Obama and Bernanke Against Austerity

On Monday, President Obama once again spoke out strongly against austerity measures that are likely to send the US economy into recession. On Tuesday, in testimony to Congress, Federal Reserve Chairman, Ben Bernanke, echoed the message. If the US gets dragged into recession by unnecessary measures of austerity, it will not just be damaging for US Capital, it will be damaging for Capital in general.

Marx, in Capital III, comments that bank legislation cannot prevent a crisis from erupting, but it can be the cause of a crisis erupting. Over the last 5 years, much of the damage that has been done to economies in the US, and Europe has been self-inflicted. It has been caused by political ineptitude, and wrong-headed economic dogma. The Eurozone Debt Crisis has been caused by a refusal of EU Governments to take the necessary political decisions to establish a United States of Europe, or even to establish Fiscal and Political Union as a step towards it. In turn that has meant that the structures of the Eurozone have constrained the economic solutions that could be advanced, because the necessary fiscal transfers to support the peripheral economies have political costs.

In the US, the initial success of the Tea Party, created its own political constraints, particularly after the Republicans won a majority in Congress. That along with spending cuts by Republicans at State and Local level, limited further fiscal expansion by the Obama Administration. That was exacerbated last year in the fiasco over the Debt Ceiling, when Republicans, purely for political advantage threatened to throw the US into a technical default on its debt, if the President did not agree to drastic spending cuts. Only at the last minute, did they draw back, and the price was a deal to set up a committee to draw up a plan of agreed cuts. That is what led to the Fiscal Cliff at the end of last year, and which now threatens to throw the US into recession as a result of the so called “Sequester”, which will introduce automatic spending cuts across a huge swathe of the US State.

For Marx, Capital is the social relation between
 Capital and Wage Labour.  He said, the expansion
of Capital, is the increase of the working-class.

The potential effect of that was seen at the end of last year. The US economy surprisingly shrank by 0.1%, and it was down almost entirely to a cut in the US Defence Budget. Unless a deal is reached to avoid the sequester, then beginning on Friday this week, automatic cuts of US Budgets, amounting to $85 billion will begin to be introduced. It will see thousands of teachers, civil servants, police, firepeople and so on being laid off, as well as cuts to welfare payments. Economists believe that it will reduce US GDP by at least 0.5%. Remember what GDP is. Its a measure of the value of goods and services produced in the economy. Growth of GDP is growth of Capital, just as a reduction in GDP is a reduction of Capital. Then it can be seen why Capital is not in favour of such measures. Capital expands by accumulating profits, if Capital shrinks it means profits are falling.

In the Critique of the Gotha Programme, Marx
fiercely attacked the statist ideas of the Lassalleans.
 Marx attacked the idea that Socialism had anything to
 do with promoting an increased role of the State, as
opposed to the self-activity, and self-government of
the workers.  Later, Engels also attacked similar
ideas in the Erfurt Programme promoting Welfarism, and
the establishment of a National Insurance Scheme.  Yet both
these ideas today are promoted by people who call
themselves Marxists! 

Yet some sections of the Left have fallen into the trap of accepting the arguments and propaganda of the populist Right. That misrepresents spending by the Capitalist State as in some sense inimical to the interests of Capital, and, therefore, cuts in that spending as necessarily in the interests of Capital. That approach signifies, in fact, just how far sections of the Left have drifted away from Marxism and into the camp of reformism and Lassalleanism. It is the same approach, which deludes itself into a belief that the Welfare State was established in the face of opposition from Capital, rather than the reality, which is that Capital itself established the Welfare State, to meet its needs for regulating the economy, and for ensuring the reproduction of a sufficiently well educated and healthy working-class. The only real argument over the Welfare State is how much welfare should be provided at any one time, to meet the needs of Capital, and its over that, which the periodic economic struggles between Capital and Labour occur.

After all, the clue is in the name. It is a Capitalist State, the State of the Capitalists, and there to meet their needs not ours! Of course, that doesn't mean that Capital is not always on the look out to achieve these goals by ever more efficient means. That includes nowadays looking to provision of services by private capital rather than state capital, now that new technology means that they can do that more efficiently. Yet, even here, it is the delivery of services that are being privatised, whilst the core of Welfarism, the provision of a Capitalist State run, National Insurance Scheme, funded by workers, and controlled by the State remains intact. That could hardly be otherwise, because since the end of the 19^th Century the bedrock of capitalist rule has been the existence of bourgeois democracy. As Lenin put it in State and Revolution,

“Another reason why the omnipotence of “wealth” is more certain in a democratic republic is that it does not depend on defects in the political machinery or on the faulty political shell of capitalism. A democratic republic is the best possible political shell for capitalism, and, therefore, once capital has gained possession of this very best shell (through the Palchinskys, Chernovs, Tseretelis and Co.), it establishes its power so securely, so firmly, that no change of persons, institutions or parties in the bourgeois-democratic republic can shake it.”

