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Six Counterpoints about Australian Public Debt

Published by Anonymous (not verified) on Tue, 03/05/2016 - 6:26am in


Blog, Australia, Debt

In the lead-up to today’s pre-election Commonwealth budget, much has been written about the need to quickly eliminate the government’s deficit, and reduce its accumulated debt.  The standard shibboleths are invoked liberally: government must face hard truths and learn to live within its means; government must balance its budget (just like households do); debt-raters will punish us for our profligacy; and more. Pumping up fear of government debt is always an essential step in preparing the public to accept cutbacks in essential public services. And with Australians heading to the polls, the tough-love imagery serves another function: instilling fear that a change in government, at such a fragile time, would threaten the “stability” of Australia’s economy.

However, this well-worn line of rhetoric will fit uncomfortably for the Coalition government, given its indecisive and contradictory approach to fiscal policy while in office.  The deficit has gotten bigger, not smaller, on their watch, despite the destructive and unnecessary cutbacks in public services imposed in their first budget.  Their response to Australia’s fiscal and economic problems has consisted mostly of floating one half-formed trial balloon after another (from raising the GST to transferring income tax powers to the states to cutting corporate taxes), with no systematic analysis or framework.  And their ideological desire to invoke a phony debt “crisis” as an excuse for ratcheting down spending will conflict with another, more immediate priority: throwing around new money (or at least announcements of new money), especially in marginal electorates, in hopes of buying their way back into office.

In short, the politics of debt and deficits will be both intense and complicated in the coming weeks.  To help innoculate Australians against this hysteria, here are six important facts about public debt, what it is – and what it isn’t.

1. Australia’s public debt is relatively small

Despite annual deficits incurred since the GFC, Australia’s accumulated government debt is still small by international standards.  Debt can be measured on a gross or net basis; gross debt counts total outstanding borrowing, while net debt deducts the value of financial assets which the government also possesses.  Gross debt for all levels of government equaled 44% of Australian GDP at the end of 2015 (according to the OECD).  That was the 5th lowest indebtedness of any of the 34 OECD countries (see table below), equal to about one-third the average level experienced across the OECD.  Moreover, despite recent deficits, the growth of debt in Australia was considerably slower than in most other OECD countries.  Of course, having low debt in and of itself does not justify increasing it.  But given the universal fiscal challenges that have faced industrial countries since the GFC, Australia’s debt challenge is both unsurprising and relatively mild.

Australia’s Debt in International Context:

 General Government (all levels) Gross Financial Liabilities (%GDP)

10-yr. Change

+22.4 pts

+43.7 pts

+59.7 pts

+38.3 pts

+8.1 pts

+41.8 pts

+60.3 pts

+19.0 pts

OECD Average
+36.3 pts

Source: Author’s calculations from OECD Economic Outlook #98, Nov.2015.


2. A government debt is matched by an asset

Australians aren’t “poorer” because their government accumulates a debt.  Any rise in government debt is mirrored by an increase in some offsetting asset.  This is true in both accounting terms, and in real economic terms.  For example, government typically issues a bond (or some other financial instrument) to finance a deficit.  But that bond also constitutes an asset in the investment portfolio of whoever lent the government money.  Most Australian government debt is owned by Australians.  In fact, investors increasingly appreciate the opportunity to invest in government bonds, because they are safer than other assets at a time of financial uncertainty.  (That investor interest is one reason interest rates on government debt are so low.)  So government debt translates into someone else’s wealth – usually someone in Australia.

This match between liabilities and assets is also visible in concrete economic terms – especially when new debt is issued to construct a real, long-lasting capital asset (like a road, a transit system, a school, or a hospital).  In this case, the matching asset is owned by government itself, and so its own net worth won’t change much at all: it takes on a new debt, but also has a new asset.  For budgetary purposes, the government must account for the gradual wear-and-tear of that asset (called depreciation), which appears as a cost item on the budget.  But it hasn’t “lost” the money it raised through the new debt: it invested it, and that investment carries both financial and social value.

3. Other sectors of society borrow much more than government

Tired rhetoric about how governments need to act “more like households” is especially ironic, given that households are by far the most indebted sector in Australian society.  Household net debts equal close to 125% of GDP – or around 4 times the net debt of government (all levels), according to data from the Bank for International Settlements.  It is factually wrong to claim that “households balance their budgets,” and therefore governments must do the same.  Households borrow regularly – and thanks to overinflated housing prices and stagnant wages, that borrowing is growing rapidly.  The same is true of business: net debts of non-financial corporations are more than twice the net debt of government (see chart).


