Por Eric Toussaint
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Photo by Lianna Begett |
“The national debt, i.e. the alienation [Veräußerung] of the state – whether that state is despotic, constitutional or republican – marked the capitalist era with its stamp. The only art of the so-called national wealth that actually enters into the collective possession of a modern nation is- the national debt.
Hence, quite consistently with this, 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, lack of faith in the national debt takes the place of the sin against the Holy Ghost, for which there is no forgiveness.
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. (…) 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.”
The public debt becomes one of the most powerful levers of primitive accumulation. As with the stroke of an enchanter’s wand, it endows unproductive money with the power of creation and thus turns it into capital, without forcing it to expose itself to the troubles and risks inseparable from its employment in industry or even in usury. The state’s 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. (…) the national debt has given rise to joint-stock companies, to dealings in negotiable effects of all kinds, and to speculation: in a word, it has given rise to stock-exchange gambling and the modern bankocracy.” – Karl Marx. Capital: A Critique of Political Economy[1]
Public debt: a claim on the state and an instrument of capital accumulation
This text by Marx, written in the 19th century, may at first glance seem very far removed from our current situation. Yet his analysis of public debt remains remarkably relevant today.
For Marx, public debt is not simply a sum that the state must repay. It establishes a specific relationship between the state and the holders of its debt securities. Those who lend to the state acquire a claim on it: they are entitled to interest payments and, ultimately, to the repayment of the principal. Public debt thus transforms part of the state’s future revenue into income paid to the holders of debt securities.
This is the meaning of the particularly powerful expression used by Marx: “public debt, in other words, the alienation of the state.” By “alienation”, we must understand that the state binds itself through financial commitments to its creditors. A portion of its future resources is thus allocated to servicing the debt. The larger the debt, the greater the leverage that capital holders have over the state’s budgetary and economic decisions.
Marx, however, goes much further. He asserts that public debt played a major role in the “primitive accumulation” of capital. Historically, states have borrowed on a massive scale to finance wars, colonial conquests, and the administrations and infrastructure necessary for the expansion of trade. Public borrowing enabled available capital to locate a relatively safe and profitable investment.
It is here that his statement that “public credit is the creed of capital” takes on its full meaning. Capital finds a particular outlet in public debt: it can be lent to the state and generate interest without the owner having to organise any productive activity themselves. The holder of the debt instrument becomes a creditor of the state and receives an income in return for this claim.
Marx thus highlights a mechanism that remains perfectly recognisable today: the state borrows and, to repay the interest and the principal, draws on its public revenue, which comes mainly from taxes and contributions. Debt servicing thus constitutes a transfer of public resources to the holders of the securities.
This helps to explain a fundamental contradiction. Public debt is presented as a debt owed by the state and, therefore, as a collective debt. Yet its creditors are not “society” as a whole. They consist of banks, investment funds, insurance companies, pension funds, wealthy households, central banks and other financial institutions. Public debt therefore simultaneously creates a liability for the state and a financial asset for its creditors.
This dual dimension is essential. When the state borrows 100 billion dollars, this amount appears in its accounts as a debt, but at the same time it constitutes a claim of 100 billion for those who hold the corresponding securities. The debt of some corresponds to the financial assets of others.
This is what Marx’s provocative statement helps us understand: “The only part of so-called national wealth that actually comes into the collective possession of modern peoples is their public debt”. Obviously, this statement should not be taken literally. Marx is highlighting a paradox here: public debt is referred to as “national wealth”, while at the same time representing a state obligation towards those who hold the debt securities.
His statement regarding the belief that “the more a people goes into debt, the richer it becomes” is also worth considering in the context of contemporary discourse. We still regularly hear it said that public debt is of no real significance as long as the state can constantly refinance maturing loans. Marx urges us to look beyond this apparent ease: we must ask ourselves who holds the claims on the state, who receives the interest and who bears the burden of paying it.
His analysis of debt as a financial instrument is also striking when he writes that it has contributed to the development of joint-stock companies, securities markets, speculation and ‘modern bankocracy’. Public debt is therefore not merely a means of financing state expenditure: it contributes to the formation of a vast capital market.
On this point too, Marx’s relevance is clear. Government bonds are now one of the main assets on global financial markets. They are constantly bought and sold by banks, investment funds, insurance companies, pension funds and central banks. Their circulation enables public debt to be transformed into a tradable financial asset, which can serve as collateral, be resold or form part of complex financial arrangements.
