accelerates capital rotation. This is so because purchasing times regarding productive capital (means of production and manpower) which might be established based on the afore mentioned credit are rather low. The best example for this kind of capital composition is the sale of stocks. Stocks are the actual selling of capital expected to produce surplus value in the future. Thus, what is sold today is the right to take part in future surplus value that might be produced. This is clearly functional for the reproduction of global capital. Nonetheless, the increasing importance of fictitious capital does more than provide a functionality for total capital. According to its own constitution, it does not partake directly of the process of value production. Its growth means the expansion of appropriation bonds over a value that is not necessarily produced in the same proportion— and even if it is, it will be mostly in the future. When a growing mass of capital specialises on the mere appropriation of value, and the latter is not produced in the same magnitude, the dysfunctionality of fictitious capital for the capitalist mode of production prevails. This dialectics, namely fictitious capital’s functionality and dysfunctionality for total capital, allows us a better understanding of today’s capitalism. While functionality prevailed, together with the remaining features of capitalism’s response to its own crisis, capitalism displayed some sort of accumulation dynamics. The new structural crisis of capitalism, which broke out in 2007/2008, can be explained, precisely, by the prevalence of fictitious capital’s dysfunctional rationale as far as the accumulation of total capital goes. If fictitious capital is a type of capital that does not participate directly on the productive process, the specific surplus-value it appropriates must not be mistaken for trading (in commodities or currency) or productive capital’s profit, nor with interest (a kind of capital appropriation). Even though Marx did not elaborate on it, we could label this category as fictitious profit. The term applies likewise to fictitious capital
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valuation (appreciation), so that its owner appropriates the difference when selling it, as fictitious profit.12 It may sound like it is just redistribution, through the price mechanism, of value already produced. In other words, such appreciation of fictitious capital might simply mean a transfer or value, since someone (the fictitious capital owner) increased his estate by selling it for a higher price, and whoever bought it saw his wealth decrease, for he or she paid a higher price for something that could have been cheaper. This would all be true if we were talking about just another commodity, but that is not the case. We are talking about fictitious capital, i.e. a transaction of the right to appropriate, in the future, surplus-value that will (or not) be produced. It is more than a mismatch between production and appropriation that will happen (or not) in the future: the appropriation of fictitious profits can be moved forward, to the moment when the bond is fictitiously valued in the present. This being so, is that true that fictitious profits have no real base, no value produced whatsoever attached? The answer to this question is as Marxist as it gets: yes and no! It is easier to understand the negative bit, because it is an appropriation beyond what would have been produced; nonetheless, according to the fictitious capital dialectics outlined above, on one hand, fictitious capital’s functionality is instrumental, even if indirectly, for higher surplus value production, as it cuts down global capital’s rotating time, and, on the other hand, because that substantiated form of capital demands,13 within the scope of the dialectical unity that shapes capital, higher levels of labour exploitation.14 How can public debt be understood as one of the forms such fictitious capital may assume? In Book III of Capital, Marx scrutinises the situation presupposing a perpetuity, i.e. government bonds whose creditors will not collect the principal debt. They will simply appropriate the interests paid by the State while servicing it and/or resell the bond on the secondary market, passing on the right to appropriate interest on that perpetuity. The State would have issued that bond to meet the need to fund expenditure already undertaken, and for which taxes (or previous debt) were not sufficient. So, according
12 To be more precise, R. Carcanholo and M. Sabadini, ‘Capital Fictício e Lucros Fictícios’ in H. Gomes (ed.) Especulação e Lucros Fictícios: formas parasitárias da acumulação contemporânea (São Paulo: Outras Expressões, 2015) distinguish between two types of fictitious profits, according to two types of fictitious capital. Type I would be related to a real assets (value) of productive companies, such as shares, that lead to the appropriation of a share of the surplus value produced by that capital, in the form of type I fictitious profit. Whenever fictitious capital value (such as shares) acquires a relative autonomy in terms of establishing its amounts, a fictitious valorisation—besides the real value of the productive capital associated—is implied, which the authors name type II fictitious return. 13 Demands in a logical-theoretical sense, obviously, and not as an alleged direct exigence made from on capitalist to another! 14 It thus emerges that it was no historical accident that the exponential growth in the mass of fictitious capital took place at a time of productive reorganisation that includes, amongst other things, a sharp increase in labour exploitation.
