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State Debt as an Anchor Point for Capitalism

The following piece has been republised from With Sober Senses with the permission of the author.


Across society battles are emerging that are contesting the content of what ‘Living with Covid’ means. In NSW we see three fronts of class struggle: nurses, teachers, train drivers. All state employees, all working in what we could consider to be social reproduction, fighting over broadly the same issues: pay, staffing and quality of the service provided. They are specific fights which are also starting to construct the possibility of a common good and a good life. (Since writing these words a strike by Aged Care workers has been voted for – showing a movement of struggle into private providers of care services). On the other hand, we have a dwindling Freedom movement. Reacting against the state management of social life in response to COVID (and arguably the continual decay of the conditions of the masses in general) expressing their opposition to these restrictions through audacious protests – increasingly interpolated by an ideology of the Cosmic Right and enmeshed with the various fractions of Australia’s reactionaries.

Above this the state, the executive committee of capital, is attempting to manage the contradictions of both popular desire and accumulation. It does so in a condition of intellectual and theoretical disarray amongst the media and political caste. There is no clear strategy for capital at this historical juncture. Political fractions attempt to displace this lack by endlessly stoking culture wars, reactionary and progressive, and old ideas are recycled and reinflated (maybe another Accord?). This is a local version of a global illness: ‘I think what we must diagnose instead is a ruling class brain tumour: a growing inability to achieve any coherent understanding of global change as a basis for defining common interests and formulating large-scale strategies’ (Davis, 2022).

During the election campaign, we saw this play out at a distance as a debate over ‘economic management.’ In this atrophied public spectacle economic management boils down to a few questions – debt, productivity, IR reform, privatisation. Obviously, there is a discursive relationship between these issues, but it is debt (and moving from deficit to surplus) which has become the totemic economic question of the media and political caste. Thus, we see the reheating of arguments for the necessity of paying down state debt. Achieving a budget surplus, or at least reducing the level of debt and deficit, is seen as the very basis of good economic management. Though increasingly there is some questioning of this doxa, and some influence of Modern Monetary Theory (MMT) amongst the Left. However, this debate is a vortex of stupidity, the gravitational pull of which threatens to also suck in friends and comrades amongst proletarian forces.[I]

For the Right debt itself is a problem for capital accumulation. The logic for why this is varies: large debts shows that that government spending is large and thus private investment is crowded out, or state expenditure pushes up prices thus inflation; or the need to pay off debt in the future means that at some point the state will increase taxation and as such this dampens down businesses desires to invest today.

State debt, as a product of state spending, thus functions in the right-wing economic imaginary as an external cause of disequilibrium to an otherwise smooth functioning market economy. Added to this state spending is often on things that are believed to be in themselves distortions of market equilibrium: welfare payments, the provision of social services and associated public sector wages.

Faced with an unclear future for capital accumulation the road then is obvious. The reduction of debt is a way to clear away distortions from the market economy and open-up the road to capital accumulation. This often links with another plank of the ideology of good economic management – that increasing productivity increases incomes since for these Pharisees the incomes of both capital and labour are apparently determined by productivity. Since they argue that an impact of the open operation of the market is to increase productivity, the sweetener given is that pain today will equal more income tomorrow. That fact that there is no obvious historical, or convincing theoretical, link between productivity and wages (beyond the deal between firms and unions that tied the two together in the post-war period) is a situation best ignored.

For the Left a totally different set of concerns are made in relation to debt. Since the problems of capital accumulation are largely understood through a Keynesian frame, that the problem is insufficient levels of demand, state spending is then seen as necessary to both a) restimulate growth b) reshape growth towards better social outcomes. For those influenced by MMT debt is not a problem as state spending can becoming endlessly self-financing and self-referential as long as it doesn’t exceed the real capacities of the economy and drive-up inflation. For those not influenced by MMT state spending can be financed and debt reduced by increased taxation of the mega-rich. The latter being a positive political outcome in itself.

With much of the Left sharing the delusion of the production function, that productivity drives incomes, state expenditure on roads, education, childcare, etc are seen as increasing the productivity of the entire economy… and thus incomes.

Both these Left and Right versions then view the question of debt as one where government policy, to spend or to cut spending, can function as the core of an effort that stabilises the capitalist economy, and redirect it towards ends they see as good in themselves. Cutting debt and thus spending for the Right always increases what they understand as the realm of freedom, increasing state spending for the Left increases equality etc.

Both wings of the political caste are blind to both the deep structural tendencies towards crisis and how this has led to an expansion and transformation in the role finance plays in global capitalism and thus the importance state debt plays as an asset in anchoring the capitalist mode of production.

