a brazilian utopia

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A critique of André Lara Rezende's economic ideas

André Lara Rezende thus presented, in his new book, his thesis on the development of capitalism in Brazil: “without inflation and without external debt, the country is paralyzed not by the objective conditions of the economy, but by an ideological trap imposed by the canons of an anachronistic macroeconomic theory”. That is why, for him, the relevant economists working in Brazil are out of step with the frontier of knowledge “out there”, that is, at the center of the US imperial system. As a result, they need to update themselves so that this country led by the “centre” can grow at more robust rates.

Can such a trap – whatever it may be – explain the mediocre capitalist development observed in Terra de Santa Cruz? Can you see that this poor performance started in the 80s of the last century, that is, forty years ago? Lo and behold, the per capita domestic product grew at an accelerated rate of 4,5% per year between 1950 and 1980, crawled at a rate of 1,2% per year between 1980 and 2014, only to fall from then on. Now, it is necessary to notice a salient point in this stain of astonishment. This macroeconomist, now heterodox, shares something with his orthodox colleagues: they all want to know nothing about the structure of social relations that constitutes capitalism, about the fabric of sociability that is at the base of its historical reproduction process.

Differing from the latter, however, he defends the thesis that economic theory is an inherently political knowledge: “the history of monetary and fiscal theory, far from the scientific reference that it proclaims to be, is highly ideological”. More emphatically, here's what he says in so many words:

“As it should be, prevailing theses are greatly influenced by circumstances, political forces and the intellectual climate. Contrary to what it intends, economic theory is not a fortress of rationality against the turmoil of interests at stake in the formulation of public policies.”

Because of opinions like these, Rezende, even though he is a relevant player in the financial market, has become anathema in certain right-wing circles that swarm around the system's economists – also accessed, privilegedly, by the mainstream press. Supposedly – ​​they say – he entered into intellectual degeneration when he began to read certain theorists of the third or fourth line in the hierarchy of economic theory established in the center of the empire.

However, this way of seeing economics as a political knowledge is quite insufficient. And this can become clear when comparing his statements with those of David Ricardo in his Principles of Political Economy and Taxation. In the preface to this work it is written:

“The product (…) – all that is obtained (…) from the combined application of labor, machinery and capital – is divided between three classes of society, namely: the landowner, the owner of capital (…) and the workers (…). To determine the laws which regulate this distribution is the main question of Political Economy.”

Now, this citation shows that the Economy is political not only because it depends on the ideologies and interests at play in the political scene, but because the political question is structurally posed in it, that is, it is inscribed in its structure of social relations that remains and is reproduces through an incessant movement of its historical happening. And this political element manifests itself precisely, above all, in the issue of income sharing or, more precisely, in the struggle of social classes for the appropriation of the social product. This was, as we know, Ricardo's concern: if the profit rate were to fall to very low or almost zero levels in the long term, the system, according to Ricardo, would enter a steady state - capitalism, in fact, would cease to operate. be capitalism.

It is quite evident that Ricardo naturalizes the economic system and, therefore, seeks in it firmly established laws of the functional distribution of income, of income that is generated in the sphere of commodity production. However, a contrary view that everything in the evolution of this system depends on political and institutional initiative would also be very wrong. It is evident that institutions matter, but they cannot fail to be institutions of capitalism, they cannot contradict the systemic goal of capital accumulation – both in general and with regard to the way in which the latter takes place in each historical moment. There are, therefore, structural imperatives arising from the reproduction process of the economic system.

