Seventeen Contradictions and the End of Capitalism (8 page)

Above all, the state has to find a way to govern and administer diverse, often restive and fractious populations. That many capitalist states have ended up doing so through the institution of democratic procedures and mechanisms of governmentality to elicit consent rather than by resorting to coercion and force has led some to suggest, erroneously in my view, an inherent bond between democratisation and capital accumulation. That some form of bourgeois democracy has proved to be generally more effective and efficient as a form of governance within capitalism in general is, however, undeniable. But this outcome has not necessarily been a consequence of capital’s rise to dominance as the economic engine of a social formation: it owes its dynamic to broader political forces and to long-standing attempts to find collective forms of governance that effectively bridge the tension between the potential arbitrariness of state autocratic power and the popular desire for individual liberty and freedom.

Then there is the pervasive problem of what to do about market failures. These arise because of so-called externality effects, defined as real costs which are not (for some reason) registered in the market. The most obvious field of externalities is pollution, where firms and individuals do not pay for deleterious effects on air, water and land qualities through their actions. There are other forms of both positive and negative externality effects that typically lead to calls for collective rather than individual action – the exchange value of housing, for example, is captive to externality effects since investment or disinvestment in one house in a neighbourhood has an effect (either positive or negative) on the value of houses in the immediate vicinity. One form of state intervention designed to cope with problems of this sort is land-use zoning.

Most people concede the legitimacy of state or other forms of collective action to control and regulate those activities that generate strong negative externality effects. In all of these instances the state necessarily has to encroach upon the exercise of individual liberties and private property rights. The contradiction between use and exchange values spills over to have profound effects upon the relation between centralised state power and the free exercise of decentralised individual private property rights. The only interesting question is how far does the state go and to what degree that encroachment might be based on coercion rather than the building of consent (a process that unfortunately entails the cultivation of nationalism). In any case, the state has to have a monopoly over the legalised use of violence to exercise such functions.

That monopoly also becomes explicit in the way the state in both its pre-capitalist and its capitalist incarnations has been pre-eminently a war-making machine embroiled in geopolitical rivalries and geo-economic strategising on the world stage. Within the framework of an emergent and perpetually evolving interstate global system, the capitalist state is involved in the pursuit of diplomatic, trading and economic advantages and alliances to secure its own wealth and power (or, more accurately, the wealth, status and power of its leaders and at least some segments of the population) by enhancing the capacity of property-rights holders to amass more and more wealth in the territory in which they reside. In so doing, war – classically defined as diplomacy by other means – becomes a crucial tool of geopolitical and geo-economic positioning in which the amassing of wealth, competitive power and influence within the territorial confines of the state becomes a distinctive aim.

But to fight wars and engage in such manoeuvrings the state requires adequate economic resources. The monetisation of its war-making activities lay at the root of the construction of what economic historians refer to as the fiscal-military state from the fifteenth century onwards. At the heart of this state lay the construction of what I call the ‘state–finance nexus’. In the British case this was most clearly symbolised by the alliance between the state apparatus on
the one hand and the London merchant capitalists on the other. The latter effectively funded the state’s war-making powers by securing the national debt in return for an exclusive charter to monopolise and manage the monetary system through the formation of the Bank of England in 1694. This was the world’s first central bank. It subsequently became a model for the rest of the capitalist world to follow.

This highlights a key relationship between the state and money. Silvio Gesell, I think, has it right:

Money requires the State, without a State money is not possible; indeed the foundation of the State may be said to date from the introduction of money. Money is the most natural and the most powerful cement of nations … The fact that money is indispensable, and that State control of money is also indispensable, gives the State unlimited power over money. Exposed to this unlimited power the metal covering of money is as chaff before the wind. Money is as little protected by the money-material from abuse of State power as the constitution of the State is protected from arbitrary usurpation of power by the parchment upon which it is written. Only the State itself, the will of those in power (autocrats or representatives), can protect money from bunglers, swindlers and speculators – on condition that those in power are capable of purposeful use of their power. Up to the present they have never, unfortunately, possessed this capability.
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Yet, Gesell surprisingly suggests, ‘the security of paper-money is greater than that of metal money’. This is so precisely because ‘paper-money is secured by all the interests and ideals which weld people into a State. The paper-money of a State can only go down with the State itself.’ The state, which is usually defined by its monopoly over the legitimate use of violence, acquires another key function: it must have monopoly power over money and the currency.

There are two caveats to this argument. First, this monopoly power is generic to the state and not particular. The global monetary system is hierarchical in character. The US dollar has functioned as
the reserve currency for the global monetary system since 1945 and the USA has exclusive rights of seignorage (creation) of that money. The monetary powers of other states are circumscribed because international debts are typically denominated in US dollars and have to be paid in dollars. An individual state cannot monetise its debts by printing its own currency because the immediate effect will be to devalue the local currency against the US dollar. There are other currencies which might be used for global trade – pounds sterling (which used to be the global reserve currency), the euro and the yen and maybe in the future the Chinese yuan. But these have so far not threatened the position of the US dollar and occasional proposals to replace the dollar with a market-basket of currencies (of the sort that Keynes originally proposed at Bretton Woods in 1944) have so far been rebuffed by the USA. Considerable benefits accrue to the USA, after all, from its control over the global reserve currency. US imperial power has been exercised either directly or indirectly by dollar diplomacy. The hegemony of the US state in the world system is largely sustained by its control over the world currency and its ability to print money to pay, for example, for its excessive military expenditures. In the face of this, individual states may give up their role over their own currency. Ecuador, for example, uses US dollars. When the euro came into being, the individual states surrendered their monopoly power over their currencies to a set of supra-national institutions (the European Central Bank) dominated by Germany and to a lesser degree by France.

