Dr Spyros Marchetos
The hidden life of debt
In the era of the Enlightenment public and private credit relations became ever more complex and widespread. At the same time the study of political economy developed, gradually aspiring to the status of a science.Savants subjected debt to thorough analysis.
Already in mid-Eighteenth century James Steuart, a clear-sighted classical economist justly famous for his Inquiry intothe Principles of Political Oeconomy (1767), had noticed that bankers preferred public debt from simple princely promises. For Adam Smith state debt, habitually squandered in wars, strangled investment and bankrupted polities. Lesser luminaries, presaging modern complaints of indebted countries, decried that outflows to foreign creditors increased taxes, raised prices, and depressed production.
Reflection on debt did not develop in linear fashion however. Remarkably, “debt discussion peaked at a time before most modern readers imagine that economic theory began”. Then, in the age of classical liberal economists, itwithered and almost went underground. This was not really a paradox. In the repression that spread around Europe after the defeat of Napoleon, the discussions that had eventually led to the French Revolution were swept under the carpet.
An obvious regression represents the work of David Ricardo,the greatest authority of his time on matters economic, plus a financier and an intensely political author. While decrying the public debt of Britain, that had reached sky-high during the wars against France, Ricardo proposed to redeem it by imposing a ‘capital levy’, in other words a tax on all the rest of the national capital. This idea sounded extreme in his time; nowadays less so.
Ricardoexpressed the power of finance by hiding, not highlighting, the impact of debt and taxes on economic competition. As Hudson observed,his influential theory of labour value incriminated for bridling capitalism both landed interests and labourers’ wages, while it absolved debt and taxes, as well as the strata linked to finance thatprofited from them.
Revolutionaries and reformers
Marx, writing soon afterwards, based his theory on Ricardo’s, and even though modern Marxists deny that he shared Ricardo’s theory of labour value, or even any such theory, the early codifications of Marxism focussed labour struggle on wages and profits rather than loans and taxes. In general Marxist-inclined European radicals accorded to debt only secondary importance.
By contrast, later non-Marxist radicals such as Henry George and Thorstein Veblengave prominence to debt in their analyses. Beyond conjunctural matters,the different emphasis often indicated a divergent gross evaluation of what Marx had defined as capitalist mode of production.
Marx, aiming his analysis at the fundamental and even molecular functions of capital, strove to show that exploitation was inherent in capitalist production and not a result of personal wickedness, peripheral forces, or contingent events. Exploitation, meaning that capitalists keep for themselves part of what the workers produce, is systemic and not incidental in the system.
For Marxists capitalism, and even a capitalism without debt, if such a thing could ever exist, is unjust and exploitative in and by itself, not because of any accidental or accessory matters. Exploitation, alienation, fetishism, dissociation, social polarization, oppression, and all the other unsavoury social and psychological consequences of the concentration and accumulation of capital would vitiate even a hypothetical debt-free capitalist system.
This thesis need not imply that such a debt-free capitalism ever existed in history; Marxists know that, for good reason, it never existed. They simply mean that a good capitalist society is a contradiction in terms.
Again, critics of the system who focussed on debt did not necessarily mean to absolve capitalism itself from its sins, even if they occasionally wished this and they were often read in this sense. Focussing on debt matters, rather than on the exploitation inherent in molecular capitalist relations, was politically expedient. Pinpointing the iniquity of debt and finance as the enemy gave hope for relatively easy redress, without fundamental change in productive relations -a double-edged sword if ever there was any.
On the one hand anti-debt struggles could mobilize middling strata unmoved by Marxist calls to proletarian insurrection, and create broad social alliances posing real political danger to specific capitalist regimes. On the other hand, they fed illusions of easy change that were catastrophically disappointed. History shows that debt is never written down without bitter struggle. People who imagined otherwise, or trusted unreliable politicians, like the Greeks in 2015, were chastised bitterly for their illusions on such matters.
Next to the Marxists and the radicals, moderate reformers, while acknowledging the significance of debt, preferred to see it from the lenders’ side, as ‘credit’, and highlighted its positive features. Amid-nineteenth century school calling itself ‘socialist’ followedthe French polymath aristocrat Claude-Henri de Saint-Simon, who accentuated the productive and constructive character of lending. His distinguished pupils featured prominently in the political and economic life of France and other countries, Greece included. Precursors of the post-Second World War dirigisme, they prescribed to the state an active role in capitalist development.
Saint-Simonians envisaged organising or directing financial development through non-usurious lending institutions, that would channel available resources towards productive economic sectors and geographical areas. These new rational banks instead of lending to perpetuate war and unearned privilege, as older bankers used to do, would supposedly finance deserving producers, and thus in the course of time would improve life for all.