Finally, we must emphasise the political implications of this analysis. Public debt is not merely a question of debt levels or financial sustainability. It is also a question of power. Who decides on the level of debt? Who holds the securities? Who receives the interest payments? Who pays the taxes that make these payments possible? Which areas of public spending are cut when debt servicing costs rise? Why should the state continue to honour all debts indiscriminately, including those arising from fiscally unjust policies, excessive interest rates, or decisions made without democratic oversight?
It is precisely here that a reading of Marx can be extended today through the call for a citizens’ audit of public debt. It is not enough to know the amount of the debt. We must examine its origin, the conditions under which it was incurred, the beneficiaries of the policies it has financed, the holders of the debt, and the cost it imposes on the community.
Marx’s aim, therefore, is not to provide a ready-made formula for dealing with public debt in the 21st century. Rather, he provides us with a framework for analysis: behind a figure presented as a purely economic statistic lie relations of ownership, transfers of income and power relations. It is precisely this political dimension of debt that the dominant discourse tends to conceal.
The State’s creditor: capital that yields a return without producing anything
Marx’s statement that ‘public creditors, strictly speaking, give nothing’ may seem paradoxical. When a bank, an investment fund or an individual buys a government bond, they do indeed pay a sum to the issuer of the security. Why, then, does Marx claim that the creditor ‘gives nothing’?
He wishes to draw attention to what happens after the loan is made. The creditor hands over their money to the state but, in return, receives a security entitling them to interest and the repayment of the principal. They therefore hold a financial asset which can itself be retained, transferred or resold. Their money has not disappeared: it has been transformed into a claim on the state.
This is why Marx writes that the creditor’s capital, ‘transformed into easily transferable government securities, continues to function in their hands just as if it were cash’. In contemporary terms, one might say that the creditor holds a financial security representing a claim on the state’s future revenues. This security can circulate on the markets and be resold.
Let us take a simple example. An investor buys 100 million worth of government bonds. They become a creditor of the state. The state pays them interest each year and, upon maturity, repays the principal. But in the meantime, the investor may resell the bonds to another financial market participant. They then recoup their capital, while the new purchaser in turn becomes a creditor of the government.
Consequently, the same debt security can change hands multiple times without the government repaying the corresponding capital. For the government, the debt remains. For successive holders, it constitutes an asset that can be bought, sold and valued.
This is a key point for understanding how contemporary bond markets operate. When we say that ‘the markets finance the government’, we are describing only part of the reality. The financial markets also organise the circulation of claims against the government. Public debt thus becomes a financial commodity.
This transformation has a fundamental consequence: the state is not merely a debtor at the moment it borrows. It remains a debtor for as long as the security has not been redeemed or cancelled. The original creditor may have long since disappeared, but their claim may have been resold to numerous other holders.
This also helps to explain why public debt can become a particularly powerful instrument for financial capital. A company that invests in a productive activity takes risks: its investment may not be profitable, it may go bankrupt, or its equipment may lose value. The holder of a government bond finds themselves in a different situation: they hold a claim on a state which has the power to levy taxes and, under certain conditions, to create money.
This is precisely what Marx is referring to when he states that public debt ‘endows unproductive money with the power of reproduction and thus transforms it into capital’.
The expression can be put simply: money that is not directly used to produce goods can nevertheless generate an income for its owner because it is transformed into a claim on the state. The holder of the security receives interest without having to organise the production that makes it possible to pay that interest.
However, we must avoid a misinterpretation. Marx does not say that money lent to the state magically creates new wealth. Rather, he shows that a portion of capital can generate an income in the form of interest on public debt. The state must have revenue at its disposal to pay out this interest. It can obtain revenues through taxation, new borrowing or, in some cases, money creation.
This leads to a crucial question: where does the income paid to holders of public debt come from?
This question is asked far too infrequently in debates on debt. Interest is often presented as simply the ‘cost’ of government borrowing. But it also constitutes a transfer of income. When the state pays out billions of euros in interest, it transfers public resources to the holders of its debt securities.
The issue then becomes a social and political one: who receives this interest and who helps to finance its payment?
If the debt holders are mainly large wealth holders, banks, investment funds or insurance companies, while public revenue relies largely on indirect taxes borne by the entire population, debt servicing can contribute to a transfer from the working and middle classes to capital holders.