In fact, it is quite rational for households and businesses to borrow, when needed to fund purchase of long-run productive assets (like a house or a car for consumers, or a factory or new technology for a business).  Business leaders know that rational, prudent borrowing will enhance the profitability of a corporation.  Indeed, any CEO who said paying off all company debt was the top priority of the firm would be chased from office by directors and shareholders (who would understand the pledge was irrational and superstitious).  Following exactly the same logic, government debt can be rational and productive – especially (but not only) when it is associated with the acquisition of long-run productive assets (like infrastructure).  Close to two-thirds of the Commonwealth government’s 2015/16 deficit (projected to be $36 billion) is associated with capital spending, including $11 billion in capital transfers to lower levels of government and $12 billion in net investment in Commonwealth non-financial assets.  Contrary to the rhetoric, Australians do largely cover the cost of current public services with their current tax payments.  Government borrowing is primarily required to fund capital spending.

4. Interest rates are low, and falling

The cost of public borrowing has fallen dramatically as a result of the decline in Australian and global interest rates since the GFC (see chart).  Indeed, the two factors are connected: large government deficits resulted primarily from underlying economic weakness (this is true in Australia, like elsewhere in the industrialized world), which in turn brought about low interest rates (via both central banks and private financial markets).  These very low interest rates mean that the cost-benefit decision associated with any new government borrowing has been fundamentally altered, in favour of borrowing.

Interest Rates

Current interest rates are likely to stay low for many years to come, given the continuing failure of the global economy to regain consistent momentum, the slowdown in China, and other factors.  (In fact, it is possible that the Reserve Bank of Australia may soon cut its interest rate further, below its current record-low 2% level, due to weak growth and signs of deflation here in Australia.)  Ten-year Commonwealth bonds can presently be floated to private investors for little more than 2% interest (close to zero in real after-inflation terms).  If government can borrow for what is effectively zero interest, and put that money to work in the real economy doing useful things (including both infrastructure and public services), then it is irrational to let old-fashioned balanced-budget mythology stand in the way.

Even if current interest rates do not fall any further, the average effective interest rate paid on overall public debt will continue to fall for years to come.  The current average effective rate paid on Commonwealth debt (about 3.5% last year) reflects the weighted average paid on all maturities of debt.  As past debts come due, they are refinanced at now-much-lower interest rates (those prevailing on new issues of bonds).  That will pull down the average weighted interest rate for several years into the future – even if the rate on new issues stabilizes or increases somewhat.  Consider that new ten-year bonds can be issued for less than half the interest rate paid a decade ago.  The refinancing of those bonds will generate enormous future interest savings for government (equivalent to home-owners who re-mortgage their homes to benefit from the decline in household lending rates).

This is why the economic burden of public debt servicing is not growing, even though the debt is.  Government budget projections forecast debt service remaining at between 0.9 and 1.0% of GDP for the next 5 years, with the effect of rising debt offset by falling interest rates.  And those government projections likely overestimate true interest costs (partly for political reasons).  For example, the December 2015 MYEFO update assumes a significant increase in interest rates in the coming year (its near-term interest rate assumption was 0.3 points higher than the assumption used in last year’s budget); ongoing global and domestic economic weakness makes that highly unlikely.

5. The debt/GDP ratio is a more meaningful fiscal constraint than a balanced budget

Fear-mongers think that by talking about public debt in “big numbers,” the fright value of their dire forecasts can be magnified accordingly.  But all macroeconomic aggregates are measured in big numbers.  And what’s more important than the absolute size of debt, is the government’s capacity to service that debt.  That, in turn, depends on the flow of government revenues, which in turn is driven primarily by overall economic growth.  That’s why economists prefer to evaluate public debt relative to GDP (called the “debt ratio”).  Even this ratio can overstate the real burden of debt, in times (like now) when interest rates are low and falling.

Avoiding a lasting, uncontrolled rise in the debt/GDP ratio is a more meaningful fiscal constraint on government, than trying to balance a budget in any particular year.  Economists do not agree on a maximum “acceptable” limit for that ratio.  But most agree it cannot rise forever.  (Some economists argue that there is no limit on a government’s ability to issue sovereign debt denominated in its own currency, and the recent experience of countries like Japan – whose debt ratio is five times Australia’s – is consistent with that view.)

At any rate, Australia is far away from any feasible “ceiling” on public debt relative to GDP.  And remember, like any ratio, the debt/GDP ratio has both a numerator and denominator: growing the denominator is as effective as shrinking the numerator, if the goal is reducing the value of the combined ratio.  In this regard, the stagnation in Australia’s nominal GDP in recent years has been more damaging to the trajectory of the debt ratio, as has the addition of debt through continued deficits.  The government’s policy focus should be on expanding economic activity (and the jobs and incomes that go with it), rather than suppressing the deficit with austerity measures (which have the unintended consequence of undermining growth and hence the economy’s ability to service a given amount of debt).

