Superfluous labor and state debt

by Jehu

In his “Apotheosis of Money”, Robert Kurz makes this statement:

“If State consumption and State credit, crushed together as if by an avalanche, play a central role in this development, this is also due of course, to the fact that the State (unlike a private entity which avails itself of credit) is considered to be a “secure debtor” which means, however, that the State, in the event of a great monetary and credit crisis, will not declare bankruptcy, but will simply expropriate its citizen-creditors.”

The argument Kurz makes here is that the unproductive consumption of surplus value, made possible by the credit extended to the state, is dependent on the state’s ability to repay its debt and must, sooner or later, result

Decreasing federal deficits preceded both the 2001 and 2008 crises. (Source: St. Louis Federal Reserve)

Decreasing federal deficits preceded both the 2001 and 2008 crises. (Source: St. Louis Federal Reserve)

in the state expropriating the owners of capital. I am not especially satisfied with the way Kurz formulates the problem here. My difficulty with Kurz’s formulation is probably best expressed in the words of the bourgeois simpleton, Paul Krugman — for reasons that are not entirely clear to the bourgeois simpletons the long-standing prediction of an impending crisis for Washington’s finances over the last thirty years never finally materialized:

“Fear of a Greek-style fiscal and financial crisis has loomed over much of our policy discourse over the past four years, and has played a significant role in shaping actual policy, constituting the principal argument for austerity in countries that don’t face any current difficulties in borrowing. However, despite repeated warnings that crises of confidence are imminent in floating-rate debtors – mainly the United States, the UK, and Japan – these crises keep not happening.”

Krugman has his explanation for why the predicted crisis “keeps not happening”, but he is a simpleton who thinks the problem is, “as simple and silly” as he is. Labor theory offers a much simpler and elegant explanation for why Washington has never experienced the sort of crisis predicted by bourgeois economists. It is an explanation I will need if I am to finally explain how reduction of hours of labor affects profits in an economy characterized by massive expenditures of unproductive labor time.

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As I mentioned, there is already a mass of capital that is incapable of functioning as capital, incapable of producing surplus value. This capital does not become unproductive because it is unproductively consumed by the state; rather it must be lent to the state because it is already unproductive, i.e., because it already is superfluous to the production of surplus value. On this assumption, at an earlier stage in the development of the mode of production, this excess capital would have suffered devaluation. Since the capital is incapable of operating productively, repayment of the debt does not figure in the discussion.

It is true debt is regularly retired by the state; and it is true the retired debt may be taken by its owners and invested productively; however, under the conditions I am considering (absolute overproduction of capital), the capital withdrawn from the state is immediately replaced by other capital that now cannot be employed productively and which must, therefore, be lent to the state. Thus the total mass of excess capital never falls, although it may change hands.

This argument generally follows Marx’s that some portion of capital must stand idle no matter that new capital might take the place of old capital in productive employment. Which capital can be employed productively and which must stand idle is, of course, settled by the competitive struggle. However the result of this struggle never changes: some definite given mass of capital must stand idle. This mass of idle capital constitutes accumulated state debt. Since this mass of idled capital does not decrease (under the assumption I am using), it follows that the state never has to repay it. The question of whether the state can repay this debt never enters the picture, except in the imagination of bourgeois simpletons.

The state is a “secure debtor” not because it can expropriate its citizens, but because the mass of superfluous capital that must be lent to it always increases. No matter how much the state might desire to reduce its debts, such a reduction is a fantasy dreamed up by “deficit hawks”. Retiring or even reducing the state’s total mass of debt has no basis in reality. Not only can state debt not be reduced, even the rate of growth of this debt is imposed on the state. Should fascist state officials try to reduce the rate of growth, as was attempted during the Clinton administration (see the accompanying chart), the result would be the same as occurred then: a crisis. The rate of growth of state debt is determined not by the aims or policies of the state, but by the accumulation of superfluous capital. The Tea Party learned this lesson the hard way, when the whole of Washington turned on it for interfering with the increase in the debt ceiling.

However it is not enough that the state should simply consume the superfluous capital. If the aim of the state were simply to consume superfluous capital, it could do this by taxing the capital and spending the revenue thus generated unproductively. But the crisis that produces superfluous capital and an excess population of workers is a crisis produced by the falling rate of profit. The superfluous capital must indeed be consumed, but it must be consumed in a way that adds to the mass of profit. From the standpoint of the mode of production, the superfluous capital cannot be simply taxed away, but must be borrowed from the capitalists in order that interest can be paid on it. The payment of interest on the borrowed capital keeps up the facade that this capital is still productive, i.e., still producing surplus value. The truth behind this fiction is revealed once we realize the state produces no surplus value and, hence, cannot really add to the mass of surplus value.