It is here that Marx’s analysis directly ties in with the need for a citizen-led audit of the debt. It is not enough to ask how much the state owes. We must also examine to whom it owes, under what conditions, why it owes, and how much this debt has already cost in interest.
And this analysis leads us to challenge another idea that is very widespread today: the notion that public debt is necessarily legitimate simply because it was incurred legally.
For Marx, the key issue is not merely a legal or accounting one. It concerns the social relations that debt organises. Public debt can be perfectly legal while producing a profoundly unjust distribution of wealth. It can fund fiscal policies that favour the wealthiest, bank bail-outs, wars or expenditure whose democratic legitimacy and social utility may be contested. It can fund policies that are harmful to the environment.
This is why the cancellation of part of the debt must not be viewed solely as a financial transaction. To cancel a debt is to remove the holder’s right to receive the future income attached to that debt. It therefore alters both a relationship of ownership and a relationship of power.
This is why, for Marx, public debt is much more than just a matter of “public finances”. It is a mechanism that enables capital to transform a sum of money into a right to future income drawn from the state’s resources.
And it is precisely this mechanism that must now be examined democratically: which debts do we wish to continue honouring, which ones should be restructured or cancelled, and to whose benefit?
Second extract from Marx’s Capital: public debt and taxation
As the national debt is backed by the revenues of the state, which must cover the annual interest payments etc., the modern system of taxation was the necessary complement of the system of national loans. The loans enable the government to meet extraordinary expenses without the taxpayers feeling it immediately, but they still make increased taxes necessary as a consequence. On the other hand, the raising of taxation caused by the accumulation of debts contracted one after another compels the government always to have recourse to new loans for new extraordinary expenses. The modern fiscal system, whose pivot is formed by taxes on the most necessary means of subsistence (and therefore by increases in their price), thus contains within itself the germ of automatic progression. Over-taxation is not an accidental occurrence, but rather a principle. [2]
Public debt: a transfer between social classes
In another passage in Capital, Marx addresses a key aspect of public debt: someone must pay the interest and repayments due to the state’s creditors. And that “someone” is the taxpayer.
His argument is based on a simple mechanism. Public debt is ‘based on public revenue’: the state must therefore have revenue available to pay the interest each year and, when the securities mature, to repay the principal. Yet its revenue comes mainly from taxation.
Borrowing allows the government to have immediate access to resources without immediately requiring taxpayers to bear the full cost of the expenditure. But this burden is merely deferred. Today’s borrowing becomes a tax liability for tomorrow.
Marx then shows that the mechanism can become cumulative: borrowing leads to additional interest; this interest increases the need for revenue; the rise in taxation reduces budgetary margins; and when the state faces new extraordinary expenditure, it may be forced to borrow again. The new debts, in turn, lead to further tax burdens.
But Marx does not stop at the mechanics of the budget. He is interested in how this tax burden is distributed among the different social classes.
It is here that his observation on taxes levied on “basic necessities” takes on its full significance. Everyone who buys the relevant products pays indirect taxes on consumption, but the financial burden varies for each individual.
A low-income household that spends most of its income on food, housing, heating and transport devotes a large proportion of its resources to consumption. A significant proportion of their income is therefore subject to indirect taxation. Conversely, the wealthiest households can devote a much larger share of their income to saving, acquiring financial assets or building up wealth.
Taxation can therefore be formally identical yet socially deeply unequal.
It is here that Marx’s analysis becomes particularly illuminating for understanding contemporary debt policies. When a government increases VAT, energy taxes, fuel duties or other indirect taxes in order to boost public revenue, it is not simply bringing more money into the state coffers. It is also choosing which social classes will bear the burden of the required effort.
At the other end of the chain are the state’s creditors.
Holders of public debt securities – banks, investment funds, insurance companies, pension funds, wealthy households or other financial institutions – have acquired a right to receive interest and to recover their capital. When the state levies taxes to pay this interest, it is organising a transfer of resources.
Public debt must therefore be viewed not only as a relationship between the state and its creditors but also as one that cuts across social classes.
When tax revenue derived largely from popular consumption is used to pay interest on securities held by capital owners, a portion of the income levied on the population is transferred to the owners of financial capital.
This is precisely what purely accounting-based presentations of the debt tend to obscure. They speak of ‘the state’, ‘the taxpayer’ and ‘the markets’ as if they were homogeneous entities. But there is no abstract taxpayer or creditor who indiscriminately pays off the debt.