6. The government can incur moderate deficits every year, yet still stabilize its debt burden

A related and under-appreciated countervailing argument is to note that government can run a medium-sized deficit on an ongoing basis, and yet experience no increase in the debt/GDP ratio at all – so long as the economy is progressing at a normal pace.  A deficit adds to the numerator of the ratio, while economic growth expands the denominator.  So long as both are expanding at roughly the same rate, the ratio will not be changed.  (Our reference to economic expansion envisions more jobs and incomes across the economy, including in the public sector, and with due attention to the need for environmental sustainability.)  This basic arithmetic provides government with an additional degree of maneuverability in financing essential services and investments, without unduly increasing the debt ratio.

A simple numerical example helps to illustrate the point in Australia’s context.  A healthy economy should be expanding by at least 5-6 percent per year in nominal terms: divided roughly equally between inflation (given the RBA’s 2-3 percent inflation target) and greater output of real goods and services (driven by both population and productivity).  The Commonwealth’s current net debt ratio is slightly below 20 percent of GDP.  With a healthy economic expansion, the government could incur an annual deficit of 1-1.25 percent of GDP (or close to $20 billion per year) but still stabilize the debt ratio below that 20 percent benchmark.  And there is nothing magical about a 20% debt ratio; if Australians were willing to tolerate a larger steady-state debt ratio, then the size of this annual permissible deficit would be correspondingly higher.  All this merely reinforces the need for government to focus on supporting job-creation and incomes, not balancing its budget – and confirms that ample fiscal space is indeed available for the Commonwealth to fund public services and infrastructure spending (with the fringe benefit of reinforcing strong job creation that should be their top priority).

The post Six Counterpoints about Australian Public Debt appeared first on Progress in Political Economy (PPE).

Magical Development or Magical Illusions? Oil, Dependency and Venezuela

Published by Anonymous (not verified) on Mon, 02/05/2016 - 4:52pm in

With oil prices nearing historic lows, a new round of introspection about the pitfalls of oil-based development has kicked off in the media and development policy circles. The arguments, as to be expected, rehash some version of the ‘resource curse’ thesis, which holds that resource richness, in particular in oil, represents not a blessing but a curse, with a host of negative effects, from corruption engendered by unproductive rent revenues, to the Dutch Disease. Venezuela features prominently in this discourse, given its reliance on oil revenues to power the ‘Bolivarian Revolution’ under Hugo Chávez and Nicolás Maduro over the past 17 years. With the country facing shortages of basic goods, widespread corruption and political polarisation, resource curse advocates seem to have no shortage of evidence to illustrate their thesis.

energyHowever, as I argue in a recent book chapter entitled “A Different Kind of Magic? Oil, Development and the Bolivarian Revolution in Venezuela”, the situation is much more complex. The resource curse thesis offers a one-sided account of the failures of oil-based development, which essentially boils down to the absence of capitalist modernity in oil-producing nations. Yet these failures cannot be understood as resulting from endogenous factors alone. Any analysis must also examine the larger question of the dependent insertion of oil-producing nations into the global economy, and the role played by foreign oil capital in perpetuating this dependence. Likewise, any attempt to use oil to achieve sustainable development must address this dependence if it hopes to succeed.

In this context, Venezuela’s past and present offer a perfect case study of oil-based development and its pitfalls. Its post-war development model was closely aligned with the West, seeking to ‘sow the oil’ by capturing a ‘fair’ share of revenues from foreign oil companies, to invest them in creating a modern, capitalist, industrial economy. This model represented oil as a means to Western modernity, without the need for revolutionary change in a country riven with racial and class cleavages. As the late Fernando Coronil argued, this was ‘magical’ thinking, with Venezuelan leaders acting like ‘magicians,’ claiming that oil wealth enabled them to pull a modern Venezuela out of the proverbial hat, without radical change and social upheaval.

However, despite periodic achievements, by the 1980s this model was failing, precisely because it failed to confront Venezuela’s dependent insertion into the global economy, and its social structure build on centuries of exclusion and exploitation. Internally, the oil economy skewed class relations, promoting the middle and skilled working classes, while marginalising the vast masses confined to the informal sector. On the other side, easy money doled out to local capital fuelled corruption, and meant that national industry never became competitive.  Externally, Venezuela remained reliant on foreign corporations, which defined the terms of production to suit their own needs, refusing to increase refining capacity or diversify export markets. Even nationalisation in 1976 failed to change much, with the management of the new national company Petróleos de Venezuela, SA (PDVSA) retaining an international focus, and the oil price collapse of the 1980s crippling hopes of a revenue boost.

As a result, Venezuela entered a long and painful period of economic crisis and stagnation, with 81% of the population living below the poverty line by 1998. Far from delivering modernity, oil had produced a flawed development model which reproduced internal domination and intensified external dependence.

It was in this context that Hugo Chávez came to power in 1998, attacking the post-war model precisely for its failure to confront Venezuela’s internal class cleavages and external dependence. In its place, Chávez offered a different kind of a magical project, one which also celebrated the oil wealth of the nation, but which sought to use that wealth to explicitly challenge dependence.

