I am going to present a theory here about government debt (also called public debt or national debt). I’ve recently gone back through David Graeber’s towering Debt: The First 5,000 Years and a contention he made stuck out at me, the idea that capitalism relies on the presumption that it is not eternal. To quote the book: “Presented with the prospect of its own eternity, capitalism — or anyway, financial capitalism — simply explodes. Because if there’s no end to it, there’s absolutely no reason not to generate credit — that is, future money — infinitely. The period leading up to 2008 was one in which many began to believe that capitalism really was going to be around forever; at the very least, no one seemed any longer to be able to imagine an alternative. The immediate effect was a series of increasingly reckless bubbles that brought the whole apparatus crashing down.”1
One thing that should be noted about this, and it’s a point that I don’t believe Graeber ever sticks on: the capitalist world order didn’t end in 2008. While he was writing very shortly after 2008, I don’t think that it seemed likely to end in 2011 or shortly after, either. The capitalist order did experience a severe shock and that may, in the long run, be seen as the beginning of a new political era. I am not going to try to explain why the order didn’t collapse. Instead, I’m going to try and explain what the tension of the national debt is in clear philosophical terms, and why capitalist countries struggle against crisis. This has helped me get a better handle on what is happening and hopefully it will help you as well.
For the purposes of this discussion, let us say that every country is ruled by a sovereign ruler: this can be a monarch or a government system or anything in between. We will assume that the sovereign of our country Testland is a “value-sovereign”. A value-sovereign is a sovereign which acts as the determiner (or mediant) of value in their country. I won’t develop the concept of value too much here, but you can think of value-sovereignty as being the domain of a country’s central bank and/or treasury. Now, not all countries are value-sovereign. Greece, for instance, went through a financial crisis in 2008, but the terms of their recovery were largely set by outside powers (principally Germany, through the European Union), demonstrating that they were not value-sovereign. The United States, on the other hand, is value-sovereign over and above the wishes of other countries. The distinctions of value-sovereignty aren’t important here, but to get a basic understanding, it’s better to work with a Testland with a value-sovereign ruler.
If a ruler wants to get something done, they need to give orders. Personally, there are four types of orders: suggestions, directions, requests, and purchases. On a society-wide mechanistic level, these become two types: decrees (orders without the expectation of repayment, which includes suggestions and directions) and requisitions (orders with the expectation of repayment, which includes requests and purchases). An example of a decree is taxation. In the modern era, especially under democratic/republican governments, there is an understanding that taxes will be used to improve society as a whole, but this is not in any way implicit in the idea of taxation. Instead it’s simply a demand made by the government that people give it money. In a crude sense, there is some kind of exchange being made: this is what is meant by “spending political capital”. This “political capital” or “reputation” is not quantifiable like commerce capital but it is understood in general. I’ll return later to the result of spending this reputation.
The other mechanistic way for a ruler to get something done is by requisition, and most obvious kind of requisition is the pledge: the issuing of government debt. This is the ruler asking for an existing value now in exchange for something else. Bonds are the traditional economic way to understand pledges: the lender gives the government cash now on the promise that the government will give the lender more cash later. Another type of requisition is a government purchase, when a government exchanges cash for something else. By making this exchange — either of debt, cash, or other goods — the ruler therefore avoids spending reputation.
I’ve introduced “political capital” and its related term “reputation” as positive aspects, as something that the ruler has and which they can lose. This is actually not the beest way to understand it. Let’s flip it instead. When we say “political capital”, we mean something like “the amount of respect that the public has for a person which makes their acts appear to be legitimate”, so that if someone spends all their political capital, they are no longer legitimate. I think it’s more accurate instead to rate “social discontent” as the positive factor, rising whenever political capital would fall and vice versa. Therefore, when I said earlier that decrees spend reputation, I really should have said that decrees add to discontent and, on the other hand, requisitions do not.
The importance of this flip is that we cannot really tell when one’s political capital spent because it’s even less tangible than commercial capital, so I think it is better to gauge a society’s level of discontent instead, which can be theoretically infinite (whereas political capital could conceivably be less than zero, which doesn’t really make sense). Whichever way you look at it, though, the lack of legitimacy can lead ultimately to a government overthrow, whether a coup or a revolution. This is the history of tax revolts in particular. Using decrees, therefore, presents a clear danger for the ruler.
Because of that danger, rulers rely on pledges whenever they can. The problem that pledges present for rulers is that they are two-way matters. If a ruler tried to force a pledge to be accepted, it would become a decree. Because pledges must be agreed to voluntarily, they can be refused. This is the basic reason for the existence of interest-bearing bonds over simple deposits: a lender is more likely to lend if they can expect more money at the end. In principle, however, pledges do not have to promise any particular terms other than equivalent value. This is why being a value-sovereign was important for this discussion. A value-sovereign can, as it were, create money out of nothing by issuing debt. A ruler who is not a value-sovereign cannot pledge on their own recognizance, they can only use assets that they control to make purchases.
The overuse of pledges will eventually cause lenders to stop accepting them, no longer lending cash/goods to the government to use for purchases. When a government cannot make pledges or purchases, it can only rule by decree. This will increase discontent and it can do so indefinitely; the obvious outcome of this is government overthrow. This is the tension which countries attempt to defuse through their fiscal and monetary policies.
Why does decree cause discontent but requisition doesn’t? I don’t want to say that this is the entire answer, but I believe that what I will say here is part of it: requisition cannot impoverish a person but decree can. Requisition is always a trade of equivalent value; even when receiving “debt”, which seems like nothing, the debt itself can be traded and therefore retains value. Decree, on the other hand, promises nothing back to the person, and therefore has every possibility of impoverishing a person. Every moment spent obeying a decree is one where a person’s livelihood may be ignored. As Roman soldiers of ancient times found out, being sent out to war might mean that one’s farm went to seed and was possibly even seized by some wealthy layabout.
- Graeber, David. Debt: The First 5,000 Years. Melville House: New York, 2011. Page 360 ↩︎
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