to do work for us. Socialist economies should thus rely predominantly on tax
revenue to fund investment.
3.6 Debt and the credit crisis
Mature capitalist economies have an inbuilt potential for slump because the
property owning classes tend to have more income than they can readily
spend. In the early stages of industrial development this is channeled through
the banks to finance real investment. As reserves of labour get used up,
increasingly capital intensive investment is faced with a law of diminishing
returns and becomes less profitable. If investment is insufficient to balance
saving, a slump is initiated.
The Keynesian solution to this was to tax the property owning classes
and spend the proceeds on public projects to keep the economy buoyant. The
neo-liberal approach since 1980 has been to cut tax on the propertied classes,
whilst at the same time greatly easing the rules on consumer credit. Both
solutions worked for a while.
The credit crisis of 2008 marked a turning point for the neo-liberal model.
Credit had been extended so far that the ratio of debt to real income became
unsustainable. The result was a general banking crisis. Instead of allowing
banks to fail, the state bailed them out. Governments expressed relief that
their action prevented a cascading collapse, but the cost was a growth in
public debt unprecedented in peacetime. Was any other policy available?
There was an alternative policy. The failing banks could simply have been
allowed to fail. The deposit guarantee schemes were generous. Only a small
minority of bank customers held more than the guaranteed deposit. The
majority would not have lost anything had the banks failed. Most customers
have only modest amounts of cash, but a few very rich customers have tens
of millions deposited. To them, the deposit guarantees were practically
worthless.
The trillion-Euro public bailout was done to protect the claims of these
few very rich depositors. Had all deposits above the the guarantee vanished,
the class system would be threatened. For, Adam Smith said, what is money
but the power to command the labour of others? Billions in a bank account
play the role of a patent of nobility under feudalism. Modern Grand Dukes
like like Lakshmi Mittal or the Albrechts’ have their titles on a bank’s hard
drive rather than parchment, but they like their predecessors, still command
the lives and labour of hundreds of thousands.
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Paul Cockshott, Allin Cottrell, Heinz Dieterich