Debt in the Global Economy

Abstract

In the social ontology of capitalism, debt has become one of its most fundamental social forms, a constitutive though fictitious structure that subsumes and disrupts social life. “The Political Economy of Debt and the Present Moment of World History” reveals the destabilizing consequences and precariousness of debt-based capital. Smith maps striking developments in the role of debt that distinguish our historical period and presents seven “stylized facts” about our social world. From the standpoint of most mainstream economic theories, they are all anomalies, caused by extraneous factors. As Thomas Kuhn taught long ago in The Structure of Scientific Revolutions, however, there is some point past which the accretion of anomalies and ad hoc explanations calls established paradigms into question. A Marxian framework extrapolated from the third volume of Capital offers a superior basis for comprehending these crucially important features of the contemporary world, and, from that point, proceeds by examining three dimensions of macro-monetary circuits: the use-value dimension of innovations that create dynamic new markets and expand established ones; the social relations dimension of labor markets and labor processes that enable surplus value to be produced, and the monetary dimension, that is, the difference between the aggregate of money accumulated at the conclusion of a circuit (M’) relative to the aggregate invested at its beginning (M). An argument is given that the valorization process from M to M’ requires the insertion of credit by the financial sector. Part Two constructs a historical narrative of the return to growth after the global slowdown of the 1970s, focusing on the three dimensions discussed in Part One. Part Three begins by noting a number of striking features of the monetary dimension today, including the astounding and absolutely unprecedented amount of debt that has been created; the fact that ever-greater amount of debt are required to obtain a given increment of growth; and the greater share of debt created within the financial sector that remains within that sector, generating self-sustaining financial bubbles. Smith argues that these features of credit in the contemporary economy are rooted in the proliferation of national innovation systems that are dynamic in use-value terms but hamper valorization. The final section explores the implications of the political economy of credit for social relations, concluding that the normative issues they raise could not be more profound.