But, he should also have added that this bourgeois democracy in the age of Imperialism takes a special form, the form of Social Democracy, representing an historic comprise between the working-class and Big Capital, mediated via the Labour Bureaucracy. This Social Democracy incorporates the workers into the State, and a fundamental aspect of it is the Welfare State. That is why openly bourgeois parties like the Tories in Britain are just as Social Democratic as the Labour Party, and the same is true of their European and North American counterparts. The only difference is that the openly bourgeois parties like the Tories are more conflicted in performing this role, because their membership and electoral base, rests neither upon Big Capital, nor on the working-class, but on the backward layers in society.

In fact, spending by the Capitalist State has played a fundamental role for Capital from its very inception. Marx sets out in Capital, the role that state spending plays in the process of primary accumulation of Capital, for instance. And debt, from the very beginning was also the method by which that is accomplished. Indeed, not only does it provide the basis for the primary accumulation of Capital, but via debt, it also creates the conditions for the centralisation and concentration of capital, both through the provision of credit and via the ruination of small capitals that are taken over by bigger capitals. A look at the data for UK Public Debt illustrates that. Back in the 1700's, UK Debt to GDP was far higher than today, and rose as the process of primary capital accumulation proceeded. Only when that process had raised the level of capital to a sufficient level, and the Industrial Revolution that developed upon it, rapidly increased growth, did that ratio fall. At its height, Debt to GDP rose to 250%, compared to about 70% today. A similar process could be seen after WWII, when the State once again acted to bring about a new accumulation of Capital, which laid the basis for the Post War Boom.

“The system of public credit, i.e., of national debts, whose origin we discover in Genoa and Venice as early as the Middle Ages, took possession of Europe generally during the manufacturing period. The colonial system with its maritime trade and commercial wars served as a forcing-house for it. Thus it first took root in Holland. National debts, i.e., the alienation of the state – whether despotic, constitutional or republican – marked with its stamp the capitalistic era. The only part of the so-called national wealth that actually enters into the collective possessions of modern peoples is their national debt. Hence, as a necessary consequence, the modern doctrine that a nation becomes the richer the more deeply it is in debt. Public credit becomes the credo of capital. And with the rise of national debt-making, want of faith in the national debt takes the place of the blasphemy against the Holy Ghost, which may not be forgiven. 

The public debt becomes one of the most powerful levers of primitive accumulation. As with the stroke of an enchanter’s 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 transformed 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 financiers, middlemen 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. 
Capital I, Chapter 31

That demonstrates why debt is not really a problem for Capital. States going back thousands of years have dealt with debt quite easily. They effectively renege on the debt by debasing the currency, paying back their creditors with increasingly worthless money. That is where they do not simply default. Debasing the currency to pay back your creditors with worthless money also causes inflation, but the inflation itself dissolves the debt, because debt is denominated in nominal money terms, whereas the taxes that are collected by the State are based on the new inflated money prices. Once consequence is that interest rates rise, because lenders increasingly seek to protect themselves by demanding a higher return, but interest rates rarely rise enough to cover the inflation.

In the early 1970's inflation rose sharply. The Heath Government even introduced a Sliding Scale of Wages so that wages rose as prices rose. Inflation was reduced for a while as a result of the Social Contract, between Labour and the TUC, which introduced controls over prices and wages. But, when it collapsed, inflation rose sharply once again in the late 70's and early 80's. Inflation ran at more than 20%. But, interest rates did not rise to that level. In fact, even though today, we have historically low nominal interest rates, real interest rates back then were probably lower.

Under these conditions, austerity is a mindless economic solution being perpetrated by right-wing ideologues attempting to simply replicate policies from the 1980's, the totally different conditions of today. It clearly is not in the interests of workers, who see their wages and savings reduced, their jobs disappear, and their services cut. But, nor is it in the interests of Capital in General either, and largely for the same reasons. Rising wages, more jobs, an ability to provide more, better services are an indication of a Capital that is growing. In fact, in Marx's terms that is precisely what a growth of Capital is. For Marx, Capital is the social relation between Capital and Wage Labour, its expansion is an expansion of that relation.

The United States is the representative of the most mature industrial capital. The US Democrats are the representative of that form of Social Democracy that represents the historic compromise between the workers and Big Capital. It is no wonder that for the last 5 years, the US has stood out against the other countries that have adopted Austerian economic policies, and has instead adopted a policy of Keynesian fiscal expansion. Its no wonder that Obama, and Bernanke, as representative of the US Capitalist State, are raising the level of their opposition to the austerity that will arise from the sequester. They are doing so, not because spending by the Capitalist State is somehow socialist, somehow a concession to workers from Capital, as the reformists and Lassalleans would have it, but because it is in the interests of Capital.