Public debt from a Marxist perspective

Image: Sami Anas


Public debt works as a deliberate way for the system to produce loan capital destruction.

“The public debt made joint-stock companies prosper, trade in negotiable securities of all kinds, loan sharking, in short, the stock market game and modern banking” (Karl Marx).

The number of specifically Marxist research and studies in the area of ​​public finance and monetary theory is quite small, which is not surprising given the small number of researchers who somehow deal with this theoretical framework. In any case, this theme is included in the broader field of credit theory, to which Marxists paid little attention, even considering its great importance.

In 2017 we had the opportunity to publish the work entitled Critique of the political economy of public debt and the capitalist credit system: a Marxist approach. The text that follows summarizes that work, which we invite readers to visit and criticize, including considering the importance assumed by the construction of views contrary to economic orthodoxy in various fields of analysis.

The case of the US economy is the most evident expression of the meaning assumed by the public debt in the current dynamics of capitalism. According to data from International Financial Statistics (IMF), the gross public debt of the main capitalist nation evolved from approximately US$ 410 billion at the beginning of the 70s (1971) to close to US$ 4 trillion at the end of the 90s (1997), surpassing the US mark $10,0 trillion in 2010 and representing 68,9% of US GDP. According to Securities Industry and Financial Markets Association (SIFMA) in 2010, the daily volume of US Treasury securities traded reached US$ 500 billion, with 75% of the securities held by foreign investors (US$ 3,3 trillion), China holding US$ 1,1 .800 trillion and Japan $XNUMX billion are the largest bondholders.

The same is true of the main economies of the OECD (Organization for Economic Cooperation and Development), which have experienced a particular expansion of their debts and financial use of government bonds in recent decades. In 1999, national public debt represented 117,7% of Italian GDP, 114,1% of Belgian GDP, 62,6% in Germany, 65,2% in France and 54,0% of UK GDP. In 2010, already in the midst of the crisis and the “domination” of risk agencies having been established, the national public debt already represented 120% of Italian GDP, 76,9% in Germany, 87,4% in France and 80,3% of GDP from UK.

The world capitalist crisis established since 2008 has clearly exposed the interaction between public credit and the modus operandi of the financial system, demonstrating the particular relationships between state finance and the global credit system. The sovereign debt crisis established in Europe followed a fuse that began in the 1980s when the inability to refinance the so-called emerging economies, and in the 1990s the localized crises are particularly acute: Mexican, Russian, Brazilian and which culminates in in the breakdown of the Argentine economy in 2001 and presents a “dejá vu” in the Greek crisis of 2015, and no change placed in the present capitalist order shows the impossibility of a new and stronger crisis to be imposed even in the capitalist center.

The empirical inference of public debt participation in the credit system is well known and the evidence of this is of particular importance for understanding the global dynamics of capitalist accumulation. During the 1980s, for example, pension funds and investment funds invested at least a third of their portfolios in public debt securities. In the 1990s, even though this percentage declined, public debt securities in developed economies remained the safest form of borrowing capital available to capitalists and various rentiers.

Public finances not only fulfill the function of financing public expenditures, but also two other functions: (1) that of internal regulation of the credit system, with the use of fiscal reserves, as an important component of the monetary reserves that determine the dynamics of the loan capital, in addition to issuing government bonds as a means of mobilizing loan capital and recycling fictitious capital; (2) the public debt system in the function of absorbing loan capital, acting as a systemic control factor for capitalists. This functional pattern is limited firstly by the types, conditions and magnitude of expansion of public spending and then by the conditions of expanded reproduction of the system, considering, mainly, the integration of the various regional and national circuits of accumulation.

The credit system constitutes one of the main conditioning factors of capital accumulation, and the Marxist monetary theory is based precisely on the money form of credit and, specifically, the dynamics of formation of monetary reserves make credit an endogenous component of the system. The public debt system is part of the global credit system of the capitalist economy, constituting its original component, with the credit system being one of the main concrete elements developed by Marx to explain the capitalist dynamics, appearing as a product of the effort of capital to resolve the internal contradictions of the economic system.

The unit of the credit system is built around the reproduction of capital, with the cycle of productive capital being the radiating source of real value that feeds the various components that are inserted in the circulation of social capital, mainly commercial credit and bank capital, as well as portions of monetary value that are destined to other functions in social reproduction, especially tax revenues and the public debt system as forms of financing the capitalist State.