On the one hand, there are those who hold claims on the state; on the other, those who contribute to the revenue used to service those claims. And the two groups do not necessarily overlap.
This distinction is fundamental.
When governments say we must ‘reassure the markets’ and repay the debt, they are defending the interests of the claim holders. When, at the same time, they refuse to significantly increase taxation on large fortunes, the highest incomes or the exceptional profits of large companies, while raising indirect taxes, they are making a class-based choice. When, at the same time, they refuse to significantly increase taxation on large fortunes, the highest incomes or the exceptional profits of large companies, while raising indirect taxes, they are making a class-based choice.
It is therefore not merely a question of how much the state owes. We must know to whom it owes and who pays so that it can honour its commitments.
This issue is all the more important given that public debt can become a tool for regressive redistribution. A progressive tax policy can ensure that those with the highest incomes and wealth contribute more. However, a policy relying heavily on indirect taxes can place a disproportionate burden on the working and middle classes.
In the first case, taxation reduces inequalities. In the second, it can reinforce them.
This is why Marx’s statement that ‘the tax burden is not an incidental feature, but the very principle’ is worth revisiting today. It does not mean that any public debt automatically leads to a permanent rise in taxes. It helps us understand something else: when the state accumulates interest-bearing debt, it simultaneously creates a lasting obligation to generate revenue to repay its creditors. The manner in which this revenue is raised then becomes a matter of social struggle.
The real question is therefore not: “How should the debt be paid off?”
It is: “Who should pay, who should be exempt, and who benefits from the repayment of the debt?”
This reframing changes the entire perspective.
It also helps us understand why the question of cancelling or restructuring part of the debt cannot be reduced to a technical issue. Cancelling a debt means removing the right to a future transfer of public resources to its holder. Conversely, maintaining a debt in full amounts to upholding the creditors’ rights to the state’s future revenue.
Public debt is therefore a matter of redistribution between social classes.
That is why, before asking the working classes to pay more VAT, energy taxes or other indirect levies in the name of debt reduction, we must ask a far more fundamental question: why make those with the fewest resources pay more, when those with the greatest wealth and capital could be called upon to contribute more?
And even before asking the public to bear this burden, we must determine which part of the debt is legitimate.
This is where the citizens’ audit becomes essential. It must reveal the debts’ origins, the conditions of their incurrence, the interest paid, the policies they financed, and the social groups that benefited. It must also identify the current holders of the debt and measure the income transfers resulting from debt servicing.
The issue of public debt then becomes what it fundamentally is, according to Marx: a question of power relations and relations between social classes.
Behind the debt figure lie creditors who hold claims on the state’s future revenues and taxpayers whose tax contributions ensure that these claims are met.
The democratic question, therefore lies in collectively deciding which debts should be honoured, which should be restructured or cancelled, and how to organise the tax system so that those with the greatest ability to pay are made to contribute as a matter of priority.
Third extract from Capital. Marx and the role of public debt in the genesis of the international capitalist system
With regard to the first quotation, “The national debt, i.e. the alienation of the state…”, the paragraph actually begins with the following two sentences: “The system of public credit, i.e. of national debts, the origins of which are to be found in Genoa and Venice as early as the Middle Ages, took possession of Europe as a whole during the period of manufacture. The colonial system, with its maritime trade and its commercial wars, served as a forcing-house for the credit system. Thus it first took root in Holland.”
In this chapter, Karl Marx demonstrates how different forms of primitive accumulation, occurring on an international scale, contribute to the development of the capitalist system. Here is an extract summarising the role of public debt and the international credit system:
Along with the national debt there arose an international credit system, which often conceals one of the sources of primitive accumulation in this or that people. Thus the villainies of the Venetian system of robbery formed one of the secret foundations of Holland’s wealth in capital, for Venice in her years of decadence lent large sums of money to Holland. There is a similar relationship between Holland and England. By the beginning of the eighteenth century, Holland’s manufactures had been far outstripped. It had ceased to be the nation preponderant in commerce and industry. One of its main lines of business, therefore, from 1701 to 1776, was the lending out of enormous amounts of capital, especially to its great rival England. The same thing is going on today between England and the United States. A great deal of capital, which appears today in the United States without any birth-certificate, was yesterday, in England, the capitalized blood of children.