Rezende presents himself as a don quixote in the field of macroeconomics, which – it must be emphatically stated – is much more dignified than the position of some of his colleagues who are nothing more than paunchy sanchos. Although his book contains an excess of self-praise, he defends a more civilized economic policy than that favored by some of his former economic policy-making partners. It adheres to Modern Monetary Theory (MMT) to advocate a permanent increase in the level of public investment, financed through central bank credit creation. He suggests that it can function as a driver for private investment.

the author of Consensus and Contrasensus fights for a non-dogmatic economy. He is a liberal economist who is not without Keynesian leanings. Therefore, he warns against “the risks associated with corporatist capitalism, bureaucratic interventionism, the entrepreneurial state and the economy closed to external competition”. He argues, however, “in favor of a public investment program with the objective of increasing productivity and well-being”. Whose welfare? – need I ask? Well, that depends! Economic policy is never distribution-neutral. She rarely favors everyone equally; it always seems more correct to think that it benefits some to the detriment of others or more than others at least.

Opponents of TMM say that this theory assumes that there is a “free lunch”, that its defenders naively assume that “money grows on trees”, etc. This is, of course, a rhetorical resource: as they cannot expose the true reasons that lead them to reject the economic policy proposals coming from the TMM, they try to ridicule it. Even if the TMM is theoretically weak[I], how subversive are these proposals? Wouldn't they go against the very destiny of credit expansion in the capitalist economy? In addition, it is necessary to ask: how does the expansion of credit directly by the central bank – with the purpose of providing funds, for example, for a public investment promotion agency – affect the distribution of income and wealth of social classes?

To answer these questions, you need to start by thinking more generally. If, for example, the central bank issues fiduciary money to prevent the collapse of the financial system and thus the capitalist economy as a whole, as occurred in the 2008 crisis, such opponents of TMM applaud. It can be seen that the well-being preserved here was mainly that of the large holders of financial assets. The system on which they suck was saved by monetary relaxation, and many of them escaped fatal ruin. They received, not for any merit, but because of their systemic functionality in capitalism itself, implicit transfers of income and wealth to the detriment of the vast majority of the population. And?

However, if a subversive proposes issuing fiduciary money to finance citizen income for the poor, these opponents will not hesitate to disqualify him. They will not even hesitate to trust a fascist to do the dirty work of blocking all such proposals. Wouldn't this subversive be an irresponsible person who embraces the worst economic theory to suggest a reform that impacts the sacred pocket of the bourgeoisie? Now, by this means, he wants to distribute supposedly free lunches to an unproductive rabble. It cannot! For it is evident that this economic policy, by creating more effective demand and sustaining the level of production, modifies the distribution of income and wealth generated in favor of the most needy.

But André Lara Rezende does not seem to be a “radical” of the latter type, a closeted socialist who donned a liberal suit. His proposal is moderate; deep down, he wants to save capitalism from barbarism – from a barbarism that is already accelerating. He is a knight from the golden age of capitalism (which took place between 1945 to 1975, in the last century) seeking to destroy the satanic mills that started to be built after 1980. And they became even more dangerous in the long depression (secular stagnation, according to him) started a little before the turn of the millennium: low economic growth, financial exacerbation, strong concentration of income and wealth and an environmental crisis that threatens to destroy a civilization that is far from having served the majority of the human population, occasional inhabitant of planet Earth.

The case of monetary issuance to finance public investment is more complicated. To begin with, the boost in effective demand thus created, directly or by virtue of the multiplier effect, will produce an increase in national income and this increase could benefit, in principle, all social classes in the short term. It turns out that capitalist production does not primarily aim at the production of goods and services, but at the production of profits. And not episodicly, but persistently.

But here MMT opponents have another argument: unbridled monetary expansion, increasing government debt, will eventually cause inflation. Rezende counter-arguments by saying that the quantitative theory of money is empirically false (monetary relaxation has extraordinarily expanded the monetary base, but has not caused inflation) and that the limit of monetary issuance is the full employment of the means of production. “The limit to credit expansion” – he says – “is not financial, it is not the existence of savings and deposits by the public, but the installed capacity”.

Now, this is not the main nor the only limit. The restriction that actually constrains the leverage of accumulation through credit is not in the first place the “full employment of production factors”, but a tight labor market for capitalists. For in this situation real wages rise, thus reducing the profitability of capital. That's for starters, but there's more.

