A new group calling itself ‘Blue Revolution’ has sent us a couple of pamphlets. In one of them, The History of Politics Simplified, they talk of the ‘debt based free market system’ and make the claim that the ‘free market … relies on an economy that is dependent on debt’. They invoke Marx in support of this:
‘… unless change take place the western economy will in the words of Karl Marx collapse under the weight of its economic contradictions … Reliance on this system will bankrupt the government first and then, the nation.’
Marx never expressed such words. He never wrote of capitalism collapsing under its economic contradictions. He did point out capitalism’s contradictions – such as between use-value and exchange value, and between co-operative production and private ownership – but did not expect these to lead to the system’s economic collapse. What they did cause was production under capitalism to be erratic, veering continuously between boom and slump and back. His view was that capitalism would have to be brought to an end through conscious action by the wage-working class.
Marx didn’t even see dependence on debt as one of capitalism’s contradictions. Debt is something owed by somebody or some organisation to some other person or organisation that has lent them money. So, if you are claiming an economic system is based on debt you are at the same time claiming that it is based on lending.
Borrowing (i.e., getting into debt) and lending are certainly features of capitalism, and if lenders stopped lending the system would be in trouble, but why would lenders do that? Banks and other financial institutions make money by lending money (theirs or other people’s or organisations’) in return for interest, a part of which is their profit.
There are three types of borrowers – individual workers, capitalist enterprises, and governments. Lenders lend workers money to buy consumer items such as household goods, a car or a house but they always check first the chances of getting their money back out of future wages; if they don’t think these chances are high enough they will refuse a loan. Lenders lend to capitalist enterprises to invest in some profitable project and calculate whether they will get their money back out of future profits. They lend to states for the interest states will pay them out of taxation.
In all cases they weigh up the chances of getting their money back with interest and, if the chances are not good enough, they won’t lend. They sometimes get it wrong, but not on the systematic and massive scale assumed by those who think that debts are likely to get out of hand and bring the system down.
Ironically perhaps, it is governments that are the least likely to default. This is because they have the power to raise money from taxes. Which is why, when they scent a recession coming, financial institutions switch to buying government debt (bonds). The leading capitalist states are not going to go bankrupt; their borrowing is sustainable and lenders know it.
It is lending to capitalist enterprises that causes trouble for the system from time to time. Capitalist enterprises are driven by the pursuit of profits; in a boom one sector always eventually overestimates the chances of this, as do those who lend them money. The result is an economic downturn and financial crisis. However, this is not the end of the system. Slumps eventually create the conditions for a recovery by restoring profit-making prospects, and profit-making and capital accumulation resume until the next slump.
The present economic system is not dependent on debt but on making profits.
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