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to Marx, it is an asset the State has already deployed, whose capital has already been used; the sum originally borrowed by the State no longer exists! Even when government securities do not represent perpetuities—if there is a maturity attached —the specifically fictitious nature of public bonds remains. If the creditor retains the ownership of the credit right, appropriating interests until it matures, he will retrieve the principal debt when the State pays him for that right. If he does not expect that maturity to happen, the creditor may pass on the right on the secondary market—including the right to appropriate, until the State retrieves the security at stake. One way or the other, when that bond reaches its maturity, it must be paid for, either with revenue from the public budget (based on taxes) or with new debt (public debt rollover). All the same, the trait highlighted by Marx remains: the sum originally borrowed by the State concerns expenditure already carried out, no longer there, and what is fictitiously traded is the right to participate in public budgets to come.15 In the meantime, public debt’s relevance goes well beyond being a type of fictitious capital; it provides the basis (backing) for the whole mass of fictitious capital lately valued by capital. We could reach that conclusion simply by looking at public debt as the basis for the credit system in modern capitalism. Still, we are dealing with something more specific. Every single (fictitious) transaction on financial markets requires money (in its various roles) to be settled, and the State is the entity in charge of warrantying such a special commodity.16 So much so that monetary authorities (central banks)—as part of State’s action—are accountable as last resort lenders. If the interbank market (where securities, both public and private, as well as money, are traded) is not able to bring its balances to zero, that is, adjust loan supply and demand, and liquid demand is not covered, that demand will turn to the last instance lender (the State). Public bonds may be used as collateral for those transactions, or the State’s intervention in that market might imply issuing more debt. In that sense, public debt is the basis for the whole process of wealth financialisation that took place in the last two decades and is typical of today’s capitalism. 4. Public Debt and Social Classes Now that we have established the link between public debt and the process of reproduction of capital and, above all, its specificity as a type of fictitious capital particularly relevant for contemporaneous capitalism, we will now turn to its impact on the different particular interests within the collective. We shall focus on the way this public debt system complicates capitalism’s social class structure in our time. 15 The fact that public debt securities do not require existing capital is something investigated in Marxism since, for instance, R. Hilferding, Finance Capital: A Study in the Latest Phase of Capitalist Development (New York: Routledge and Kegan Paul, 1981). 16 This is the reason why more radical liberal proposals for the privatisation of money supply are not taken seriously even by more pragmatic liberals.
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Public debt grants whoever owns it (the creditor) the right to participate in future public budgets. Public budgets are built upon tax collections based on future production levels. This seeming tautology, stemming from the very definition of public debt, shapes its relationship with the social classes that make up capitalism. Although it might sound like Marx only addresses social classes in Capital in Book III, which was left unfinished, the topic flows through the whole book. In a first level of abstraction, it is clear that, under the guise of equality between all human beings— because we all are buyers and sellers in the capitalist market —some will sell in order to buy, bringing to life a simple circulation of commodities process, while others will buy to sell, as part of the capitalist circulation of commodities. Amongst the former, some will sell the outcome of their own labour process directly, in readymade commodities or objectified labour, while others, because they do not own the means of production to do so, are forced to sell their manpower. The latter constitute the working class, who sell their labour power to the owner’s of the means of production (the capitalist class). Once that labour power value is paid, the capitalist acquires the right to appropriate the outgrowth of the consumption of the use value of that labour—the valuation productive process that creates capital. This is quite an abridged version of Marx’s description of social classes in capitalist society.17 Against this background, the first question that comes to mind is which class (or class fraction) bears the highest share of the tax burden. In the light of the tax system’s regressive structure in capitalism, intensified nowadays owing to neoliberal reforms, taxes (mostly the indirect ones) tend to be heavier on the working class. As the State’s expenditure raises its financial portion (servicing public debt), at the expense of social spending in health, education, housing, etc., it is easy to deduce that the public debt system deepens the class concentration at the core of capitalism. Once again, this gets worse in times of neoliberalism.18 That means that the fraction of the capitalist class that increasingly appropriates the public debt service is an important share of the capitalists who specialise solely in appropriating fractions of the surplus value produced (capital-property). Productive capitalists (who do not own that which Marx labels as capital-property, credit to capital) only appropriate the remaining profits. In fact, some authors go as far as suggesting that capitalism’s main contradiction is not between workers and capitalists, but between managers (acting as capitalists) and capital’s owners. This is a misconception, beyond a shadow of doubt.19 Capitals tend to migrate to whichever sectors are 17
On the famous chapter 52 of book III, on classes, the author identifies the owners of the labour power (the workers), the owners of capital (capitalists, who appropriate interest, of its most mystified kind) and land owners (who appropriate the ground-rent), according to more concrete abstraction levels. For a better debate see ver D. Bensaid, Marx For Our Times: Adventures and Misadventures of a Critique (London: Verso, 2002). 18 Despite the minimal state argument, neoliberal policies have reinforced the State’s participation on the economy. A. Maddison, The World Economy: A Millennial Perspective (Center of the Organisation for Economic Co-operation and Development, 2001), p. 135, provides a wide range of data on the subject, and G. Duménil and D. Lévy, The Crisis of Neoliberalism (Cambridge, MA: Harvard University Press, 2013) analyse the composition of that expenditure, illustrating the rise on the State’s financial expenses. 19 Duménil and Lévy, op. cit.