Externally, Chávez sought to gain control over PDVSA and change its orientation from international to national goals. The first five years of his presidency revolved around the former objective, with the short-lived coup in 2002, the oil industry strike of 2002-2003 and the recall referendum in 2004 all having at their core the question of control over the company. Supported from below, Chávez won these struggles, and set out to transform PDVSA by increasing refining capacity, diversifying export markets, decreasing reliance on the American market, and using oil to promote regional integration through programs such as Petrocaribe. In sum, Chávez sought greater autonomy for Venezuela from the whims of the global economy.

In itself, this was hardly radical. Indeed the government of Carlos Andrés Pérez employed similar policies during the 1970s. However Pérez never sought a radical rupture with the old order. Chávez, on the other hand, sought to use the oil wealth to explicitly challenge Venezuela’s class cleavages by empowering those marginalised under the post-war model. This included, for example, the doubling of social spending from 11.3% of GDP in 1998 to 22.8% in 2011, paid for largely with increased oil revenues, and channelled through a parallel system of ‘missions’ established directly in the barrios where previously the state did not reach, and administered by the communities themselves via newly established Communal Councils. The aim of the government was not simply alleviating socio-economic disadvantage, but also empowering the masses, by using the oil wealth to facilitate self-determination. On a macro scale, the Bolivarian Revolution also sought to utilise the oil wealth to transform the economy, creating a ‘social economy’ enclave, where experiments with cooperatives, co-managed factories and Social Production Enterprises sought to satisfy collective needs rather than considerations of profit. This enclave was surrounded by a larger state-led economy dedicated to increasing Venezuela’s autonomy and diversifying from oil through measures such promoting agricultural production, implementing currency controls and tariffs, and seeking new sources of investment from the Global South.

For a while, this alternative model seemed to make real strides. Poverty more than halved between 1999 and 2012, and Venezuela moved up nine places on the UN Human Development ranking, as the country became the second least unequal country in Latin America. Moreover, the country experienced the largest increase in support for democracy in Latin America, with 87% of the population sporting democracy in the country in 2013. Importantly, this enthusiasm had a class dimension, with 85% of barrio residents believing that there was democracy in Venezuela, compared with only 55% of residents in middle and upper class neighbourhoods. Likewise, efforts to diversify the economy saw the size of the oil sector as a share of GDP decrease from 19.18% in 1999 to 11.55% in 2009, with services and finance making the biggest gains.

However, over the past couple of years, most of these gains have either stalled or reversed, and the country once again tethers on the brink. For the proponents of the resource curse thesis, this is proof that the Revolution was nothing more than oil populism, spawning corruption and failing to implement the ‘good governance’ measures necessary to make the most of oil wealth.

magicalYet, whilst corruption undeniably remains a problem, and governance standards often leave a lot to be desired, there are deeper issues at play here, which are ignored by the resource curse advocates. What the current crisis in Venezuela illustrates is the difficulty of transforming a social order shaped by centuries of marginalisation and exploitation, both internally and externally. Internally, the Bolivarian model has found itself under constant attack from domestic capital, which mobilises its economic, political and social power to effectively go on strike whenever its fundamental interests are threatened. This is especially true since Chávez’s death in 2013, with an investment strike coupled with the political opposition’s regime change strategy paralysing the country and the economy. Likewise, despite efforts at diversification, Venezuela continues to rely on oil for 96% of its export revenues. With international prices plunging, this puts the entire model under threat, especially as PDVSA struggles to find a balance between being a capitalist and a social enterprise, undermining production and refining capabilities. In the face of these problems, the government of Nicolás Maduro seems paralysed and short of ideas on how to confront the economic, political and social crisis now unfolding in Venezuela, especially with a  resurgent opposition using its recent capture of the Congress to try to remove him from power. Thus, while in the 2000s Venezuela represented a powerful example of the possibilities of different paths to oil-based development, it seems that in the end it did not manage to free itself from its internal and external dependencies sufficiently to construct a genuine alternative to the status quo. Despite its undeniable achievements, the Bolivarian Revolution may turn out to be yet another magical illusion.

The post Magical Development or Magical Illusions? Oil, Dependency and Venezuela appeared first on Progress in Political Economy (PPE).

Private Governance in African Gold Mining

Published by Anonymous (not verified) on Wed, 27/04/2016 - 4:00pm in

The creation of one’s interests in others negates the need for persuasion or coercion. That is the central premise of my article ‘Interests need not be pursued if they can be created: Private governance in African gold mining’, published in Business and Politics and awarded the inaugural 2015 Richard Higgott Journal Article Prize. In the article, which examines the political economy of sub-Saharan African gold mining, I argue that mining firms are able to create ‘truths’ about the superiority of industry-developed regulation. In doing so, these firms determine industry regulation and impinge on state sovereignty.

