Are state deficits “necessary”?

by Jehu

how-john-boehner-is-secretly-winning-the-war-in-the-government-shutdown-fightThe intense fear expressed in Washington and in financial markets around the world of simply balancing a fucking budget should grab your attention. It’s not like the capitalists are being asked to commit suicide as a class. So why the profound resistance to simply balancing Washington’s budget? If the state is running a deficit, it is spending more than it is directly extracting from the economy, i.e., from the total output of the capital. A balanced budget means the fascist state can spend no more than it directly extracts from the economy through taxes and other revenue.

So what is all the fuss about and how can we determine whether this deficit spending is necessary?

1. The practical aim of fascist state spending

The Left always wants to begin the discussion of the shutdown by focusing on the aim of fascist state spending. They assert this spending is necessary based on any number of objectives: taking care of those who cannot work, educating children, engaging in scientific research or mobilizing sufficient resource to undertake really large scale capital improvements.  The state, they argue, improves means of communication, education, medical care and support research which can add to productiveness of labor. It can undertake very large projects that support the expansion of capital — for instance, the Hoover Dam, rural electrification, the national defense highway system, etc.

These may be worthy endeavors indeed, even if the Left, at the same time, overlooks or quietly ignores the fact the state also spends on rather horrific activities as well. But even here one person’s worthy objective is another person’s horrific act of naked aggression and terror aimed at the Muslim world. Except in the most egregious cases, it is difficult, if not impossible, to go through state spending line by line  and decide what is worthy and what is naked terrorism. Medical care, for instance, would probably pass the test of a necessary expenditure, but what of medical care rendered to wounded soldiers who have just attacked an Afghan village?

This problem is as difficult as it is to pick out labor that can be categorized as productive and labor that must be categorized as unproductive. On the one hand, you have the clearly wasteful military expenditures of the state, but, on the other hand, large scale capital improvements like the Hoover Dam; on the one hand, you have expenditures that result from the perverted logic of the mode of production — like unemployment compensation, food stamps, WIC, etc., but, on the other hand, you have public expenditures that would be necessary under any mode of production — such as caring for the sick, the elderly, those unable to work and education of children.

Even apart from purely ideological, moral or political differences among members of society, state expenditures cannot be so easily divided into spending that is necessary versus spending that is clearly waste, fraud and abuse as is typically promised by politicians. We certainly need a way of approaching this problem that is not subject to moral, ideological or political prejudices.

2. State Spending from the standpoint of the mode of production

What additional measures are available by which we can decide which state spending is necessary and which can be safely eliminated? Obviously one measure is the activity society must undertake no matter what mode of production we consider: capitalism or communism. It is obvious that no matter which mode of production is involved, we have to care for the sick, the elderly, children, etc. And it is equally clear, certain activities of the state are entirely connected to the mode of production under consideration.

Examples of this latter group would be food stamps, unemployment compensation, Social Security and the military. Since communism is a mode of production without money, there would be no need for Social Security allotment for those no longer able to work. Since communism is a mode of production without wage labor, obviously there is no need for unemployment compensation. And since communism is a mode of production without nation states or borders, obviously there is no need for military expenditures.

This conceptual division of state spending into two categories does not by any means resolve the practical problem we face in any given budget. But it does permit us to see that much of the spending we consider essential today are only essential insofar as we presume no change in the mode of production. If we assume the continuation of wage slavery, many state spending line items appear necessary to a civilized society, but this alleged civilized society rests on the most uncivilized reduction of the mass of society to slaves. For instance, unemployment compensation appears necessary only because the capitalist can deny you employment at will and let you starve to death. If the capitalists did not have the power to deny you access to the most vital means of life, unemployment compensation would be irrelevant.

Some on the Left might object to this definition of state spending as well — arguing that present state expenditures that may not be necessary under communism are not unnecessarily against the backdrop of present relations. Insofar as we must deal with present reality, we cannot base our preferences on circumstances that will only exist in the future. This is an valid objection, in my opinion.

