Critique

Journal of Socialist Theory

ISSN: 0301-7605 (Print) 1748-8605 (Online) Journal homepage: http://www.tandfonline.com/loi/rcso20

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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Critique, 2017
Vol. 45, No. 3, 303317, 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
Marxs theory of capitalist economy. The starting point for this theory is the value
theory, and it upholds that public debt is a specic type of ctitious capital and that
the latter is the outcome of a dialectical development in the substantiation of
different types of capital. It is argued that ctitious 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 Marxs theory of the capitalist State, outlines
its historical and logical role in the reproduction of capital, details its own features as
a type of ctitious capital, claries 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 scal 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 unnished form.

2017 Critique
304 M. D. Carcanholo
The rst 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 nished. 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 con-
cerned, it only made sense to introduce the State in its most specic 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 sufces 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 capi-
talist social relations, the State tends to generate power and change its distribution in
favour of the capitalist ruling class. It is notregardless of what a certain type of
mechanistic Marxism might believea mere reex 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 everybodys, as collective interests instead of individual. Above all, they are
embodied into an instance that describes itself as if outside of (above) the frame where-
upon individual interests may clash. The capitalist mystication (collective interests
severed and independent of individual ones) that conceals and masks the capitalist
essence of the State (capitalist interests embody capital societys meaning, for they
are its personication) 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, mys-
tied, alienated. When the time comes for these individual interests to clash, the State,
as the representative of collective interest, wins legitimacy to settle such conicts
class struggles, in Marxist terms. Therein lies the tangible and real ground for the
mystication, the exasperation of its guise.

1
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 Mundializacin: la sociedad civil y el asunto del poder (Mxico: Fondo de
Cultura Econmica, 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 cat-
egory allows Marx to evade the ruptureassumed by a large share of Marxismbetween 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 Repre-
sentatives Feuerbach, B. Bauer and Stirner, and German Socialism According to its Various Prophets, Vol. 5
(New York: Collected Works, 1975).
 Critique 305

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 responsi-
bility falls on the collectivity. Therefore, paying for it should be everybodys obligation.
Some questions come to mind: (a) what is the share of each classs contribution for
public expenditure (the nancial face of that collective responsibility); and (b) how
did public debt come aboutwas 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 timecapitalism.

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 enchanters 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 trans-
formed 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 nanciers, middle-
men 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 valua-
tion) 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. 754755.
5
P. Nakatani, O Papel e o Signicado da Dvida Pblica na Reproduo do Capital. Primer Simposio Inter-
nacional sobre Deuda Pblica, Auditoria Popular y Alternativas de Ahorro e Inversin para los Pueblos de
Amrica 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 inter-
est) and the development of both the credit system and rentiers.
306 M. D. Carcanholo
earnings. Besides, they take their share of the appropriation of surplus value, in inter-
ests 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 nancial valua-
tionshares companies, in Marxs terms but it can be extended in order to comprise
all sorts of debt securities in nancial markets, as he well knows. Although it is not
explicit on the aforementioned passage, public debt also becomes an operating mech-
anism for public spending, which canas typically happened throughout the process
of original accumulation of capitalbe directed towards State investment, for
instance, in the infrastructure that capitals logistics depend upon for its circulation
procedures. Investments comprising a very high share of means of production (con-
stant 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 nancing 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 capitals 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 capi-
talist 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 States lack of ef-
ciency 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 scal adjustments and structural reforms are the only feasible
measures to face sovereign debt crisis. What is left unsaid is that those are the sole feas-
ible measures indeed if the aim is to meet those (capitals) private interests that hold
the State hostageat least in capitalist logics terms.
Still within the scope of capitals original accumulation, Marx states that
As the national debt nds 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.
 Critique 307

of taxation caused by the accumulation of debts contracted one after another,

compels the government always to have recourse to new loans for new extraordi-
nary expenses. Modern scality, whose pivot is formed by taxes on the most necess-
ary 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 satises 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 systemin 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 sufcient, 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 todays tax
system.
Concerning another angle, namely that of state expenditure, Marx had by then
gured out what is now known as the public debt rollover mechanism. Whenever
the State is unable to meet itsincreasingly nancialexpenses, 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 roll-
over mechanism means that the share of nancial 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 timenow
gonewhen 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 ination. For that line of thought, whenever the State is unable to fund

