Commenti disabilitati su Public debt and Marginalist shibboleths : Italy’s case, March 3, 2017

The defeat of philo-Semite Nietzscheism at the hands of the anti-Nazifascist class alliance does not belong to such a remote past to be totally erased from memory; one should always remember that this resounding defeat is written in the letter and in the spirit of our European Constitutions, born from the Resistance.


1 ) The falsifying absurdity of the fiscal consolidation path.

2 ) The Marginalist absurdity with regard to profit, interest and speculative interest.


1 ) The falsifying absurdity of the fiscal consolidation path.

The theory nested within the shibboleths of the fiscal consolidation path has nothing to do any longer with the Keynesian counter-cyclical measures or with those of the Social State. It pertains to the neatly neoliberal monetarist gobbledygook. It abstracts from all underlying structures – financial and commercial regime, domestic financial regime etc. It focuses solely on the question of debt financing as THE priority. It does this without ever asking what the origin of the debt and of its laborious financing might be.

The ruling paradigm was developed within the IMF with the backing of the London and Paris Clubs against the African and South-American countries in the 80s and the 90s. Everything must be sacrificed to repay the public debt instead of really attempting to reduce its weight. Thus the re-financing of the debt over-determines everything else. This way of thinking explains why the concept of primary budget surplus has gained pre-eminence. This primary surplus refers to fiscal and other revenues of the State once debt-financing is subtracted. Of course, this is understood within an economic equilibrium abandoned to the meta-magical thinking of the bourgeois « invisible hand » within a free-trade global environment. If growth is anemic and the primary surplus is decreasing the unsustainable absurdity of the fiscal consolidation path is revealed in all its nakedness. Notwithstanding the chorus of epigones and other regime over-represented and overpaid ventriloquists … aux frais de la princesse.   (See )

In October 2014 (in 2013 in the USA) the national accounting system was modified to add some 3 % to 3.5 % to the GDP; this was achieved adding an evaluation of fiscal evasion, of prostitution, of drug trafficking and black-market labor; to this was added part of the R&D as well as parts of military procurements. In such context when one brags about a supposedly anemic but reignited growth of  0.7 % or 1 % coma something, in reality we are dealing with a disastrous negative growth. This goes much deeper than the by now well known numbers on real inflation and its related Fisher-chain.

This is fundamental given the ruling austerity ideology so well summed up in the theory of the fiscal consolidation path and in the regressive reforms that are derived from it. Of course, even if one would abstract from this accounting falsification of GDP, it would nonetheless be crystal clear that the said path did hit the wall some times ago. Unfortunately, this fatal destiny was shrewdly masked with recourse to even more brilliant neoliberal European – and American – inventions. These nicely afford more rope to the leaders, the domestics of the 1 % and 10 % on top of the socio-economic pyramid, in order to help them hang their own proletariat and people. They soon learn to grant themselves more budget room thanks to the output gap, the structural deficit, the exceptional circumstances and so on and so forth. In brief, as long as the national leaderships are willing to implement the neoliberal monetarist reforms, the EU will remain sufficiently flexible and will avoid to impose any penalty, while the national leaders will remain focused to draw more of their respective people’s blood with the pretext that this belt-tightening policy is required to avoid the European penalty amounting to 0.2 % of GDP… As we can see, everything seems perfectly logical.

But we are dealing here with the hyper-federalist and Spinellian logic of the Europe of capital. Another Europe is possible in the form of a European confederation otherwise known as the inter-governmental process of integration that involves the European Nations-States. This process is driven by the bottom up building of a Social Europe thanks to the democratization of the Strasburg Parliament and to the recourse to the democratic opting-out clause. This double mechanism grants the last word to the electorate thus allowing member States to progress according to their own rhythm. Emulation would do the rest on the basis of the best European or national experiences in the framework of the division of powers. (See the pertaining articles in the section International Political Economy in  )

In reality, in the present circumstances, this budgetary penalty could be easily absorbed by any government intent on re-appropriating its own socio-economic and financial autonomy. As far as Italy is concerned, this 0.2% represents more or less 3.5 billion Euros (they all write 3.4 in a laughable attempt to sound precise and in charge …! ) This derisory amount must be compared to the dozen of billion Euros made available « once again » in the Peninsula to the private banks without the least blinking of the eye. It is notorious that these hold more than 380 billion of junk bonds without mentioning the many other billions at risk.