The article develops these arguments through analysis of a series of interviews conducted with senior executives of sub-Saharan African gold mining firms and industry representatives. In doing so, it argues that gold mining firms utilise their structural power to set the regulatory agenda and develop private governance regimes. However, it is the use of discursive power, or the painting of these regimes as superior forms of regulation, that allows business to wrest sovereignty from the state.

The globalisation literature has long recognised the role of firms as political actors. Large, powerful firms possess what is known as private authority, which enables them to produce private governance initiatives that are recognised as legitimate forms of regulation. In the mining sector, these include the International Council for Mining and Metals (ICMM), the World Gold Council, the Extractive Industries Transparency Initiative and various ISO standards.

The article utilises a three faces of power framework to analyse the interview findings. The first of these forms of power is instrumental; that is, lobbying, campaign funding and the placement of business-friendly elites in government bureaucracy. Secondly, firms utilise structural power, or threats to relocate operations based on regulatory standards as well as the ability to develop voluntary regulation. Lastly, firms rely on discursive power, or the use of communicative practices, to create ‘truths’ about policy that are accepted by governments and the public alike. Discursive power means that interests do not need to be pursued if they can be created; or, that firms can rely on “perception of legitimacy and voluntary compliance” in preference to coercion.

Using the above framework to analyse the interviews, it emerges that gold mining firms are relying less on instrumental power, instead using structural power supported by discursive power to determine the direction of industry regulation. That is, they set the regulatory agenda, create voluntary systems of rules and then promote these as superior forms of regulation.

The findings suggest that instrumental power is seen to be largely ineffective. One respondent noted that their firm continued to lobby governments, however, “by the time the government is deciding to put a resource tax of 70% on you, it’s already way too late to start lobbying.” The same interviewee noted that in this case they would revert to the use of structural power, by threatening to end the funding of social services in the communities in which they work. Evidence of structural power also emerged in the promotion of the World Gold Council and ICMM, industry bodies that allow firms to jointly decide on the issue areas they wish to prioritise. These cross-industry bodies allow firms to agenda set, and there was general consensus that membership allowed firms a ‘seat at the table’ when it came to developing private governance initiatives.

Although business utilises its structural power to set the regulatory agenda and form industry governance regimes, it is the discursive power of these firms that affords them the greatest amount of power. Interviewees were keen to emphasise their business’ efforts at self-regulation and the adherence to global standards, or as one respondent put it “living to one code”. This presents evidence of a lack of a ‘race to the bottom’ in the industry but it also suggests that firms are keen to promote their private governance solutions as legitimate and superior to government legislation; in turn engaging discursive power. This allows firms to delineate themselves as the holders of knowledge and experts whose regulation is superior to that implemented by the state.

One of the strongest examples of ‘successful’ private governance to emerge from the research was the implementation of the ISO14001 standard across the mining sector. This standard allows firms to certify their environmental management systems (EMS) against a prescribed standard. The voluntary adoption of this standard by one gold mining firm was deeply resented by other companies in the sector, who saw the standard as too prescriptive for the industry (it was originally developed for sectors such as manufacturing). Eventually, all large mining firms, then smaller players, adopted this standard. Ultimately, it has now been used as the basis for several countries’ formal regulation in this area, including in Ghana, the EU and China.

Over the past three decades, extractive firms have created a large number of standards and procedures covering a wide array of issue areas. As in the case of ISO14001, these standards and rules become the ‘accepted way of doing things’ and are relied upon by governments in designing legislation. The ability of firms to promote themselves as capable of governing their industry is evidence of their discursive power. This allows them to build a reputation as industry experts and control the regulation of their sector, in preference to sharing sovereignty with states.

The post Private Governance in African Gold Mining appeared first on Progress in Political Economy (PPE).

The Political Economy of Imperial Relations

Published by Anonymous (not verified) on Mon, 25/04/2016 - 4:23pm in


Blog, imperialism

Imperialism confronts us in a number of guises: either as formal or informal, a period of history, a type of state, or a monolithic institution, a thing-unto-itself, called an ‘empire’. These are all quite common views of imperialism in both popular and academic literature. In recent years, the study of imperialism has undergone something of a revival. This renaissance in its study has featured in many disciplines but has principally focused on the foreign policy of the United States and attempted to show how this is, as David Harvey famously called it, a ‘New’ Imperialism. Common to the study of the ‘New’ Imperialism is the idea that it is distinct from ‘old’ imperialism: it eschews colonies, long-term territorial conquest, and the state seems somewhat distant from the whole phenomenon.