7
K. Marx, op. cit., p. 756.
308 M. D. Carcanholo
its expenditure, it has another means at its disposal: issuing currency, with direct
impact, still according to that same reasoning, in ination. 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 exible dollar stan-
dard, a duciary 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 Marxs money theory in these times
of duciary 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 dematerialisationmore specically, of the
general representation of value, the main feature of capitalist wealthwas gured
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 commoditys
value) leads to the material existence of money absorbing its functional existence, so
that the mere symbolic representation of currency would sufce to full moneys
role in relatively independent terms. It is also a dematerialisation of wealth in a mon-
etary 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 USAs
debits. Therefore, American public debts 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 commod-
ities 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 Cri-
tique of Political Economy: New Insights from Marxs Writings (London: Routledge, 2015).
10
We could quote several references here. To name just a few, see D. Foley, Marxs Theory of Money in His-
torical Perspective in F. Moseley (ed.) Marxs Theory of Money: Modern Appraisals (Basingstoke: Palgrave Mac-
millan, 2005); L. Paulani, A autonomizao das formas verdadeiramente sociais na teoria de Marx: comentrios
sobre o dinheiro no capitalismo contemporneo, Revista Economia, 12:1 (2011), pp. 4970; and E.F.S. Prado, Da
controvrsia brasileira sobre o dinheiro mundial inconversvel, Revista da Sociedade Brasileira de Economia Pol-
tica, 35:junho(2013), pp. 129152, http://www.sep.org.br/revista/download?id=265.
 Critique 309

of dollars are related, both via the direct link between the monetary basis (of the States
responsibility) and the States expenditure and in the relationship between public
bonds, owned by private sector banks and the latters capacity to create payment
means (lending).
It is so much so that, for instance, government bonds are one of the credit systems
features of the global demand for loan capital. From a Marxist perspetive, public
nance fulls 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 cur-
rency 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 prot rates and the outbreak of systemic crisis. In this regard, the States inter-
vention in that nancial 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 todays 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 ctitious capital.
In order to understand ctitious 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 specic 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 ow 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 productionalbeit dialectally, of course.
It is possible to evince how ctitious capital is the dialectical outgrowth of what
Marx named commercial and money-dealing capital, from interest capital to ctitious
capitalin the sense that capitalisms contradictory unit, as expressed on the pro-
duction 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

11
J.R.B. Trindade, Dvida Pblica e Teoria do Crdito em Marx: elementos para anlise das nanas do
Estado Capitalista (PhD dissertation, Post-Grad programme in Economic Development, UFPR, 2006).
310 M. D. Carcanholo
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
xed 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 ctitious 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 ctitious 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 repro-
duction of global capital.
Nonetheless, the increasing importance of ctitious 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 appro-
priation 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 special-
ises on the mere appropriation of value, and the latter is not produced in the same
magnitude, the dysfunctionality of ctitious capital for the capitalist mode of pro-
duction prevails. This dialectics, namely ctitious capitals functionality and dysfunc-
tionality for total capital, allows us a better understanding of todays capitalism. While
functionality prevailed, together with the remaining features of capitalisms 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, pre-
cisely, by the prevalence of ctitious capitals dysfunctional rationale as far as the
accumulation of total capital goes.
If ctitious capital is a type of capital that does not participate directly on the pro-
ductive process, the specic surplus-value it appropriates must not be mistaken for
trading (in commodities or currency) or productive capitals prot, nor with interest
(a kind of capital appropriation). Even though Marx did not elaborate on it, we could
label this category as ctitious prot. The term applies likewise to ctitious capital
 Critique 311