It must be underlined here that the Stability (and Growth ) Pact did not obtain unanimity in the EU. Consequently, it is implemented only thanks to the will of the leaders of the member States. In Italy, these leaders, true servi in camera, have preceded the EU sanctuarising austerity within the unilaterally revised Article 81 of the Constitution. This was done with one sole objective, namely that of preventively tying the hands of a more authentically progressive government resulting from the inevitable political alternance. Even before, there was the offshore meeting of Italian leaders such as Draghi on board of the Britannia, a meeting soon followed by the ill-famed Patto sociale of 1992, the so-called pact which became the watershed of neoliberal and monetarist policy in « our » country. In 1991, the infiltrated PCI had committed hara-kiri, this in part explaining that. Francois Hollande’s France resigned itself to adopt an « organic law » to avoid a serious rebellion by the populace.

To this dark picture, we must add the typical manipulation engendered by Monetarist public policy which goes under the name of tax expenditures.   These are valued at more than 300 billion Euros for all major European Countries. Once granted, these tax expenditures nicely disappear from the budget radars – and media short-term scrutiny – so that the State budget is artificially maintained in permanence in the red or at least made to look precarious in order to justify the continuation or increasingly harsher austerity policies.

According to ISTAT, the Italian situation is more or less as follows:

GDP growth: 0.9% in 2016                                 0.8% in 2015

Budget deficit: – 2,4 % of GDP                           – 2,7 % in 2015

Public debt: 2,217,695 million 132,6 % ;           2,171, 670 million 132,2 % of GDP

Net borrowing: – 40,708 million 2016              – 42,931 million in 2015

Primary surplus: 1,5 %                                           1,4 %

Accounting change, at least : + 3 % to 3.5 % GDP growth (This change was acted in October 2014 in Italy.)

According to the EU, in 2017, the budget deficit will reach 2.4 % of GDP compared to 2.3 % in 2016 and the public debt will reach 133.3 % of GDP. Note once more the « fuzzy » artistic imprecision of the statistics used by all, but always cooked up according to Marginalist recipes …

To the Question :« Right now the disagreement between Rome and Brussels is over the 0.2 % deficit. On which side are you?». Antonio Tajani, the new President of the Europarliament answered: « Both parties need to make an effort. One cannot pledge to present a budget promising 1.8 % deficit and then came back with a 2.4 %. It is not conceivable. It is a question of credibility. It could have been 2 % due to the earthquake, not more. Certainly in Brussels they realize what has happened, namely that there were more than twenty thousand quakes from August up until now. » (My translation) In European circles as reported by newspapers like they underline that Italy is already benefitting from a flexibility margin of more than 26 billion Euros – 19 + 7 – since 2016. (1)

It can be seen in a flash that the so-called « fiscal consolidation path » is a total failure. The budget deficit is masked by the impact on it of the primary surplus. This is above all due to linear spending cuts in social programs, especially public safety nets, and in the financing of public infrastructures, as well as in the disastrous privatizations. The latter adds to the weakening of the socio-economic coherence of the considered Social Formation. For public services like Post Offices, these privatizations contribute to the desertification of the regional hinterlands of our country. Moreover, the primary surplus, once the ill-placed pride of our national leaders, went from 3.5 % of GDP in 2007 to 2.5 % in 2012 to 1.5 % in 2016. Its intrinsic neoliberal Monetarist logic inflicts fatal decreasing returns.

With this sorry ideological behavior, Italy has sacrificed the greatest part of its « national champions » enterprises. This happened in a country which is made of 90 % of all its enterprises employing 10 workers or less and with an industrial make-up that shrank by more than 25 % since the unleashing of the economic-financial crisis of 2007-2008. The disastrous garage sales still go on in the name of the logic of the budgetary surplus, which, to top it all, is now governed by the so-called « spending review ». It comes with no surprise that the public debt continues to rise whereas it should decrease by one twentieth every year until it reaches 60 % of GDP as set up by the Maastricht Treaty. Similarly the European Commission for Economic and Financial Affairs noted that, according to rules, the budget deficit should decrease tendencially by 0.5 % every year over a 3 year term.  (1)

The truth is that Italy had become the laboratory of socio-economic regression within the Eurozone and of the dilapidation of public funds in an hyper-corrupt and incompetent State at all levels, including the courts, the government leadership and ministries. There is no lack any longer of mafia-police like intimidations perpetrated against lawful but well informed citizens:  Witness my personal experience with the Procura of Cosenza and the various ministers; see my « Intimidazioni e avvelenamento contro i cittadini italiani da parte delle autorità italiane per conto di potenze estere ? Lettera aperta alle autorità » in the Constituzione category of the site . Consequently, as already stated, Italy is now benefitting from a budget margin around thirty billions, under various pretexts, be it structural deficit or exceptional circumstances, etc.