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most profitable, which explains why all major corporations founded or joined banks and/or financial institutions in the period of finance globalisation, as a means to increase their returns. There might actually exist some kind of difference between productive capital and financial capital, on a very high level of abstraction, based on the distinction between class fractions, but the most important thing of all is that both are capital and thus belong to the same social class. Another important point as far as the financialisation of wealth—in which public debt plays a crucial role—is concerned is the financial expropriation of a share of labour’s wages. In today’s capitalism, with the expansion of credit to any type of consumption, workers end up sacrificing an increasing share of their wages while paying back debt incurred to keep up their consumption patterns (also owing to wage crunches). This amounts to a transfer of value, from the workers to the mass of value that will be appropriated by the capitalist class (in this case, as interest). The whole process is what we call financial expropriation.20 There is yet another key feature of contemporaneous capitalism, with its financial valuation logics, that makes the process even more complex:21 the financialisation process also hits the workers’ retirement and pension schemes. In several economies, a large proportion of those schemes is based on pension funds. These funds manage an investment portfolio made up by the workers’ contributions, in the hope of securing a retirement pension, even though it is not warranted. Whether or not that fund will have resources in the future depends on the financial outcome achieved, and it only takes a little topical management problem, or a touch of the financial market instability, for the future pension to boil away in a matter of days. By investing in the public debt rollover, pension funds embroil capitalism’s class contradictions even further. Workers, while holders of a pension fund, become State creditors and are therefore interested in rises in public debt service. Notwithstanding, in order to pay for that service (which is in the immediate interest of workers counting on the pension fund), a higher tax collection is required. That means higher taxes (affecting mostly the working classes) or an increase in production (implying more exploitation of the working class). Plus, the expansion of privatisation programmes that comes along goes against the working class’s interest inasmuch as their access to free basic services is jeopardised. All in all, the financialisation of pension funds adds complexity to the class (fraction) stance/immediate interest dialectics. 5. Public Debt and Contemporary Crisis: Cause or Effect? Mainstream arguments tend to blame public debt for the crisis that capitalism is going through. In more or less outspoken terms, the message is this: the State irresponsibly 20 C. Lapavitsas, ‘Financialised Capitalism: Crisis and Financial Expropriation’, Discussion Paper no. 1 (RMF, SOAS, London, 2009), http://www.soas.ac.uk/rmf/papers/file47508.pdf 21 The relationship between financialisation and workers’ pension funds is well established, for instance, in S. Granemann, ‘Fundos de Pensão e a Metamorfose do “salário em capital”’ in S. Granemann, E. Salvador, et al. (eds) Financeirização, Fundo Público e Política Social (São Paulo: Ed. Cortez, 2012).
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expands its expenditure, public finances get out of hand, interest rates go up, and investment, growth and jobs go down. Nonetheless, public debt did not cause the current crisis. To begin with, public debt, as we have already mentioned, was high and kept on rising even at the relative heights of the world economy, between 2002 and 2007.22 Secondly, to a certain extent, the rise in public debt is a consequence, not a cause, of the crisis. It rises precisely as a means for capitalism to build new valuation processes. In 2007, the outbreak of crisis in worldwide capitalism was caused by capital superaccumulation, primarily in its fictitious kind. Too much capital attempting to appropriate value that has not been proportionally produced tends to devalue the former. If no agent comes along to counterbalance it on the side of demand, excessive supply will imply a price reduction in bonds, provoking a sharp devaluation of those assets. As the ruling classes will not even consider such an option, the State takes on the crucial role of monetising that super-accumulated fictitious capital, and does it within a capitalist framework. In the end, the State becomes yet another class domination layer, with all conceivable intermediations. How does the State achieve that? Basically, it does it by allocating a growing proportion of the public budget to intervening in financial markets, buying or vouching for those assets in excessive supply. This way, the widening of public resources to bailout financial institutions in trouble is assured.23 Financing this kind of intervention brings along cuts in other types of expenditure, such as funding and maintaining social policies. At the same time, extra government bonds are issued. From a public finances point of view, it leads inevitably to more debt, therefore jeopardising future State resources. The massive rise in public debt throughout the whole world economy reflects the way States tried to bypass the effects of the crisis. In contrast to mainstream reasoning, sovereign debt did not increase because States are essentially spendthrift, create too many and insanely well paid jobs in the public sector or overload on public policies. The culprit for the burst in sovereign debt is simply the ‘monetisation’ of fictitious capital vouched for by the State. Still, the official argument is that, if public debt causes crisis, the only way to fight it is by means of a fiscal adjustment. That is pure mistification. If we were talking about a plain lie, it would be easy enough to debunk it as such. The problem is that it does make some sense. We must spell out its (not surpassingly)