The State appears in the credit system as a major demander of loan capital funds, including public debt, the main form of demand for monetary capital for non-reproductive purposes. The issuance of public bonds enables the conversion of monetary capital into income money, the feed stream for the circulation of money between capitalists and consumers, in this specific case the State considered as the largest social consumer in capitalism.

It is worth noting that the State is a vital component of capitalist social reproduction and, therefore, needs to be supported by capital to develop its specific functions of ideological legitimation and social control, in addition to the subsidiary economic functions integrated into the accumulation process. The dimensions of the modern capitalist State are related to a varied number of factors, from the growing complexity of capitalist mercantile society, which requires vast public infrastructure, part of which is necessary for the reproduction of private capital; passing through the bellicose-military apparatus that supports the imperial power and command of the national bourgeoisies, to the countercyclical functions or partial control of the cyclical and structural crises of capitalism, mainly financed by public debt.

The State requires a portion of the surplus value produced in the capitalist reproduction system to finance its expenditures and, on the other hand, state expenditures are intended for mere consumption, not composing elements of accumulation, insofar as its expenditures are part of the society's unproductive consumption. In this way, state expenditures in general are exclusively, from the social point of view, in the sphere of consumption and not of accumulation.

With the development of capitalist relations, obtaining tax revenue from the State not only starts to take place on a purely monetary basis, but mainly becomes taxation on liquid wealth, that is, surplus value obtained at each new reproductive cycle, whose The limit is set by the expansion capacity of capital accumulation. Likewise, new limits were imposed on public indebtedness: the ability to borrow became a function of the expansion of the international credit system and, on the other hand, the ability to pay loans was linked to the ability to collect taxes.

Tax revenue implies the bourgeoisie giving up part of its patrimonial wealth and transferring it to the State. From the point of view of the private capitalist, this causes loss of control over the wealth generated, this wealth being appropriated by the State. To the extent that the State represents the collective interests of the bourgeoisie, it allows the assignment of a portion of the surplus value, since it is not in the interest of the specific capitalist to lose control under the conditions of generating new wealth or even the loss of patrimonial wealth . Hence, there is a clear limit to changes in tax rules with a view to financing new state expenditures and which causes a greater transfer of income to the State without counterpart for the specific capitalist.

The public debt, in turn, corresponds to a mechanism that is quite adaptable to capitalist accumulation, as a result of both the possibility of financing through tax revenue and the charges (interest) arising from borrowing, which makes the loan to the State a conventional, profitable and safe way of using the capital commodity. It also works, in systemic terms, as a countertrend factor to the decline in the rate of profit.

The public debt system constitutes, therefore, a necessary and not just casual form for the development of capitalism. Necessary because it corresponds, in general terms, to the portion of the credit system responsible for financing the State and, depending on the characteristics and financial dimensions of the State, to become its structural component. It is not accidental due to the historical aspects that determine the development of capitalism, constituting one of the most powerful levers of the so-called primitive accumulation of capital and the first form of titles and papers referring to fictitious capital in the economy.

We can summarize three important historical points for the analysis of public debt: (i) Public debt played an essential role in the process of primitive capital accumulation, concentrating ownership and stimulating the process of monetization of the economy; (ii) the great transformation that can be observed from the XNUMXth to the XNUMXth century in terms of public finances in the main capitalist economy at the time, England, is less of the nature of State expenditures, which remain practically the same, except for a level one slightly higher spending on “socially necessary means of consumption for the accumulation process”, such as transport and communication infrastructure; and more specifically, the financing conditions of the State, which expands both in the tax collection capacity made possible by the elasticity of capitalist accumulation and in the growing supply of loan capital that accompanies the expansion of British capitalism in the period; (iii) with the public debt comes an “international credit system”, stimulating capitalist accumulation in England, mainly through the taking of loans of Dutch capital, something that was repeated in relation to the USA.

In Marxist terms, the accumulation of values ​​produced by capitalism may, within the limit of the elasticity of this process, allow an outlet for growing unproductive consumption and increased state spending, as long as the accumulation rate remains positive and growing. This understanding is necessarily linked both to the characteristics of capitalist macroeconomic reproduction and to the components of acceleration of economic growth, that is, the return on capital, the system's average rate of profit and the average rate of accumulation.

The development of an internationally integrated and centralized credit system makes possible a growing flow of loan capital, in which public debt absorbs a portion of these flows, corresponding to the regulation, even if limited, of capitalist crisis conditions. Thus, the financing of the state debt of the central economies is dependent on the rise of new circuits of national accumulation that are integrated into the global cumulative structure of capitalism.