valuation (appreciation), so that its owner appropriates the difference when selling it,
as ctitious prot.12
It may sound like it is just redistribution, through the price mechanism, of value
already produced. In other words, such appreciation of ctitious capital might
simply mean a transfer or value, since someone (the ctitious 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 ctitious capital, i.e. a transaction of the right to appro-
priate, in the future, surplus-value that will (or not) be produced. It is more than a mis-
match between production and appropriation that will happen (or not) in the future:
the appropriation of ctitious prots can be moved forward, to the moment when the
bond is ctitiously valued in the present.
This being so, is that true that ctitious prots 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 ctitious capital dialectics
outlined above, on one hand, ctitious capitals functionality is instrumental, even if
indirectly, for higher surplus value production, as it cuts down global capitals 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 ctitious capital may
assume? In Book III of Capital, Marx scrutinises the situation presupposing a perpe-
tuity, 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 sufcient. So, according

12
To be more precise, R. Carcanholo and M. Sabadini, Capital Fictcio e Lucros Fictcios in H. Gomes (ed.)
Especulao e Lucros Fictcios: formas parasitrias da acumulao contempornea (So Paulo: Outras Expresses,
2015) distinguish between two types of ctitious prots, according to two types of ctitious 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 ctitious prot. Whenever ctitious capital
value (such as shares) acquires a relative autonomy in terms of establishing its amounts, a ctitious valorisa-
tionbesides the real value of the productive capital associatedis implied, which the authors name type II c-
titious return.
13
Demands in a logical-theoretical sense, obviously, and not as an alleged direct exigence made from on capi-
talist to another!
14
It thus emerges that it was no historical accident that the exponential growth in the mass of ctitious capital
took place at a time of productive reorganisation that includes, amongst other things, a sharp increase in labour
exploitation.
312 M. D. Carcanholo
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 perpetuitiesif there is a
maturity attached the specically ctitious 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 marketincluding 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 ctitiously traded is the right to
participate in public budgets to come.15
In the meantime, public debts relevance goes well beyond being a type of ctitious
capital; it provides the basis (backing) for the whole mass of ctitious 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 some-
thing more specic.
Every single (ctitious) transaction on nancial 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 States actionare 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 States interven-
tion in that market might imply issuing more debt. In that sense, public debt is the
basis for the whole process of wealth nancialisation that took place in the last two
decades and is typical of todays capitalism.

4. Public Debt and Social Classes

Now that we have established the link between public debt and the process of repro-
duction of capital and, above all, its specicity as a type of ctitious capital particularly
relevant for contemporaneous capitalism, we will now turn to its impact on the differ-
ent particular interests within the collective. We shall focus on the way this public debt
system complicates capitalisms 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.
 Critique 313

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 pro-
duction levels. This seeming tautology, stemming from the very denition 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 unnished, the topic ows through the whole book. In a rst 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 ready-
made commodities or objectied 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 owners of the means of pro-
duction (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 labourthe valuation productive process that creates capital. This is quite
an abridged version of Marxs description of social classes in capitalist society.17
Against this background, the rst 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
systems regressive structure in capitalism, intensied nowadays owing to neoliberal
reforms, taxes (mostly the indirect ones) tend to be heavier on the working class.
As the States expenditure raises its nancial 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 prots. In fact, some authors go as far as
suggesting that capitalisms main contradiction is not between workers and capitalists,
but between managers (acting as capitalists) and capitals owners. This is a misconcep-
tion, 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 identies the owners of the labour power (the
workers), the owners of capital (capitalists, who appropriate interest, of its most mystied 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 States 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. Dumnil and
D. Lvy, The Crisis of Neoliberalism (Cambridge, MA: Harvard University Press, 2013) analyse the composition of
that expenditure, illustrating the rise on the States nancial expenses.
19
Dumnil and Lvy, op. cit.
314 M. D. Carcanholo
most protable, which explains why all major corporations founded or joined banks
and/or nancial institutions in the period of nance globalisation, as a means to
increase their returns. There might actually exist some kind of difference between pro-
ductive capital and nancial 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 nancialisation of wealthin which public
debt plays a crucial roleis concerned is the nancial expropriation of a share of
labours wages. In todays capitalism, with the expansion of credit to any type of con-
sumption, workers end up sacricing 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 nancial expropriation.20
There is yet another key feature of contemporaneous capitalism, with its nancial
valuation logics, that makes the process even more complex:21 the nancialisation
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 nancial outcome achieved, and it only
takes a little topical management problem, or a touch of the nancial market instabil-
ity, for the future pension to boil away in a matter of days.
By investing in the public debt rollover, pension funds embroil capitalisms class con-
tradictions even further. Workers, while holders of a pension fund, become State credi-
tors 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 classs interest inasmuch as their access to free basic ser-
vices is jeopardised. All in all, the nancialisation 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/le47508.pdf
21
The relationship between nancialisation and workers pension funds is well established, for instance, in
S. Granemann, Fundos de Penso e a Metamorfose do salrio em capital in S. Granemann, E. Salvador,
et al. (eds) Financeirizao, Fundo Pblico e Poltica Social (So Paulo: Ed. Cortez, 2012).
 Critique 315