Aside for the theatrical dramatization for the sole benefit of the supposedly uncouth masses to be maintained subordinated and ignorant, it is obvious that the European Union will not impose any penalty, especially now that it is confronted with the rise of populist euroseptics. On the contrary, just like it did for Greece, with feigned reluctance, is will be ready to grant some more rope. They will continue doing this at least as long as the servi in camera governments will prove their willingness to do what is expected of them, namely the implementation of more regressive philo-Semite Nietzschean reforms.

Today, in Italy, we are witnessing a grotesque farce which aim is to focus the media attention exclusively over this 3.4 billion Euros budget correction, that is to say more or less the equivalent of the potential penalty. As in Greece, this farce will continue until everything which could be privatized will effectively be privatized. Various Gutgeld and Co will see to that, although have suffered a resounding defeat over their regressive constitution reform during the referendum of December 4, 2016. Indeed, they already have planned the privatization of the artistic and archeological heritage of our country. Lest one forgets, it has been estimated at around 1/3 of the artistic world patrimony. The management of this rich heritage, for instance that of the Colosseo, has already been transferred in private hands. Those who hold trillion dollars in « liquidity », or more exactly in Kerouac money or « rolls » according to my metaphor, are not that stupid: They imitate the old bankers of the Middle Ages who preventively bought nobility titles – robe ones that is – before ending up as most usurers did at the time …

All of this happens within the framework of a massive dilapidation of public funds carefully thought out by the neoliberal monetarists. Here too, following the austerity mentality enshrined within the modified Article 81 of the Constitution, the dominant demagogy consists in masking this plain robbery of national wealth while transforming the EU into a convenient scapegoat. This is done with the connivance of all the other current European leaders. One can thus persevere with the reforms ignoring the people, at least until they carefully stay shy from extremist populism for lack of a real alternative on the Left.

Let us underline here that contrary to the home-grown Social Pact of 1992, the Maastricht Treaty did preserve the legal status of State enterprises (Art. F, 3, 3b); this was a necessary concession by the EU to the socialist government of Francois Mitterrand. Similarly, the Treaty of Lisbon, which should not be confused with a non-existent European constitution, states that Social Affairs – hence pensions, UI etc – are an exclusive power of the member States.

I hasten to add, as explained below, that money is not credit: whereas the management of monetary policy is conferred to the ECB, the Italian Constitution in its Article 47 clearly states that the Italian State has the obligation to preserve credit and to oversee people’s savings. The crucial questions raised by the ruling paradigm and to be dealt with politically by the member States cannot be eluded just by superficially criticizing the EU in order to better enforce its neoliberal monetarist policies. This should not preclude us from understanding that the current EU is sold out to global and stateless capital and that as such it should be the object of legitimate criticisms.

The disastrous Jobs Act which took away most of the labor’s acquired rights, including the protection against unjustified firing, did cost 18 billion Euros in 2015 and created a generalised precariousness as witness by the unconstitutional explosion of the employers’ recourse to one-hour vouchers and to black market labor; the typical Renzi-Gutgeldian 80 Euros bonus on paycheck went to dependent workers thus excluding the lower salaries and pensioners for an annual cost of 10 billion Euros; this bonus targeted the electoral pool of the governing party, a reservoir of votes to be slowly reduced through privatization and through the erosion of public servant employment. Taxes on capital were further reduced – ires, irap etc – while the tax expenditures in Italy amount to between 330-340 billion a year according to the General auditor or Corte dei conti. In such circumstances, the current exercise in budgetary correction is nothing more than a sinister neoliberal monetarist farce, which aims to subject the sovereign people to the reign of the new and stateless « private global governance ».

I take the opportunity here to underline the fact that the Reduction of the Week of Labor – RTT in French – did cost around 23 billion a year and created more than 350 000 full-time jobs. Importantly, most of the money came from the redirecting of the huge sums of money otherwise spent in social assistance. These full-time jobs  made it possible to expand and consolidate the paycheck social contributions necessary to finance social safety nets, as well as the fiscal basis available to the State. The rate of unemployment went from close to 11 % to less than 8 %; the Social Security deficit was almost entirely wiped-out; with the new fiscal revenues the government of the « gauche plurielle » was able to lower the public debt to 59 % of GDP, that is to say one percentage point lower than the Maastricht Criterion. Moreover, the 35-hour legal working week was accompanied by a 4-hour average overtime work, hence paid more than regular hours; this gave way to the spontaneous emergence of a new sociology of leisure time.