SuttonMy new book The Political Economy of Imperial Relations offers an alternative view of imperialism, situating this view in an open Marxist account of the state. This account treats the state as a manifestation of capitalist society: the apparent political form of a crisis-prone society. The state, then, regulates and manages the crises and contradictions of this fractious and troubled society in order to sustain it. After all, capitalism is not just exploitative but also the means through which humans feed, shelter and clothe themselves. In this view, imperialism is a strategy available to states to overcome problems in sustaining capitalist society through the hijacking of another state’s ability to do so. As such then, the focus is very much on the specific imperial relationships between states and therefore historical analysis is essential in understanding how and why states engage in imperialism. Moreover, this work rejects the idea that imperialism today is meaningfully different from historical iterations since the phenomenon fundamentally derives from the crisis-prone society in which we still live.

The Political Economy of Imperial Relations offers an analysis of British imperialism in a profound crisis of capitalist society, in the years following the Second World War. In 1945, the British state faced a deeply unstable international economic climate, made all the worse for Britain by the decisions culminating in the organisation of the post-war international economy. This organisation committed Britain to, eventually, opening its exclusive economic area to free trade and to allow Sterling to become a convertible currency pegged to the US Dollar. Domestically, the British state had committed to a post-war plan of high levels of employment, large-scale intervention in the economy and the creation of a substantial welfare system. The structure of the post-war domestic and international consensus was therefore deeply taxing on the British state to manage its goals.

For Sterling to become freely convertibly, the British economy would need to be reconstructed and restructured after 6 years of intensive warfare. However, in order to do so, Britain would need vast quantities of dollars to pay for it as the goods needed to do so could only come from the United States. Of course, the British economy was unable to accumulate this precious foreign currency because of the damage done to it by warfare, through violence and state intervention, but also because Britain’s ability to sell goods to the United States had been diminishing for 50 years. As such, Britain came to rely on its exclusive economic area, the Sterling Area, to provide goods for British reconstruction but, more importantly, to provide dollars to buy essential goods from the United States for restructuring the British economy.

It is easy to see, then, how difficult navigating the post-war international economy might seem to a British state manager, especially given the domestic commitments made to prevent a return to the social problems of the inter-war period. Indeed, at the very moment Britain was tasked with re-opening its imperial preference system, it needed it more than ever. This imperial system was managed through the Sterling Area, which was a means through which Britain was able to dominate a number of other states.

It is with this historical and conceptual framework that The Political Economy of Imperial Relations seeks to understand British imperial strategy after the Second World War, focusing in particular on Britain’s relationship with Malaya. Malaya was the Sterling Area’s principal source of dollars, earning more than the rest of the other members of the Area put together. It achieved this through the sale of natural rubber and tin to the United States. These dollars were then pooled centrally into British foreign currency reserves and rationed out by the British state to pay for essential goods. Closing its analysis in 1960, three years after the independence of Malaya from the British Empire, the book covers various crises faced by the British state: the Convertibility Crisis, devaluation, the Korean War, the Suez Crisis, and the prolonged Malayan Emergency.

The goal of the book is to provide a detailed historical analysis, using archival documents, of Britain’s commitment to Malaya during the post-war period, as part of the Sterling Area and in terms of the difficulties facing both the British and global economy at the time. In purely historical terms, it challenges existing accounts of the relationship between Britain and Malaya by positing that it can best be characterised in terms of continuity rather than discontinuity. More broadly, however, it raises questions about the nature of imperialism, arguing that, by focusing on specific relationships between states, we can demystify imperialism without recourse to historical periodisation, the reification of empires, the typology of states, or such distinctions as ‘formal’ and ‘informal’ – all of which threaten to obfuscate our understanding of this phenomenon as well as its origins in global capitalist society. Through this view, then, we are able to see imperialism as a constant and persistent element of global society that has remained with us even today.

The post The Political Economy of Imperial Relations appeared first on Progress in Political Economy (PPE).

Call for Papers: Intersections of Finance and Society

Published by Anonymous (not verified) on Fri, 22/04/2016 - 12:04pm in


Blog, finance

FS_CoverImageRecent years have seen a growth in innovative research on finance across the humanities and social sciences. Following on from the success of the ‘social studies of finance’ approach and the new literature on ‘financialisation’, scholars are taking up the challenge of theorising money and finance beyond the conceptual constraints of orthodox economic theory, with different research agendas emerging under various new monikers. This two-day conference aims to bring these approaches into closer dialogue. In particular, it seeks to identify new synergies between heterodox political economy and various sociological, historical, and philosophical perspectives on the intersections of finance and society.

The conference is organised by the journal Finance and Society (with support from the Department of International Politics at City University London), together with the Social Studies of Finance Network at the University of Sydney (with support from the Faculty of Arts and Social Sciences, University of Sydney).