In another passage from the same chapter on primitive accumulation, Marx criticises authors such as William Cobbett (1762–1835) who viewed public debt as ‘the primary cause of the misery of modern peoples’. In Capital, Marx sets out to show that the genesis of the capitalist era, followed by the ‘victory’ of the capitalist system in the 19th century, is characterised by and attributable to a combination of several profound actions and transformations spanning multiple centuries. The public debt system is one significant factor; another is the fiscal policy that he criticises in the extract mentioned earlier. In the same chapter, Marx offers a generalised overview of various forms of primitive accumulation, yet he does not claim to cover them all comprehensively:
The different moments of primitive accumulation can be assigned in particular to Spain, Portugal, Holland, France and England, in more or less chronological order. These different moments are systematically combined together at the end of the seventeenth century in England; the combination embraces the colonies, the national debt, the modern tax system, and the system of protection”. On the subject of the colonial system, he writes: “The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the indigenous population of that continent, the beginnings of the conquest and plunder of India, and the conversion of Africa into a preserve for the commercial hunting of blackskins, are all things which characterize tpe dawn of the era of capitalist production. These idyllic proceedings are the chief moments of primitive accumulation.
In Europe, these various sources of primitive accumulation are compounded by the gradual dispossession of producers from their means of production, thereby making available to industrial capital a mass of labour transformed into wage labour that produces surplus value. This is what Marx summarises later in Capital when he describes the dispossession of small peasants and artisans:
The expropriation of the direct producers was accomplished by means of the most merciless barbarism, and under the stimulus of the most infamous, the most sordid, the most petty and the most odious of passions. Private property which is personally earned, i.e. which is based, as it were, on the fusing together of the isolated, independent working individual with the conditions of his labour, is supplanted by capitalist private property, which rests on the exploitation of alien, but formally free labour. [3]
He links this dispossession to other forms of primitive accumulation:
… this terrible and arduously accomplished expropriation of the mass of the people forms the pre-history of capital. It comprises a whole series of forcible methods, and we have only passed in review those that have been epoch-making as methods of the primitive accumulation of capital.
When finance obscures the origin of capital
Marx’s example, which ranges from Venice to the Netherlands and then to England, is particularly illuminating. It shows that capital is not tied to where it was first accumulated. It can be moved to another country, turned into loans, securities, or claims, and still earn income for its owners.
This phenomenon is precisely what Marx seeks to suggest when he writes, with regard to capital flowing into the United States, that part of it has “without any birth-certificate” and is, in reality, “was yesterday, in England, the capitalized blood of children”. Once transformed into financial capital, wealth can indeed appear in a seemingly neutral form: a security, a debt claim, a bond, a bank deposit or another financial asset. Its current holder may have no connection whatsoever with the historical conditions under which that wealth was accumulated.
The financial form of capital thus tends to erase its history.
This observation is important for understanding public debt. A government bond held today by a fund, a bank or an investor appears to be a mere financial asset. But the security itself says nothing about the conditions under which the debt was incurred, the policies it financed, the interest already paid, or the social groups that bore the taxes used to remunerate its holders.
It is therefore not enough to ask who currently holds the public debt securities. We must also explore the historical context of the wealth that facilitated their acquisition, as well as the mechanisms of transfer that now allow for their remuneration.
Marx’s significance lies precisely in prompting us to look beyond the financial appearance of things. Behind the circulation of a debt security lie social relations: creditors who hold a claim on future revenues and, on the other side, a collectivity that must mobilise resources to honour that claim.
This approach remains particularly useful today. An audit of public debt should therefore not only focus on its amount and its current holders but also on its history: how was this debt accumulated, under what conditions, to finance which policies, with which beneficiaries, and at what cost to the various social classes?
In other words, following Marx’s method, we must recover the social history concealed behind the financial security.
Notes.
[1] Marx, Karl. Capital: A Critique of Political Economy, Volume I. Translated by Ben Fowkes. London: Penguin Books, 1976, Part Eight, Chapter 31. https://www.surplusvalue.org.au/Marxism/Capital%20-%20Vol.%201%20Penguin.pdf Éric Toussaint is the author of A Glance in the Rear-View Mirror: Neoliberal Ideology from its Origins to the Present Day, Chicago : Haymarket Books, 2012 ; The Debt System, Chicago : Haymarket Books, 2019.
[2] Ibid.
[3] Marx, Karl. Capital: A Critique of Political Economy, Volume I. Translated by Ben Fowkes. London: Penguin Books, 1976, Part Eight, Chapter 32.
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