3. The sources of state expenditures

So it appears we may be at an impasses if we just focus on the aim of fascist state spending. Is there another route to arriving at an objective measure of what is necessary and unnecessary in fascist state expenditures? I would suggest there is.

On the other side of this ledger fascist state finances is the income of the state: the various sources of state revenue: taxes, fees and debt. Like any other buyer, the state cannot buy unless it has cash. In labor theory, no one can become a commodity buyer unless he has previously been a commodity seller. Before we talk about anyone buying commodities in the market, we have to account for the money in their hands — and this presupposes the buyer comes into the money by having previously sold a commodity of his own. In labor theory there is one notable exception to this rule — one buyer who does not sell before buying. That exception is the producer of the money commodity who produces money directly with her own labor — think of the producer of gold or silver. The producer of the money commodity ‘barters’ her commodity directly for the things she needs.

However, there is another buyer who also does not sell and for whom we must account for how it appears in the market as a buyer of labor power and commodities: the state does not gain cash for its purchases by selling a commodity. The state buys without having first sold, but this is not because it produces money. Some economists, like those in the so-called “modern money” school, argue that the state appears in the market as a buyer by creating currency out of nothing. It then uses this currency to make purchases of labor power and other commodities. This argument, however, is wrong.

To account for the expenditures of the state, we must first account for how the state comes into the money it employs to buy commodities. Unique among all buyers, the state can buy without selling any commodity or producing anything. Since it does not produce a commodity, the means for its purchases must come from society at large. Whatever the aims of state expenditures, therefore, the analysis must begin by explaining where the means for those expenditures come from.

This fact is almost always overlooked when it comes to analyzing the role of state spending in society. The Left usually want to jump into the middle of the discussion and talk about how the state spends its revenue but never about how it gets it in the first place. Since the state produces nothing, it cannot spend anything that does not already exist prior to its proposed spending.

The state is not the producer of the means it uses to buy commodities, society is the producer of those means. If we outline the means by which the state buys without selling in its simplest forms, we get this: First, the state can directly expropriate a physical portion of the total product of society to maintain itself as the state. Second the state can levy a tax on a portion of the total product of society in its money form and employ this money to purchase commodities as needed. Third, the state can over-issue (counterfeit) its fiat tokens to make the purchases of commodities as needed without seizing commodities or money.

In all three examples I outlined above, nothing has changed in its essential character: the state is still essentially expropriating a portion of the social product. It can do this by seizing the commodities outright, seizing a portion of the money in circulation, or simply purchasing them with its fictional money. And in all three cases, should the state overstep its bounds, it risks bringing discredit to itself or its fiat. If it discredits itself, it will be overthrown; if it counterfeits its tokens excessively, it will bring discredit to its fiat — and the fiat will be rejected. In any case, we have to assume there is a limit beyond which the state cannot advance based on the material requirements of the social process of production.

The problem with what a stated above is that, with the shutdown, we are dealing with an altogether different problem: Perversely, the crisis is not produced by the state overstepping its bounds and expropriating an excessive mass of the social product — by imposing excessive taxes or excessive counterfeiting — the crisis produced by the shutdown results if state spending DOES NOT exceed the state’s capacity to tax and counterfeit. The state must, in other words, spend more than it can raise in revenue either by taxing or counterfeiting. It must borrow from the available pool of idled capital in order to supplement its capacity to buy commodities based on taxes and counterfeiting fiat.

If it does not do this, the simpletons warn us of a likely economic calamity on the scale of the Great Depression or even greater.

4. Deficits as the real devaluation of capital within capitalist society

So there is a greater problem with defining what state spending is ‘necessary’ and ‘unnecessary’ than the aim of the spending. When trying to determine necessary spending, we tend to focus on the aim of the specific spending. I would suggest this is wrong — we have to begin where all discussion of spending must begin. Namely, where are the means to spend coming from?