Behold, the most important constraint to credit expansion to raise effective demand is the profit margin and rate, regardless of the degree of occupancy of the installed capacity. If they are low compared to the commitments with the financial costs, the capitalist companies, faced with impulses of effective demand, will raise, yes, prices and not the level of production. Stagflation in contemporary capitalist economies can also be taken as an empirical proof of this statement.

Inflation is not a mysterious phenomenon, as it is, after all, an expression of the class struggle to appropriate the income generated by work. And in this struggle, capitalist companies, precisely because of the contemporary institution of purely fiduciary money, have the most powerful weapon: the possibility of immediately raising the prices of the goods they produce. This is also why neoliberalism has been concerned since its inception, in the late 1970s and early 1980s, with destroying the power of trade unions. And this also has an empirical proof: continuous inflation for decades is an exclusive phenomenon of post-World War II capitalism; as is known, it did not stop growing from the moment when the gold standard was in fact abandoned.

But the struggle for the appropriation of income does not only take place between capitalists and workers; it is waged also among the industrial capitalists themselves. If the competition process were diffuse and occurred between small companies in relation to the size of the markets, it could be an obstacle to the systematic increase in prices. However, the competition that actually exists is monopolistic. Large companies and large oligopolies therefore have no great difficulty in leading systematic price increases.

In investigating the obstacles to his proposal to expand public credit to leverage public investment, Rezende – it should be noted here – slides into good political economy. In the history of capitalism, the power to issue primary money was in general the responsibility of the public sector, but the issue of credit money was the privilege of the private sector. Why? He mentions in this sense that there is a “permanent tension between the pressure for the expansion of private liquidity and the restriction on the use of credit by the State”. Why?

Rezende shows that both the gold standard and the quantitative restriction on monetary issuance do not come from the application of authentic scientific knowledge. Behold, those who wear this shell can work better as technonormative instruments of governance in capitalism. They aim to restrict the issuing power of the State in favor of the power of banks and the financial system to issue private money. Behold, this consists of credit money in its different forms and degrees of liquidity, deposits, securities, etc.

But why is this so? Well, this Rezende does not explain well, even though he mentions the existence of a certain deep dislike of the bourgeoisie to the “spurious interference of the State” in the control of money. See: money in capitalism has a double role: it functions as money (M – D – M) and as capital (M – M – D'). Credit money exists beyond the so-called monetary base to leverage capital accumulation – and not to be used in favor of collective well-being or even as an inducer of the production of goods and services, to engender economic growth. It must, therefore, be created endogenously in the process of competition, in the interaction between the productive system and the financial system.

The coincidence between the aim of expanding production and the aim of capital accumulation belongs to the epoch when industrial capital had primacy in capitalism. Now, this era has been surpassed in history since, currently, this primacy is held by financial capital in Brazil and “out there” – except in countries like China. That is why his attacks against the satanic mills of neoliberalism are certainly inspired by a utopia – a place that does not exist, but which may perhaps exist, but also not come to exist, in the future. So here's some benefit of the doubt. For this benefit to appear greater, Rezende would have to propose strict control of the financial sector by the State, with the aim of implementing a developmental project.

And this would imply changing the relative power of social classes in command of the economic system and in the appropriation of monetary income generated by work. By proposing this change, Rezende would become a true Keynesian subversive – but not yet a democratic socialist. For, he would need to have understood that capitalism is historically exhausted. Henceforth, satisfaction can no longer be sought centrally in private goods (in the form of commodities), but will have to be directed preferentially to public goods (in the form of commons).

* Eleutério FS Prado is a full and senior professor at the Department of Economics at USP. Author, among other books, of Complexity and praxis (Pleiade).


[I] A theoretical critique of TMM was made in the article: Prado, Eleuterio FS – “Critique of Metalist and Cartalist “visions” of money in capitalism”. Available in https://eleuterioprado.blog/2019/03/25/critica-do-metalismo-e-do-cartalismo/critica-da-visoes-metalista-e-cartalista-do-dinheiro-no-capitalismo/


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