The second caveat is that this monopoly right of the state over the currency can be subcontracted, as it were, to merchant and banking capitalists through the chartering of central banks that are nominally independent of direct democratic or state political control. This is the case with the Bank of England, the US Federal Reserve and the European Central Bank. These powerful institutions exist in a liminal space between the state and the private banks. They are institutions which, along with the Treasury Departments of the state government, form the state–finance nexus that has long functioned as the ‘central nervous system’ for regulating and promoting capital. The
state–finance nexus has all the characteristics of a feudal institution, because its operations are usually hidden from view and shrouded in mystery. It operates more like the Vatican or the Kremlin than like an open and transparent institution. It assumes a human face only at times of difficulty, when, for example, Hank Paulson (Secretary of the Treasury) and Ben Bernanke (Chair of the Federal Reserve) jointly took to the airwaves to dictate national policy in the wake of the collapse of Lehman Brothers in September 2008, when both the Executive Branch and Congress appeared paralysed and fearful. ‘When the financial system and the state–finance nexus fails, as it did in 1929 and 2008, then everyone recognises there is a threat to the survival of capital and of capitalism and no stone is left unturned and no compromise left unexamined in the endeavours to resuscitate it.’
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But all is not always harmonious in the relation between the capitalist state and private property. To the degree that the state embraces some form of democracy in order to counteract the absolutist and autocratic state forms that can be arbitrarily hostile or unreceptive to certain of the requirements of capital, regarding, for example, freedom of movement, so it is opened up to populist influences of various sorts. If, as sometimes happens, it is captured by organised labour and left political parties, so its powers may be deployed to curb the powers of capital as private property. Capital can then no longer operate freely in many domains of the economy (labour markets, labour processes, income distributions and the like). It finds itself forced to operate in the framework of a veritable regulatory forest that circumscribes its freedoms. From time to time, therefore, the contradiction between state and private property gets heightened into an absolute contradiction that pits public against private, state against market. Fierce ideological and political battles can erupt around this contradiction.

But let me be clear: I am not here trying to write out a general theory of what the capitalist state is all about. I am simply drawing attention to those aspects and specific functions of the state that have to operate in a certain way to support the reproduction of capital. Given its powers of taxation and the state’s susceptibility to political influences and interests, state powers can sometimes be redirected
politically to economic ends in ways that trump private entrepreneurial activity and interests. During phases of social democratic political control (of the sort that was set up in Britain after the Second World War as well as in some European countries) and under various forms of
dirigiste
governmentality (of the sort characteristic of France under de Gaulle, Singapore under Lee Kuan-Yew and many other East Asian states, including China), state institutions can be created and organised as economic agents that either assume control of the commanding heights of the economy or guide investment decisions. Government planning at a variety of scales (macroeconomic, urban, regional and local) takes centre stage sometimes in competition with but more often in partnership with private and corporate activities. A large segment of capital accumulation then passes through the state in ways that are not necessarily directed to profit-maximising but to social or geopolitical ends. Even in states most devoted to the principles of privatisation and neoliberalisation, the military-industrial complex is set apart from the rest of the economy as a lucrative trough at which private subcontracted interests freely feed.

From the other end of the political spectrum, the manner of organising state finances is something libertarians clearly see as profoundly contradictory to individual liberties and freedoms. It passes monopoly control over money and credit to a non-elected and undemocratic set of institutions, headed by the central bankers. A critic like Thomas Greco therefore argues:

The politicization of money, banking, and finance (which prevails throughout the world today) has enabled the concentration of power and wealth in few hands – a situation that has been extremely damaging to societies, cultures, economies, democratic government, and the environment. National governments have arrogated to themselves virtually unlimited spending power, which enables them to channel wealth to favored clients, to conduct wars on a massive scale, and to subvert democratic institutions and the popular will. The privileged private banking establishment has managed to monopolize everyone’s credit,
enabling the few to exploit the many through their partiality in allocating credit, by charging usury (disguised as ‘interest’) and increasingly exorbitant fees, and by rewarding politicians for their service in promoting their interests.
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The libertarian argument, which is by no means implausible, is that this was what subverted the possibility of a genuine bourgeois democracy characterised by the maximum of individual liberty from the seventeenth century onwards. This is the system that in addition forces compounding growth, invites ‘environmental destruction and rends the social fabric while increasing the concentration of power and wealth. It creates economic and political instabilities that manifest in recurrent cycles of depression and inflation, domestic and international conflict, and social dislocation.’
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For this reason both left and right wings of the political spectrum in the United States tend to be antagonistic to institutions like the Federal Reserve and the International Monetary Fund.

The balance of the contradiction between private interests and individual liberties on the one hand and state power on the other has shifted most decisively in recent years towards the undemocratic, autocratic and despotic centres of the state apparatus, where they are backed by the increasing centralisation and militarisation of social control. This does not mean that the decentred powers of individual property owners are dissolved or even at risk. Indeed, those powers are enhanced as capital is increasingly protected against any and all forms of social opposition: for example, from labour or from environmentalists. Decentralisation is in any case often an optimal strategy for maintaining centralised control. The Chinese have in recent times consciously deployed this principle very effectively. It is nowhere more evident than in the state organisation of money power in commodity markets.