Since the crisis of the 1970s, which we can describe as one of overaccumulation driven (at least in part) by the waves of struggles of the ‘Red Decade’, there has been a hypertrophic growth in finance, both in total volume and proportion of the global economy. Finance has become ‘cosubstantial with the production of goods and services’ (Marazzi, 2011, p. 28). Meaning that the other circuits of capital accumulation – the production and circulation of commodities – have become increasingly reliant on finance. Investments by firms and purchases by consumers are increasingly financed by debt, and financial assets (also often purchased on credit), including the securitisation of these debts, offset dwindling profits and crappy wages. All of this has been held in the air by central bank strategies, that despite ideological lip service to a Great Moderation, have on the whole kept cheap money flowing through relatively low interest rates after the Volker shock. (Though in the face of rising inflation the central banks are being compelled to take their feet off the peddle).

No surprise debts, for states, capital and households, have, as a general tendency, massively grown. And crises around debts have emerged. We normally assume that there is some relationship between say a company and the value of bond or share associated with it. Though how far this relationship can be stretched is an open question. With much financial speculation (the gains from which then flow back through the system into other company profits, state investment funds, private speculators, superannuation, and retirement funds etc.) being driven by seeking capital gains aided by cheap money this can get very stretched indeed. As Marazzi, riffing off Keynes, argues what seems to drive financial markets is the herd mentality of the market: what each player thinks all the other players think all the other players think about the behaviour of the market (Marazzi, 2014). But this means there are crisis moments where the gap between the actual firm, state, etc conditions and price of a related asset can explode (the relation of financial crises to the rest of capitalism being sometimes obvious, sometimes obscure, and much debated).

Here state bonds play a particular role. State debt and the trade around them functions in practice as a key stone of finance capital, on which the entire mode of production depends. State debt functions as both a safe asset for investors and a marker for the pricing of all other assets and thus the behaviour of all other actors in the market. When the Howard-Costello government had the opportunity to pay off all Australian debt, it was the analysis of state debt’s dual role that convinced them not too. (Though some in Treasury could imagine a different variant of capitalism where a different asset played the same role) (The Treasury, 2002) (Australian Office of Financial Management, 2008)

Even if the MMT claim that states spend first, borrow second and tax third is true, currently in practice states link their spending to bonds on which finance capital requires. “Finance capitalism is – and always has been, meaning: for the last 500 years – a central and constituent element of capitalism in general” (Badiou, 2010, p. 94). Thus, the logic underpinning the state’s behaviour in relation of debt, however it is filtered through the ideology of the day, is the requirement of the state to secure the value of its bonds thus the investments of its creditors, the health of finance capital and thus the health of the capitalist mode of production on a whole. A theoretical state could junk this in practice, but it would throw really existing capitalism into increased disarray. And states, whatever the flavour of their governments, are enmeshed within and subordinate to capitalism as a mode of production in its concrete local and global instantiation.

When cuts to state spending are declared many friends and comrades pose the battle as one between social needs and neoliberal ideology. This is an error. It is a contradiction between how social reproduction is managed by the state in relation to the health of the capitalist mode of production on a whole. The secret of austerity is to try to secure the latter by intensifying the work and reducing the costs of the former (i.e., wages of workers and staffing numbers employed by the state and by shifting more and more of the cost and work into the home and onto the wages, and thus the debt, of households). Our point of orientation should be our needs and desires, how they are met or not met by the current level of social reproduction, against attempts to make their provision worse, and how we would like them to be better – as part of the struggle to abolish the capitalist mode of production and build a new society around common ownership and collective self-determination. Having a clear understanding of the function of state debt is helpful in clarifying the terrain on which we move.

(Thanks to Annie and Mark for the encouragement to actually get some writing finished)


Australian Office of Financial Management. (2008). Role Of The Commonwealth Government Securities Market .Commonwealth of Australia.

Badiou, A. (2010). The Communist Hypothesis. London & New York: Verso.

Davis, M. (2022). Thanatos Triumphant. Retrieved from Sidecare:

Marazzi, C. (2011). The Violence of Financial Capitalism. (K. Lebedeva, & J. F. McGimsey, Trans.) Los Angeles, CA: Semiotext(e).

Marazzi, C. (2014). The Linguistic Nation of Money and Finance. (I. Bertoletti, J. Cascaito, & A. Casson, Trans.) Los Angeles,CA: Semiotext(e).

The Treasury. (2002). Review of the Commonwealth Securities Market. Commonwealth of Australia.

[i] ‘Proletarian Forces’ is the current place-holder I am using instead of ‘The Left’

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