All this was achieved in less than two years. In 2004, for a legal working week of 60 hours and more, the effective average duration of work in the USA was at 33.8 hour for a minimum salary of $ 5.15 , which, more often than not, involved two and at time even three precarious employment – or « shitty jobs » as they are now aptly called. There is no need to be a rocket scientist to understand that the real alternative is between the citizen sharing of socially available work among all persons capable to work –Thomas Paine already said so in his Rights of Man – and the sharing of poverty among all workers, now again considered as « dangerous classes» placed under the Patriot Act and its sequels. This is done for the sole benefit of the 1% and 10 % on top. You might remember that the ideologue Piketty could not refrain from writing that the 10 % on top could easily employ the 50 % on the bottom as domestics. (see the articles in the Book Reviews section of  ) I have warned years ago and then again and again that the capitalist option, once again philo-Semite Nietzschean, is to burry citizens equality in order to foster the « return » to an age of new salaried slavery and domesticity. (see my Appeal in English in )

The  2014 – 2013 in the USA – comprehensive change in the national accounting methods clearly reveals the present budgetary swindle, even making abstraction of the fact that Marginalist statistics are unable to differentiate between the real economy and the speculative economy. This blindness causes an exuberant inflation of the weight of the financial sector. In the USA and in Switzerland this sector now accounts for close to 8 % or 9 % of GDP, most other big countries following suite. The equations that are constructed on this basis, for instance those of Rogoff et al., and the fakely critical ones presented by Olivier Blanchard, are totally inept. This is proven by the failure of their economic projections despite the preventive overall of national accounts!

It is clear that we are not dealing here with simple ineptitudes like those proposed by a Bob Barro – so-called Ricardian equivalence – although all available numbers prove the crucial importance of public spending, at least when public spending is delivered through the public sector instead of the private one.(See for instance my « The Fed dilemma » in Another America is possible accessible in the homonymous category of the site ; or directly in the International Political Economy section of the site; use the term « multiplicator » in the Search function.)

However, the enormous difference between sectoral multiplicators and the generic multiplicator does not tell the whole story. One must still account on the one hand for the circuits of capital – the nationalisation of the central bank, the segregation of deposit and investment banks and the institutionalization of a part of saving such as pensions etc  – and, on the other hand, one must account for the extroversion of the Social Formation caused by free-trade and its debilitating current definition of the anti-dumping enshrined at the WTO. As we know, this definition forbids any reference to labor rights, including the minimal rights protected by the ILO; it equally forbids any reference to minimal environmental criteria and to the principle of precaution. It thus induces a race to the bottom; it does this mainly by confusing the cost of production with the mere cost of labor given in abstraction from the social contributions necessary to finance the social safety nets and from the fiscal field. Inevitably, this quickly becomes unsustainable and, in so doing, it does accelerate the socio-economic downward spiral.

The salary deflation imposed by the fiscal consolidation path, thus by neoliberal and monetarist austerity programs, as well as by the current definition of the anti-dumping, kills the internal demand. The deep cuts in public spending together with their redefinition in favor of the private sector to which public services have been outsourced or devolved, do kill economic growth. This happens in a context in which too may charlatans speak of public spending without ever clarifying the forms it takes. They thus happily mix apples and oranges … as they are wont to do.

The alternative is not to be found within the cloudy distinction, in truth one that is infra-modes of reasoning 101, between budget cuts, thus in public spending, or the lowering of taxes. We know, for instance, that the disastrous ad hoc socio-economic measures taken by President Hoover, the champion of so-called « rugged individualism », ended up costing much more than those related to the American – minimal – Social Security system initiated by the New Deal President F. D. Roosevelt. This clearly demonstrates the importance of the circuits of capital. Otherwise, one thinks with one’s feet without even being able to find solace in this as that great French writer who at least saw in it a further prove of equality between all Human beings…

The Chicago Boys recipes that grant priority to exports, just to earn the revenues necessary to reimburse the public debt, is also one of those half-baked brilliant ideas worthy of bourgeois mainstream economists, all a bunch of vulgar charlatans who for the most part even ignore that their master theory was born out of a falsification conceived as such. I send back the sceptics here to my Methodological introduction and to my Synopsis of Marxist Political Economy both freely accessible in the Livres-Books section of . Thus, in Italy, and in few other countries, the small surplus in the trade balance mainly comes from the decrease in the import of productive consumption goods and of household consumption goods. Moreover, as all countries simultaneously adopt the same strategy at the same time, their relative positions remain mostly unchanged, except for the relative barbarity of the salary deflation they are willing to impose.