Date: 3-4 November 2016
Location: City University London, UK

Confirmed keynote speakers:
• Nigel Dodd (London School of Economics)
• Elena Esposito (University of Modena-Reggio Emilia)
• Perry Mehrling (Columbia University)
• Anastasia Nesvetailova (City University London)

Confirmed roundtable participants:
• Lisa Adkins (University of Newcastle Australia)
• Dick Bryan (University of Sydney)
• Melinda Cooper (University of Sydney)
• Marieke de Goede (University of Amsterdam)
• Ronen Palan (City University London)

Themes on which we encourage contributions include (but are not limited to):
Money and/beyond language, including themes of performativity and affect; Finance and social theory; Derivative finance; Engaging orthodox economics and finance theory; Central banking and shadow banking; Historicity and futurity; Gifts and debts; Financial crises, past and present; Finance and neoliberalism; The politics of finance.

Contributions are invited in two formats:

• Papers; abstract of up to 300 words
• Panels; panel proposal plus paper abstracts

Please submit abstracts and proposals by 1 August 2016 to both

Amin Samman ( and

Martijn Konings (

The conference organisers aim to publish a selection of the papers as special issues in Finance and Society and other prominent peer-reviewed journals. Participants who would like to be considered for these should aim to submit a draft of an original paper by 1 October 2016.

The post Call for Papers: Intersections of Finance and Society appeared first on Progress in Political Economy (PPE).

Radical History: Thinking, Writing and Engagement (Part 2)

Published by Anonymous (not verified) on Fri, 22/04/2016 - 7:00am in


Blog, Space

radnewWe have been discussing radical history, prompted by a new book, Radical Newcastle (NewSouth Publishing, Sydney, 2015), discovering that its editors, James Bennett, Nancy Cushing, and Erik Eklund, neglected/ignored the tradition of radical history, including the series of recent books on Australian radical cities. This neglect is symptomatic of a deeper problem. Their approach to writing history is called, in the trade, academic empiricism. A classic case in fact: they begin with a definition of radicalism based on the Oxford English Dictionary and a British handbook on radicalism, then proceed to look for examples of it in the past. But is this how historians should work, using a timeless definition to corral the past into a predefined pen? Relying on ahistorical thinking? Surely what historians should do is historicise, that is, to work with an understanding of society as process, as a series of situations in which people act, institutions react, and structures change. Historians need to be able to think abstractly as well as concretely, otherwise they are trapped by empiricism, and make the mistake of starting with definitions instead of an historical understanding of their subject. Meaning, not definition; that’s what has to be grasped, as has their own position in relation to the subject.

Radicalism has a symbiotic relationship with capitalism, a word that the editors fail to mention in their Introduction, and capitalism also structured Newcastle as a city. In Radical Newcastle, places seem to be incidental. About a dozen appear on the maps at the start of the book, but none of them has a main entry in the index. Of the thirty chapters just a few refer to a place in their titles. This neglect does a great disservice to Newcastle’s dense geography of struggle, which can be detected in Places, Protests and Memorabilia – The Labour Heritage Register of New South Wales (Industrial Relations Research Centre, University of New South Wales, 2002), where Terry Irving and Lucy Taksa have listed about 60 of Newcastle and the Hunter’s sites of radical activity: the speakers’ corners, meeting rooms, union offices, halls, factory gates, parks and so on. And these are just the sites associated with the labour movement. What about the places associated with the new social movements? Although one of the chapters (by Peta Belic and Erik Eklund) identifies Newcastle’s radicalism as a defining city characteristic, this is not enough. We have to ask how Newcastle as a city worked for and against its radicals. Were there labour or bohemian precincts in the city? Are there patterns in the distribution of radical sites? How did agitators move around their radical city? Again: what route or routes were taken by radical processions, and was the route chosen as a symbolic gesture against ruling institutions? Did the routes change over time? Did women and children march? Unless there is a systematic exploration of questions like these that arise out of an awareness of Newcastle’s geography, of the city’s spatial organisation as an aspect of radical struggles, a whole dimension of the radical experience in Newcastle is lost.

There are thirty chapters in this book; less than half of them qualify as radical history. The others would have been at home in a book on Liberal Newcastle, their tone bland and even-handed, the product of an academic culture that values description over commitment. Readers, it seems, must not be allowed to assume that the authors are identifying with embarrassing ideas like class and domination or contentious action that ignores the ‘right’ channels for protest. Taking the book as a whole this is hodge-podge history, without any sense of radical Newcastle’s patterns in time or space. The deficiencies of the book – as spatial history and radical history – are down to the editors; luckily, some of the contributors show us what the book could have been.