The credit system constitutes the main form developed by capitalism to reduce the time of mercantile circulation and at the same time manage the mass of monetary values ​​that circulate in the economy in the form of loan capital. As already stated, it is responsible for centralizing the dispersed monetary reserves in the system and is also in charge of distributing loan capital, either with a view to financing the reproductive circuit, or for non-reproductive applications, including State financing.

Accumulation grows at increasing rates to the point at which accumulated capital requires for its valorization a mass of surplus value impossible to obtain given the relations of technical composition and value of capital, that is, it reaches an organic composition of capital whose The only way to profitably value accumulated capital again will be by devaluing or destroying part of it, in a continuous spiral of creation and destruction, as “everything that is solid melts into air”.

The development of the credit system increased the natural elasticity of capital expansion and, through the spatial and temporal acceleration of the realization of value, stimulated the reproductive process to reach with “seven-league boots” the limits of capital overproduction. The implication of this double tension will be the periodic crisis of overaccumulation with the necessary process of devaluation of part of this capital.

The capitalist system necessarily learns from its crises and, in view of the interests of sustaining the profitability of capital, seeks to improve mechanisms and ways that equate in a less abrupt way what the crisis processes seem to do chaotically. For Marx, the periodic depreciation of a portion of existing capital constitutes an “immanent means” for capitalism to stop the decline in the rate of profit and make the other portion of capital more profitable, accelerating the rate of accumulation.

Thus, public debt constitutes a non-reproductive use of loan capital and, more than that, implies the destruction of loan capital taken from the system and unproductively consumed by the State. In the same way, the public debt starts to constitute an important nominal mass of value in the form of fictitious capital. Marx distinguished two forms of destruction of capital in normal or cyclical terms in capitalism: first, “real capital is destroyed”, that is, machines, raw materials due to idleness in the use of these capitals; second destruction of capital by crises, depreciating values ​​but not destroying use values.

Public debt works as a deliberate way of producing loan capital destruction system, combining elements of the two forms expounded by Marx. In fact, the State, when indebted, absorbs loan capital that provides the means for acquiring use values. The means of production withdrawn from the economy and used by the State are in fact destroyed as exchange values, however, depending on the use given, they maintain their material forms. In moments of cyclical recovery, they can again become part of the social capital, as in the broad process of privatization of public companies that took place in the last two decades in almost all countries.

The destroyed loan capital is part of the mass of over-accumulated values, which provides an effect similar to the destruction of capital carried out in crisis processes, giving value to the mass of capital that continues in the reproductive process. Likewise, the fictitious capital resulting from the “securitization” of the State, when devalued, and to the extent that it does not generate “a shock to the credit of the industrial capitalists who hold those securities”, results in a nominal transfer of wealth, which can, in theory, to provide better conditions for the resumption of the reproductive cycle, if, according to Marx, we consider “that the nouveau riches who reap such shares or papers in the fall, as a rule, undertake more than the former holders”.

Given the conditions of expanded reproduction of capital, it is possible to conceive of state debt as a functional and structural component of capitalist reproduction, with the State being able to sustain increasing rates of public spending and expansion of the public debt. However, this is not free of contradictions and limits, which means that public finances do not have the autonomy proclaimed by some Keynesian currents, but neither are they totally conditioned by the budget balance defended by the neoclassicals.

Finally, it should be noted that the public debt is, along with other mechanisms such as the export of capital, for example, an only temporary way out of the crisis of overproduction, with each structural process of crisis being set new limits that impose a degree of growing tension, reflected both in the fiscal pressure, necessary to face the increase in the financial burden of the public debt, and in the limits imposed on gross debt refinancing by the international credit system.

We can thus remember, in relation to the US public debt, that its limit as a great absorber of surpluses of international loan capital is given by the future fiscal pressure on its reproductive base, at the same time that the conditions of war domain pressure for new demands for loan capital. On the other hand, it is only reasonable to assume the refinancing of its public debt maintained the growth conditions of economies that until now were its main financiers, especially in the last decade the Asian economies that played a central role in this process, feeding the international circuit of capital loan and, within this limit, sustaining the fragile balance of international capitalism in this second decade of the century.

*Jose Raimundo Trinidad He is a professor at the Institute of Applied Social Sciences at UFPA. Author, among other books, of Agenda of debates and theoretical challenges: the trajectory of dependence (Pakatatu).


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