At the time Saint-Simonians looked like offering an alternative, within the contours of the capitalist system, to the liberal thought then conquering Britain. Reality proved different. The new banks unsurprisingly succumbed to speculative impulses and went bust. Their most prominent host, the French Second Empire, proved noticeably less peaceful and thrifty than other regimes. Eventually the initiative passed to more radical thinkers.
Can the Left support finance?
All these strands -Marxist, radical, and moderate- located themselves in the broader spectrum of the Left, even when they supported conservatives, as the Saint-Simonians often did. The Left was the great political novelty of the ‘long nineteenth century’, extending from the French Revolution to the First World War (1789-1914). It grew by appealing to the common people, demanding democracy and organising itself in democratic ways. It fought the conservatives that dominated nineteenth-century Europe with proposals for political and economic equality.
Things changed in the century that passed since. The Left’s relationship with finance had its ups and downs.In the 1930s a socialist minister of Finance famously declared, “Les banques, je les ferme, les banquiers, je les enferme”. A few years later he was rewarded for his audacity by being elected president of the Fourth French Republic, but he would be less a la mode in our financialised times. Today’s self-described Left ismore amenable to the creditors’ wishes than other political milieus.
Ultimately the question becomes what is the Left, and in which ways can it relate to the exploitation inherent in debt relations? A full answer eludes us here, of course, since political terms such as ‘Left’ and ‘Right’ are classic cases of the so-called ‘essentially contested concepts’, whose proper use by definition involves endless disputes about their proper use. However a temporary answer might start from the definition given by aleft liberal political philosopher.
According to Norberto Bobbio, who has written a standard introduction to the matter, the Left is, roughlyand in its widest possible meaning, the part of the political spectrum that prioritizes equality next to liberty, while the Right puts forward different values and principally inequality. The Left is a designation wider than socialism, which means the political camp proposing socialization and common ownership of the means of production. It is also much wider than Marxism, a communist political and philosophical current calling for abolition of capital and state.
This view is corroborated inempirical studies made by historians too. Marxism formed the core of late nineteenth and twentieth century socialism, while socialism formed the core of the Left. On the other hand many socialists were not Marxists, and many leftists were not socialists. As appositely put by a historian, after the 1860s socialism was always the core of the Left, but the Left was always larger than socialism.This holds for the late nineteenth and the ‘short twentieth century’ too, extending from the First World War to the fall of the Soviet Union (1914-1992), and even more for the subsequent period, in other words our monopolar and financialized world.
Today’s Left cannot be neutral on debt matters. By definition it defends the indebted poor, while oligarchic finance is its enemy if ever there was any. Supporting both debtors and lenders, if this ever was possible, is clearly impossible in our time. Claiming to do so cannot but be a falsification. Α temporary and partial conciliation of debtor and creditor interests might be plausible in previous ‘Keynesian’ environments of economic growth and rising expectations, but financialized capitalism plainly and categorically excludesthis option. One can hardly imagine financialization as compatible with jubilees of a non-marginal type.
A Left fighting for the many, the poor, the weak, may exist today only in conflict with finance and through struggle against it. Those who side with creditors against debtors cannot be part of the Left, even of the broadest possible and most diluted forms of it, let alone of socialism or Marxism.
Logically commitment to equality or liberty for the many is irreconcilable with finance’s demands and even with its existence. Equality and liberty cannot coexist with the transfer of even more wealth and power to the few, the rich, the powerful. In historical context, regimes siding with creditors invariably promoted inequality at home and abroad, notwithstanding the mental gymnastics of acolytes posing as leftists.
Leftist parties today may have opaque positions on debt matters, especially in countries which have not yet faced a debt crisis. Perhaps this is due to inertia, sticking to happy times past in which they did not have such worries. Perhaps it is related to a certain conception of national interests, expecially in countries that seem to be among the winners in international financial flows, such as Germany. At some point however we all do have to choose between siding with debtors or with creditors, and in the latter case we simply cannot remain part of the Left, no matter how we like to see ourselves. History offers quite a few examples of this.
The New Right, and the New Extreme Right
On the other hand, supporting debtors does not necessarily point to the Left. It may simply reflect a desire to conserve an unequal status quo threatened by financial expropriation. Wealth protected from oligarchic depredation does not always have to flow downwards. It can simply buttress certain middle strata, without regard for the needs of the poor, or institutions such as the Church. Historically this has been the Right-wing route, a constant of conservative declarations and invocations since the nineteenth century, the utopian dream of a socially stable and harmonious capitalism cleansed from predators. Today it is awkwardly termed ‘Right-wing populism’.
This ‘Right-wing populism’, resurgent all over Europe more or less since the imposition of the euro, is often considered part of the Extreme Right. Indeed it showcases many of the latter’s trademarks: antidemocratic, racist, nationalistic, misogynist, nativist, xenophobic, antisemitic, hateful in general and culturally attavistic. The solid burghers deemed worthy of preservation would better not belong to any of the many lesser categories of humans.