All state spending has its source in the labor for which the social producers are not compensated: it is a form of surplus value. The entirety of fascist state spending is the product of the exploitation of the working class and has no other source but this exploitation

Some on the Left argue the state can increase it spending simply by taxing the capitalist, but this is utter bullshit. Even if we assume there are no taxes at all on the working class, all the taxes paid by capitals result from exploitation of the social producers. Taxing capital only indirectly taxes the working class by taxing the surplus extracted from it, taxing the working class directly only adds to the surplus produced by the working class. The widespread notion on the Left that the capitalists can be made to pay for their state is sophomoric drivel.

Jesus Christ, people! The capitalist doesn’t even pay for labor power, but only advances his variable capital. How does he pay for his state?

Thus all state revenue results from the exploitation of the social producers and all state debt over this revenue is simply borrowing from the capitalists the wealth they have already extracted from the social producers. The source of all wealth in the society, no matter what form it takes, and insofar as it does not take the form of wages, results from the unpaid labor of the social producers. And, by wages, I mean the actual real wage — the basket of commodities the laborers need to reproduce themselves as wage slaves.

This wealth is divided among the class of parasites as profits, interest, rent and taxes. Each specific portion of these parasites, including the state, seeks their share in the unpaid labor of the worker. The relation between the state and the rest of the parasites is peculiar in that its share of the unpaid labor of the worker is determined not by competition but by the material conditions among the parasites themselves. The state arises out of the material conditions of the bourgeois class as a whole and stands over against the individual members of the class. This means the material conditions of the class as a whole determines the state’s share of the unpaid labor of the workers, not competition within the class of parasites.

If the state must run deficits as is alleged by the simpletons, these deficits are being driven by the material conditions of the class of parasites as a whole — it is a requirement imposed on them by these material conditions. Whether the state runs deficits or not has no direct connection with the class struggle between the proletariat and bourgeois class. In fact, the question of deficits presumes the proletariat is already absolutely subordinated to the rule of the bourgeoisie. The problem of state spending can only arise on the basis of this complete and absolute subordination.

The conflict that the Left believes concerns the real subsistence of the working class actually has nothing whatsoever to do with this subsistence. This conflict assumes the wage slaves already receive, on average, no more than is necessary for them to reproduce themselves as wage slaves. This means that, even when the workers receive no more than is absolutely necessary for their reproduction as wage slaves, the total mass of profits is still insufficient.

5. Deficits and the falling rate of profit

The deficits at stake in this shutdown are the result of a long slow decline of US surpluses after World War II. US surpluses shrank from World War II to 1980 or so and then went negative from that point forward. During that period, in order to maintain profits, the fall in profits were increasingly concentrated in the federal budget deficits. Viewed historically, it is clear the capitalists are shifting their losses onto the state in the form of persistent deficit spending. The state is being used to absorb the losses suffered by the capitalists owing to overproduction of capital.

We already know the state is being used to compensate for the losses of capital, and refer to this as bailouts for the “too big to fail” or, sarcastically (but no less accurately), as “socialism for the rich”. What most of the Left do not realize is this subsidy is on display not just in extraordinary times of crisis but is a permanent feature of the state. Deficit spending of the fascist state is meant to subsidize the profits of a failed mode of production that no longer functions on its own.

Without the deficit spending of the fascist state, over and above what it expropriates through taxes, there would be a mass of unsold goods. These unsold goods are nothing more than capital in the form of unsold commodities. Were they not sold, this capital would have to be devalued — it would be rendered superfluous, along with a portion of the means of production and a mass of labor power.

Society would be forced to confront the fact that its labor is no longer necessary in any form. If labor is no longer necessary, the premise of capital — which is nothing but socially necessary labor — has been abolished. Thus, the deficit is only the real devaluation of the existing capital in which the state pays interest on a fiction. The devaluation of existing capital is absorbed by the state, but the fiction this has not occurred rests on the state’s interest payment. The fiction is maintained that the capital is still in circulation, producing surplus value, when it has actually been destroyed.

Seen from this point of view, all deficit spending by the fascist state and all debts accumulated by these deficits are unnecessary and must be abolished.