In the end, microeconomic productivity does not come from salary deflation and cuts in R&D public spending; nor does it come by sacrificing macroeconomic competitiveness, that it to say through deep cuts in that part of the « social surplus value » which the Social or Keynesian Welfare State had transferred to the « global net revenue » of the households.  As we know, since the 80s between 8 % to 10 % of GDP was transferred from salaries to profits without any counterparts for workers, except an increasing precariousness and pauperization. Again, I send the readers back to my Synopsis mentioned above.

2) The Marginalist absurdity with regard to profit, interest and speculative interest.

I have already debunked the parameters of the Marginalist theory. It does not have any function of production nor any theory of general equilibrium, either stationary or dynamic, that could pretend to a scientific status. Moreover, it is thoroughly unable to provide data simultaneously in quantities and in prices. Its theory of money is in no way organic; it is treated as a simple market later to be integrated in the « market of markets » with all the known problems inherent in this simplistic procedure. One can for instance go back to my definitive criticism of Marginalism in all its variations made available in the – still unedited – draft entitled « Hi-ha! The bourgeois’ economist donkish hallucinations » freely accessible in Download Now, section Livres-Books, idem)

To sum up all these bourgeois ineptitudes let us simply recall that for all Marginalists speculation cannot exist, at least not for long. This is because the « market » would fatally and rapidly re-establish the equilibrium. This gets worse with the so-called « theory » of « efficient markets ». One may remember that just before the bursting of the New Tech bubble, current Marginalists were sure they had discovered the Holy Grail. This led them to decree the end of trade cycles, an end inaugurated by their so-called New Economy. Few years before, their ilks had quite simply decreed the « end of History ». It was one of their current fad, resulting from the internal collapse of the Soviet Bloc.

Similarly, following from the falsifying contributions cooked up by Irving Fisher, a worthy disciple of the falsificator in chief Böhm-Bawerk – income flows, etc . – no Marginalist is able to differentiate between interest and profit, between classical interest and speculative interest and thus between the real economy and the speculative economy. When forced by empirical facts to do so, they simply go outside their theories without even noticing it; and, in so doing, they have recourse at best to what the great epistemologist of science Alexandre Koyré called « Baconian empiricism ».

Freeing ourselves from this ideological cage, we get the following: money is not credit and investment is not saving. Money – grosso modo M1 – is a reflection, in an accounting or numerary form, of the salary mass – both the real and social salary masses. On the contrary, credit is a scriptural money which depends on its part from the prudential ratio according to the evolution of the banking system – for instance, before or after the abrogation of the New Deal Glass Steagall Act in 1999 and its equivalents outside the United-States. This abrogation led to the hegemony of speculative capital, notably as the result of the emergence of the so-called « universal bank ». (See « TO SAVE THE EUROZONE WE MUST TERMINATE THE SO-CALLED UNIVERSAL BANK.»  freely accessible in Download Now, Livres-Books section, idem)

Saving is nothing other than household differed consumption. Without it the Enlarged Reproduction cycle – or dynamic equilibrium – would not be possible; this is because one must save to buy a car or another type of durable good, whereas the capitalist individual salary – the net paycheque – suffices to buy a loaf of bread or the other components of the daily consumer’s basket. This raises the general question of the organization of either repartition or contributory programs, which in any case always remains a form of organization of the differed salary. This organisation is too often and wrongly pictured as the result of an inter-generational tacit agreement. This is now abused to feed the resentment of the younger age cohorts in order to mask the real underlying class struggle.

Of course, there can be an institutionalized saving – for instance, pensions, UI and so on and so forth. In this case, thanks to the actuarial lag governing contributions and out payments, institutionalised saving can play the role of investment capital pools, especially when such funds are public. In effect, R. Meidner had made of this potent accumulating mechanism, the very basis of his feared Workers’ Funds. This lag is not without effect on the dynamics of investments, but does uniquely concern that part of saving that can be put aside for a reasonable length of time, mainly pension funds. And even then mostly when they are public or else they are invariably depleted from time to time by the stock-exchange yo-yo. (What is the 401K now worth? How does it affect the employees in their late 40s and 50S who end up with what is now rightly called a « shitty job » or even two?)