All these obnoxious traits however are not necessarily connected with the Extreme Right. Historically they characterized the mainstream Right as well, before its politics became politically correct, at least in public, which in most countries happened quite recently, in living memory. Enoch Powell, Jean-Mari LePen, and the Opus Dei were in their prime, and till quite recently in fact, not outliers but representative of a good part of conservative opinion and pillars of the Right-wing establishment. Today’s conservative Extreme Right smells quite similar to the good old unreconstructed Right tout court. It looks like a Right that has not moved with the times.
On the contrary, those who moved a lot after 1992 are previous centrists -liberal, conservative, or even nominally socialist- who crystallized within the confines of the Washington Consensuswhat is called by now the ‘extreme centre’. Whatever their preferred names, this should rather be seen as an Extreme Right, even according to Bobbio’s exclusive definition.
By promoting financial expropriation plus the social polarization and authoritarian governance that necessarily accompany it, and supporting all wars ever dreamt by the American neoconservatives, these nominal moderates implement a systematic, massive, and multifaceted transfer of power and resources from the many to the few, from poor to rich, from the weak to the powerful. No wonder they make the old Right look appetizing and even benign by comparison, at least in the eyes of the strata who are being downgraded.
Today’s so-called liberal or conservative policies are typical of the Extreme Right, even when rhetorically justified by recourse to liberal ideals. Worse, by preaching TINA and feeding cynicism they also legitimize the development of Extreme Right mass movements and open up political space for the mobilizing variant of the Extreme Right, which is what was known in the Twentieth Century as fascism.
Unfortunately, behind the rise of the fascist wing of the Extreme Right today lie liberal and conservative political mechanisms, and also neoliberal and neoconservative policy choices that have become mainstream while in fact they are quite extreme, in the sense of pertaining to the political and economic program of the Extreme Right. One common denominator of the liberal and conservative Extreme Right is promotion of the lenders’ demands and privileges. While they have different historical origins and cultural preferences, and they may construct diverse social alliances, when their political representatives are called to choose between finance and the people they claim to represent -and this is a when, not an if– they invariably side with the rich, the strong, the few. The people really deserve better than this.
 Michael Hudson, “How Economic Theory Came to Ignore the Role of Debt”, real-world economics review 57 , p.3.
 Nancy Churchman, David Ricardo on Public Debt, Palgrave Macmillan, Houndmills, New York 2001, pp.71ff.
 Michael Hudson, “How Economic Theory Came to Ignore the Role of Debt”, real-world economics review 57 .
 David Harvey, “Marx’s Refusal of The Labour Theory of Value”, unpublished manuscript dated March 1st, 2018.
 Henry George is often invoked by Michael Hudson, while Thorstein Veblen was an unacknowledged but important influence on Hyman Minsky. On the latter connection see Jan Toporowski, Theories of Financial Disturbance. An Examination of Critical Theories of Finance from Adam Smith to the Present Day, Edward Elgar, Cheltenham, Northampton, MA 2005, pp.4, 45ff.
 Geoff Eley, Forging Democracy: The History of the Left in Europe, 1850-2000, Oxford University Press, New York 2002.
 Vincent Auriol (1884-1966) – “The banks I shut down, the bankers I shut in jail”.
 As declared by competent observers. See for example Barry Eichengreen, Ugo Panizza, A Surplus of Ambition. Can Europe Rely on Large Primary Surpluses to Solve its Debt Problem?, Economic Policy, Sixty-first Panel Meeting Hosted by the Bank of Latvia, Riga, 17-18 April 2015, p.51. Τhis study, using a positivist social science methodology plus extensive comparisons and factoring, but leaving undefined what it variously calls ‘Left’ or ‘Centre-Left’, concludes that “left wing governments are more likely to run large, persistent primary surpluses” (p.1) destined to reimburse creditors. At the same moment in Greece, explicitly mentioned in the study, the Syriza leadership had already agreed to use a primary surplus extracted from the crisis-ridden economy in order to reimburse creditors.
 W.B. Gallie, “Essentially Contested Concepts”, Proceedings of the Aristotelian Society, New Series 56 [1955 – 1956], pp.167-198, p.169.
 Norberto Bobbio, Left and Right. The Significance of a Political Distinction, translation and introduction Allan Cameron, The University of Chicago Press, Chicago 1996 .
 G. Eley, Forging Democracy…, op.cit., p.8.
 Bobbio accentuates the element of authoritarianism in the political milieus he designates as Extreme Right and Extreme Left. N. Bobbio, Left and Right. The Significance of a Political Distinction, op.cit., pp.72ff.