expands its expenditure, public nances 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 super-
accumulation, primarily in its ctitious kind. Too much capital attempting to appro-
priate 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 ctitious 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 pro-
portion of the public budget to intervening in nancial markets, buying or vouching
for those assets in excessive supply. This way, the widening of public resources to
bailout nancial 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 nances point of view, it leads inevitably to more debt, therefore jeo-
pardising future State resources. The massive rise in public debt throughout the whole
world economy reects the way States tried to bypass the effects of the crisis. In con-
trast 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 ctitious capital vouched for by the State. Still, the ofcial
argument is that, if public debt causes crisis, the only way to ght it is by means of a
scal adjustment. That is pure mistication.
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 Economa Mundial: bases tericas y anlisis emprico para la comprensin de
los problemas econmicos del siglo XXI (Madrid: Instituto Marxista de Economa, 2014).
23
For a more rigorous approach to the political economy measures enacted by the State to support the nan-
cial sector on the aftermath of the crisis see Dumnil 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
316 M. D. Carcanholo
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 rst 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 dened by two characteristics.
The rst prerequisite is to achieve and sustain macroeconomic stabilisation, i.e.
control over ination and public nances. 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 matu-
rities. 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 specic juncture framing it.
Secondly, once this macroeconomic stabilisation prerequisite is in place, neoliberal-
ism upholds the implementation of structural reforms as privatisations, liberalisations,
deregulation and opening of marketsabove all those most signicant for any capital-
ist economy: labour and nancial 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 ght the effects of that same crisis, in core economies and devel-
oping countries alike. This diagnostic implies that orthodox therapy consists solely of
restrictions in monetary/credit supply and scal adjustments.
It is claimed that scal restraints grounded on cuts in public expenditure would
cause a reduction in public decits. Yet the target is for the State to produce
primary surpluses after all nancial 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 enact-
ing such policies must be trained experts (in economics), immune to populist urges, so
that the policies are viable and markets remain condent. 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 scal restraint as a conclusion requires a starting
hypothesis rarely made explicit. State expenditure consists of current expenditure
(non-nancial) and nancial expenses. Any public decit to eventually come about
is dened by excessive expenditure (both nancial and non nancial) when compared
with revenues. Leaving aside the option of increasing budget, one question must be
 Critique 317

asked: why is non-nancial expenditure the adjustment variable? Why cannot the
scal adjustment be implemented on the side of nancial expenses, meaning public
spending on public debt interest and repayments? This leads us to two nal 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 ofcial argument is that this must be so in the name of condence 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 econ-
omic crisis since 2007. Mainstream economic arguments claim that the only way to
ght the current crisis is a scal adjustment, because the capitalist State has increased
its expenditure beyond its meansa scal adjustment would be the only way to
rectify public nances. Yet such arguments leave out the reason why public expendi-
ture 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 unnecess-
ary social programmes. Hence the structural reforms that come with the scal adjust-
ment. However, public debt rose in order to help nancial markets saturated with
debt securities, super-accumulation of ctitious capital, and not because of what
they are telling us.
Fiscal adjustments and neoliberal structural reforms in order to ght 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 conict of interest was reported by the author.