In the last instance, this remains within the framework of Simple Reproduction – i.e. SR or stationary – or in that of an Enlarged Reproduction (ER) which modifies the very inter-sectoral structure of the Reproduction system. To understand the point, one merely needs to glance at the Equations of SR-ER, for instance in my already mentioned Synopsis. We know that this structure is neatly summed up by the inter-relationships between the Sector I of Means of production (Mp) and Sector II of Means of consumption (Cn). Precisely, these two fundamental sectors send one back to the structure of the microeconomic function of production, namely c + v + pv = M, where « c » or constant capital is made up by Mp and « v » or variable capital or labor by Cn, « pv » being the surplus value and « M » the product resulting from the immediate process of production.

The typical example is the 5-Year plan of the Soviet Union which was implemented alongside the collectivization of land. The USSR still had access to the European Financial System; it thus decided to extract agricultural surpluses in order to obtain the foreign currencies badly needed to buy the machines and technologies necessary to effect the industrial take-off of the socialist fatherland. To attenuate the possible constraints on the countryside this policy included the collectivization of land so as to speed up the generalization of agricultural machines simultaneously with the propagation of a new and more collective social organization of agricultural productions. This political choice was formulated within the framework of the alliance between workers and peasants.

Investment as such – that is to say credit – is created by public and private banks. As far as the private banks are concerned this is done through the prudential ratio in force at the time. Before the abrogation of banking regulations, a crime due to the various Tirole and Co –  see for instance the 1993 book by Tirole et al. entitled The prudential regulation of banks … – the essential link between this creation of scriptural money – governed by the ratio – and the real economy was enforced by the intimate relationship prevailing between the prudential ratio and profit.

If, hypothetically speaking, we assume a constant ratio, then the increase or decrease of profit produced the expansion or contraction of credit.

It should however be underlined that this did not suppress the economic or trade cycles. These were and still are inevitable for a simple and good reason, namely the impact of the allocation of credit governed by the blind logic of the « invisible hand » and the drive for the optimization of private profit. This blind logic ensure that the investments are never rational from the point of view of the dynamic socioeconomic equilibrium given by the Equations of the Enlarged Reproduction; indeed the capitalist investments sheepishly follow the prevailing speculation in given sectors and industries. Invariably, the result is an intersectoral disequilibrium that is even more savagely skewed against the fulfilling of essential social needs. The « invisible hand » is nothing other than a magical incantation used to mask the capitalist cornering of available profits. This is achieved by way of the macroeconomic allocation of available resources for the sole benefit of the possessors of the Means of production. It follows that the over-investment in one sector fatally produces a disequilibrium in other sectors and here lies the origin of conjunctural crisis sometimes mediated by foreign trade, hence potentially by external disequilibria.

Let us underline that profit and classical – banking, financial – interest are not the one and same thing. The second is deduced form the first but the inverse is not true. We are here dealing with distinct categories, not opposed categories. For its part, speculative interest involved a financial sector which has now emerged as an entirely autonomous economic sector with respect to industry and to the various classical public or private services tied to it. Thanks to this autonomy this sector poses as a legitimate economic sector on its own and is thus capable to extract what is now presented as a profit instead of as an interest.

The direct result is that its vastly greater « productivity » – in effect, it needs much less fixed capital etc – will influence, while cannibalizing it, the real productivity and thus the profits of the rest of the economy. It thus over-determines the whole price structure. We have here the basis of the perverse and unsustainable logic of ROE, and that of the associated financial derivatives. (As the American readers can easily see, we moved dangerously quite a bit beyond the famous controversy that had opposed H. Ford with the Morgan bankers, see )

We stress that as far as it is concerned, classical interest is deduced from profit. Banking capital participates to the investments afforded by productive capital by supplementing its self-financing rate. The capitalist liquefaction in money form of all the factors of production, together with the mobility of capital, tendencially leads to the convergence of capitalist returns for all type of capital. Of course, no one can deduce from this a tendency to the equalization of the rates of profit and of interest. The return of banking capital is strictly a function of the bank or banking institution own assets multiplied by the prudential ratio and influenced by the main interest rates established by the Central bank.