22 X.A. Montoro, Capitalismo y Economía Mundial: bases teóricas y análisis empírico para la comprensión de los problemas económicos del siglo XXI (Madrid: Instituto Marxista de Economía, 2014). 23 For a more rigorous approach to the political economy measures enacted by the State to support the financial sector on the aftermath of the crisis see Duménil and Levy, op. cit., namely chapter 18. For a comparison of the way the USA Federal Reserve Bank and the Euro Zona ECB acted, see J.P.P. Painceira and M.D. Carcanholo, ‘Financialisation and Public debt management in the Global Crisis: the US and European experiences’, Political Economy and the Outlook for Capitalism, Joint Conference AHE, IIPE, FAPE, Paris, 2012, http://www.academia. edu/5181358/Financialisation_and_Public_debt_management_in_the_Global_Crisis_the_US_and_European_ experiences
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hidden premises, so that its incongruences as an argument/solution are exposed and it becomes clear which interests it answers to. If our purpose is to debunk the inexorability of orthodox adjustments, the first issue to clarify concerns the relationship between neoliberal development strategy and the essence (either orthodox or heterodox) of economic policies. Quite a lot of people mix orthodox economic policies with neoliberalism, which is a mistake. According to its supporters, the latter can be defined by two characteristics. The first prerequisite is to achieve and sustain macroeconomic stabilisation, i.e. control over inflation and public finances. Conventional thinking argues that the main macroeconomic pointers (bases) must be stable so that it becomes easier for capital to formulate mid- and long-range expectations and thus invest on longer maturities. What kind of policies achieve stabilisation? Neoliberalism does not really care, as long as it is indeed achieved. In fact, whether an economic policy is orthodox or not depends upon the specific juncture framing it. Secondly, once this macroeconomic stabilisation prerequisite is in place, neoliberalism upholds the implementation of structural reforms as privatisations, liberalisations, deregulation and opening of markets—above all those most significant for any capitalist economy: labour and financial markets. This is what truly distinguishes neoliberalism. Therefore, one must not, in any circumstances, reduce neoliberalism to the implementation of orthodox economics. Depending on the circumstances, it may as well be promoted with heterodox economic policies. Notwithstanding, the current world economic climate, of deep and lasting recession, leaves orthodox adjustments as the only means to fight the effects of that same crisis, in core economies and developing countries alike. This diagnostic implies that orthodox therapy consists solely of restrictions in monetary/credit supply and fiscal adjustments. It is claimed that fiscal restraints grounded on cuts in public expenditure would cause a reduction in public deficits. Yet the target is for the State to produce primary surpluses after all financial expenses. This surplus in public resources could be used for servicing public debt, which, thanks to the tax effort, would reduce public debt in relation to the gross domestic product, one of the main macroeconomic pillars of this approach. It makes all the sense in the world and is fully ineligible for anyone who does not hold ideological prejudices. Obviously, the people in charge of formulating and enacting such policies must be trained experts (in economics), immune to populist urges, so that the policies are viable and markets remain confident. Such is the conventional argument, including the smooth way it lets us know that economic technicalities must be shielded from political interference. First of all, choosing recessive fiscal restraint as a conclusion requires a starting hypothesis rarely made explicit. State expenditure consists of current expenditure (non-financial) and financial expenses. Any public deficit to eventually come about is defined by excessive expenditure (both financial and non financial) when compared with revenues. Leaving aside the option of increasing budget, one question must be
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asked: why is non-financial expenditure the adjustment variable? Why cannot the fiscal adjustment be implemented on the side of financial expenses, meaning public spending on public debt interest and repayments? This leads us to two final topics. On the one hand, the outright defence of primary surpluses to service debt lays bare the commitment to maintain the value of the bonds that make up the public debt stock. The official argument is that this must be so in the name of confidence and better debt rollover. However, the real cause for debt increase in recent times is never mentioned. As a matter of fact, public debt rose for reasons related to concrete economic and political interests underpinning the power block within the capitalist State. Such reasons are part and parcel of the way States have tried to address the economic crisis since 2007. Mainstream economic arguments claim that the only way to fight the current crisis is a fiscal adjustment, because the capitalist State has increased its expenditure beyond its means—a fiscal adjustment would be the only way to rectify public finances. Yet such arguments leave out the reason why public expenditure grew. They want us to believe that the culprit is an alleged spendthrift nature inherent to the State as such, which raises expenses with the civil service or unnecessary social programmes. Hence the structural reforms that come with the fiscal adjustment. However, public debt rose in order to help financial markets saturated with debt securities, super-accumulation of fictitious capital, and not because of what they are telling us. Fiscal adjustments and neoliberal structural reforms in order to fight the current capitalist crisis are, once again, nothing but private interests (of capitalists) put forward as if they were collective (of society). As they do in capitalism. Disclosure statement No potential conflict of interest was reported by the author.