The MMT school has a description of federal debt that is a smidge closer to an accurate description than the one made by Kurz:

“The Government of the United States offers the functional equivalent of interest-bearing savings accounts to investors, usually wealthy individuals, large corporations, and foreign nations. The savings accounts are usually called US Treasury securities and the sum of their face values is called the debt-subject-to-the-limit; or more colloquially, the national debt, even though comparable savings accounts in banks, are for some reason, not called bank debt.”

First, according to the modern money school then, the state “accepts” the excess capital from capitalist firms, the very wealthiest persons and foreign governments and pays interest  on this capital like a bank; even though treasuries function more like a savings account, it is still referred to as if it is debt. But even the MMT description does not capture the what has taken place: by lending its excess capital to the fascist state, the capitalist class expropriates itself. The mass of capital held by the state in the form of outstanding treasuries never falls — thus it has effectively ceased to be private capital. The capital is now capital held in common by the whole class throughout the entire world market and accrues interest to each capital based on the size of their holdings. On the other hand, the mass of capital held in this form is now completely social and has lost its private character entirely.

Second, the capital exists only notionally as an entry on a ledger or a piece of paper labeled “U.S. treasury”. It has, in fact, ceased to exist at all, since it has been entirely consumed by the state. To grasp the significance of this fact, requires only that we imagine what it would take for Washington to make good on the debt should it not be able to “borrow” additional capital to service its debt. Since the state produces nothing, its only source of payment of its outstanding obligations would be taxes and counterfeiting; thus the state would have to tax capital in order to repay its debts to capitalists, or the state would have to counterfeit dollars on such a scale as to render the currency used to pay its debts worthless. In either case, the effective self-expropriation of capital by the capitalists would be converted into a real expropriation by the state.

The following conclusions can be stated:

First, the state does not borrow capital and then employ it unproductively; rather the capital is already unproductive, i.e., incapable of producing surplus value on its own; and must, therefore, be placed with the state.

Second, the mass of this excess capital never falls and, therefore, the mass of capital at the disposal of the state must always increase.

Third, state debt is not driven by the aims or policies of the state, but by the needs of this excess capital to produce a profit.

Fourth, since this process is determined by a crisis produced by the falling rate of profit, the state must resolve it in a way that adds to the mass of profits, i.e., it takes the form of money loaned to the state on which the state pays interest to the capitalists.

State debt is a mass of excess (entirely superfluous) capital that could not produce profit unless the state borrowed it and paid interest. Thus, the reason the state accumulates debt is not to achieve any policy aim, but to restore profits by converting some definite mass of excess capital into interest-bearing capital. However, unlike industry, the state does not produce commodities and cannot produce the surplus value necessary to pay interest; thus the state’s ability to pay interest on the capital it has unproductively consumed rests on borrowing additional excess capital.

Since the mass of excess capital is constantly increasing within the world market, there is always some mass of capitalists competing to lend their capital to the state. The state does not compete for capital, rather the opposite is the case: capitals compete against each other to lend to the state. If the rate at which the state borrowed the excess capital fell below that required by the mode of production, the competition among capitalists to lend to it would actually intensify — leading to what the bourgeois simpletons call “the flight to safety”; i.e., the phenomenon where the interest the state must pay falls in a crisis.

This phenomenon is already well documented by the simpletons and is the exact opposite of what they assert happens in a crisis. Rather than Washington’s interest rates rising during financial crises, capitalists will even place their capital with Washington at a loss. The loss experienced by capital at negative interest rates is far less than would be experienced should the capital be devalued. The capital is already devalued in fact — i.e., it no longer can produce surplus value and is, therefore, worthless — in a crisis this actual devaluation is threatens to materialize itself in the form of a proportional devaluation in nominal terms.

The less capital Washington borrows and unproductively consumes, the greater the competition among capitals to lend to it, and the lower the rate of interest Washington must pay for this excess capital. It follows from this that unusually low “policy” interest rates as at present is a sign the world market is awash in superfluous capital that must be consumed unproductively through fascist state borrowing, or the mode of production will suffer a massive devaluation event.

On the basis of this and the preceding post, I believe we can now outline how a successful struggle to reduce hours of labor by the working class will affect both capital and he state. I will turn to this next.

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