Nowadays this financial speculative sector accounts for close to 9 % of GDP in Switzerland and the USA. The impact is enormous and enormously destructive. Above all what is lost is the necessary link to the real economy – namely, the partial cybernetic self-regulating feedback mechanism of capitalism. This is because the current Central bank with its QE and other liquidities does operate, not so much as the lender of last resort of old, but instead as the de facto prudential ratio of the so-called « universal banks ».

At that point, one deals with a purely speculative ex-nihilo creation of money. This is exactly why I was able to speak of « credit without collateral » (March 20, 2008) in the Section International Political Economy of the site . Indeed, the bank assets of the huge so-called « universal banks » would have been exhausted long ago had it not been for the now structural intervention of the central banks. Despite this massive bailout support, the junk bonds are accumulating in the balance sheets of banks – see Greece, Italy, Deutsch Bank etc. The system is now just feeding upon itself thus inexorably destroying the real economy and with it public fiscal policy. In so doing, it aggravates the non-symmetrical sectoral allocation of capitalist credit, hence the crisis; these conjunctural crisis soon become structural. For the details on speculation as the now dominant phase of capitalism see my Synopsis of Marxist Political Economy in the Livres-Books section of

Consequently, as a minimum, the scope of speculative credit should be reduced and the role of Central banks on the primary market, especially of State bonds, should be reintroduced. To this should be added the creation of a public financial sector. To be sure, this would remain a timid intra-system alternative but at least it would have the merit to rest upon its scientific understanding.

For instance, the funds derived from seigniorage rights which today are dilapidated by the ECB – and by the FED – and by its member banks could be used to finance the creation of a Capitalization-Nationalisation Fund (See In English: ) I hasten to note here that the question of seigniorage gives rise to many illusions, especially in Italy. This is mainly due to the illusions born from the Marginakist theory of money, and specifically to the management by the Bankitalia and the Italian Treasury before the Italian membership in the Eurozone. Seigniorage in the strict meaning of the word refers to the face value of metallic or paper money with respect to the lower production and management cost of these currencies. This is only possible because money has legal tender, in other words the State – or the lords during more remote epochs – could enforce its legal use over its territory. For the rest, it concerns the capitalist management of money and credit, a management which involves the Treasury, the Central bank and the individual banks – interest rates, inflation etc, all on the falsified basis of the Marginalist theory of money.

In a scientifically run socialist system these problems would disappear since credit would be entirely public and intimately linked to real investment needs as defined by the Equations of SR-ER, while the State would manage the real and social monetary masses. Seigniorage would thus be reduced to the cost of management, that of the maintenance of the necessary reserve funds and that derived from the residual inflation. The latter I called « civilized inflation » in my 1996 essay Tous ensemble: this is because it has its origin in the difference between the real salary mass and the social salary mass. In a quasi full-employment situation, this difference would uniquely result from so-called frictional unemployment.

This Fund could equally be used to create the necessary public financial sector by making available the initial few billions in assets; otherwise these will have to come year after year from the ordinary State budget. This public financial sector would benefit from the prudential ratio, thus freeing the budget margin necessary to finance national socio-economic interventions and national infrastructures; in effect, even with few initial assets and an initial average financial lever, this public fund could simply buy and cancel part of the public debt year after year. Similarly, it could finance the necessary strategic public enterprises and infrastructures. The current speculative banking could then slowly be returned to a re-normalization without much ado for nothing.

If a crisis were to happen, the bankruptcy of private banks – such a bankruptcy is normally imposed by capitalist competition – would be followed by a re-capitalization by way of nationalization. We know that this alternative costs way less than the current continuous bailouts, and furthermore it would purge the system of its speculative excesses. This was perfectly demonstrated by the Northern Rock and the Commerzbank and Hypo failures respectively in GB and Germany. By nationalizing the bankrupt banks for one symbolic euro, the small savers and the real economy would be safe, only speculative parasites would suffer. In any case, these would have already fled to fiscal paradises something that would have to be dealt with by the courts. The most important thing is that this flight would in no way affect the credit necessary for productive investments given that the concerned nations would now benefit from a public finance institution. When credit is public, the access to speculative global markets loses it importance. However, a need would emerge to control inflation and the rate of change, something that is relatively easy to do if you have correctly grasped the Marxist theory of money. The case of Argentina under Nestor and Cristina Kirchner is, at least in part, illuminating; it is sad that the real measures necessary to control inflation were somewhat disregarded.

This alternative would not abolish the capitalist contradictions, in particular the intersectoral asymmetry in the allocation of credit. To reach this objective, aside from public credit, one still needs to rely on Economic Planning, at least on the so-called indicative and incitative planning, in vogue in France in the 50s and 60s. In short, one must rely on some understanding of the general equilibrium scientifically given by the Equations of Simple and Enlarged Reproduction.

The problem of the public debt as it is dealt with by all bourgeois and petit-bourgeois economists is uniquely a mean to subordinate the people. This truth was already well known at the time of Solon and even before him by the Sumerians. However, nowadays the greatest problem is the mental subordination of most of the current grotesque academic world which is unable to simply distinguish between money, credit, interest and speculative interest etc., and thus between the speculative economy and the real economy. This is a world dominated by the various Cahuc and Co who happily trample upon scientific deontology. They accomplish this by protecting themselves through the political suppression of plurality in the discipline, and in so doing they suppress the necessary public debates because these do entail the respect of the right to respond. Both plurality and public open debates are necessary for the advancement of any science, be it social or hard. (The grotesque intellectual obscenity of this measure can easily be verified, for instance here : )

It should be underlined that no Marginalist or bourgeois model is able to conjugate quantities and prices. Therefore, they cannot come up with a rational theory of money. The sole alternative is to conceive money as originating in a specific market which cannot be rationally integrated within the « market of markets » supposed to lead to economic equilibrium. The Marginalist theory is confronted once again to its lethal logical problem of ex-ante/post hoc coherence. Böhm-Bawerk had wrongly credited this logical contradiction to Marx but it turns out that the contradiction is inherent to all bourgeois economic theories instead. I definitively debunked this imputation by way of the historical and logical deconstruction of the original falsification know as the (invented) « transformation problem of values into prices of production ». (For detail see my 1996 Tous ensemble or my Synopsis of Marxist Political Economy.)

We must underline once again the fact that Marginalism, in all its variants, assumes that speculation is a non problem simply because it could not last very long. The epigones of the « efficient markets » pretend that speculation would accelerate the normal working of the market and thus lead even more quickly to just market prices – Hi-Ha! As their Grand Master Nietzsche warned them in his Thus spoke Zarathustra: forgers often end up believing in their own forgeries thus dangerously trading their ideologically spun perceptions with reality; in so doing, they destroy the foundations of their own class and cast domination.

Please take note of the fact that with his QEs, Bernanke tried to create an hyperinflation in order to shift the burden of the American debt financing on the shoulders of the American creditors, mainly Chinese and Japanese. Instead, he created a damning « credit crunch ». This grotesque personage had worked on inflation for his Ph.D thesis !!! Others like Draghi are not much more pertinent. Contrary to the academic fate they imposed on me, I, Paul De Marco, happily grant them the right to answer.

Paul De Marco, ex-professor of International Relations – International Political Economy.

NOTE (translations are mine):

1 ) Here is the note from the EU: Business News | Wed Nov 16, 2016 | 11:35am EST, Italy, five others at risk of breaking EU budget rules with 2017 draft budgets

(see also )

See also: L’Ue minaccia l’Italia: “Manovra bis o restituite fondo flessibilità”. I tecnici avvertono la Commissione: deficit e debito fuori controllo

La Ue all’Italia: entro il 22 febbraio i primi provvedimenti o può scattare l’infrazione

Matteo Renzi e Pier Carlo Padoan (ansa)

Quote: « … in April to fall back within the deficit and debt parameters after having benefitted from a 2016-2017 flexibility amounting to 26 billion ».That is to say 19 + 7

Il pressing della Ue sull’Italia: “Manovra bis blindata o restituite il fondo di flessibilità” I tecnici avvertono la Commissione: deficit e debito fuori controllo, così salta la costruzione del bilancio italiano degli ultimi anni. dal nostro corrispondente ALBERTO D’ARGENIO

Antonio Tajani: “Il governo ha sbagliato, con la flessibilità concessa dall’Ue ha fatto regali elettorali”

The Europarliament president : « It is not true to pretend that Europe is prejudice against Italy. I was elected, I was not imposed. There is no hostility towards our country ».

dalla nostra corrispondente TONIA MASTROBUONI 25 febbraio 2017

« Right now Rome and Brussels are divided over the question of a 0.2 % deficit. Which side are you on? Both sides need to compromise. One cannot pledge a deficit of 1.8% and then come forward with a 2.4% one. This does not pass muster. It is a question of credibility. It could have been 2% given the earth quake, not more. Certainly Brussels appreciates the fact that there have been twenty thousand earthquakes from August to now. »

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