The radical chapters: thinking, writing and engagement

What makes their chapters examples of radical history is that in them we can detect a radical point of view. It is not just that their chapters are about people in movement, challenging, resisting, and so on. Rather the authors are keen to tell us about it in a way that stirs the heart and the head to consider our own situation. Sometimes our attention is caught by the drama of the struggle, as in Rod Noble’s account of the mass civil disobedience of mining communities in the late nineteenth century, and in Ross Edmonds’ chapter on the Silksworth dispute in which militant unionists showed that ‘the radical spirit of anti-imperialism and internationalism’ could overcome ‘unthinking racism’. In Ann Curthoys’ chapter on Barbara Curthoys’ involvement in the Aboriginal rent strike at Purfleet Reserve, however, it is the attention to organisation that compels. We learn not just about the tasks and the planning, the meetings and publicity, but also about the history of Aboriginal politics and Communist Party strategy. We also learn, of course, about a remarkable woman, an intellectual as well as an activist, who, as Ann writes, had a deep effect on her own involvement in Aboriginal issues. There is another mother-daughter connection in Jude Conway’s chapter on the Right to Choose Abortion Coalition that Josephine Conway helped to form. When Josephine turned 80 a friend said that she was a living reminder that radicalism was a way of life, a description that comes across also in the first-hand accounts of their environmental campaigning by Bernadette Smith, and Paula Morrow. The personal dimension of these chapters helps us understand radicalism as a living force rather than a dead definition.

It has always been a radical approach to history writing to insist on rescuing the common people and subversive ideas that mainstream history neglects. There are several chapters that meet that criterion. Tony Laffan’s chapter on the Hall of Science discovers a local free thought movement nurturing and nurtured by industrial militancy, while the chapter by Peta Belic and Erik Eklund on the One Big Union shows the persistence of syndicalist ideas.  Among the courageous anti-conscriptionists of 1916, there was a range of forces and views, and Tod Moore and Harry Williams argue that the most radical were not reported in the press and have consequently disappeared from history. In his chapter, John Maynard successfully restores the significant activism of two white activists, John Maloney and his daughter Dorothy. They campaigned for Aboriginal rights, making contact with the Australian Aboriginal Progressive Association, the first all-Aboriginal political organisation in Australia. And here’s another sign of radicalism as a living tradition: one of the founders of this association was Fred Maynard, the grandfather of the author, John Maynard.

In the best radical history, the actors are never ciphers but real flesh-and-blood people. Two chapters stand out in this regard: Troy Duncan’s on Father Alf Clint, and Shane Hopkinson’s and Tom Griffiths’ on Neville Cunningham. We cherish the image of the reverend inviting the militant Jim Comerford, a teetotaller and temperance advocate, to drink a pint with him in the local miners’ pub. And we are filled with uncomfortable admiration for the idiomatic flair of an ASIO informant who described Neville Cunningham – Communist, activist and working class intellectual – as ‘a fighter … a crude one, rough but direct … Nev has no time for nice trimmings, nor for calling a spade by any other name … He is a likeable chap, all proletarian, dead set against authority.’

Finally, we want to cheer for two chapters of forensic social analysis. Bernadette Smith situates the 1979 Star Hotel riot in the context of Newcastle’s history of class struggle, before placing the state in the frame and looking at local policing and power politics. She also explains the culture of the pub in a sociological way, challenging/undermining a whole lot of safe/traditional academic wisdom.  Griff Foley, internationally respected in adult education and social learning circles, has brought together five cases of ‘community conservation’ – a neglected aspect of environmental history – in order to address the most important question in social movement as well as revolutionary politics: how do activists learn? The answer: informally and incidentally, and making this explicit helps their practice. It’s a lesson that radical historians should take on board: we should be thinking about our intellectual practice as we engage with our next project.

Overall, Radical Newcastle is a mixed bag of hits, almosts, and misses. Considered in the context of Australian radical historical writing, it provides opportunity to reflect upon the nature of radical history, how it is written, and how the historian can render struggles of the past in ways that instruct and inspire the present.

A version of this post was originally published on the ‘Labour History Melbourne’ site 14 March 2016.

Why IPE Needs to Talk about Money: On Austerity, Financial Power, and Debt (Part 2)

Published by Anonymous (not verified) on Wed, 20/04/2016 - 5:00pm in


Blog, Debt, money

Though Marx never developed a theory of the capitalisation of the state or of money creation, he did notice this relationship of getting something for nothing (that we discussed in Part 1 of this post) in the first volume of Capital:  A Critique of Political Economy:

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…. It was not enough that the bank gave with one hand and took back more with the other; it remained, even whilst receiving, the eternal creditor of the nation…

And indeed, because our governments have been structured historically not to create money (with the exception of notes and coins in most instances), the public is forced to go into debt to private social forces.  But the big question is whether this has to be the case? Why shouldn’t our democratically elected governments have the power to create interest free money rather than enter a debt relationship with private social forces who capitalise the production of money at interest? This latter process, as we have seen, leads to mounting ‘national’ debts, the primary justification for the policies of neoliberal austerity.

Of course, because of years of misleading propaganda on the riddle of inflation combined with the popular denigration of public servants and institutions (stronger in some countries than in others) many would react in horror to the proposal that governments should be in control of the production of new money. There are undoubtedly real and perceived challenges to overcome when considering sovereign money but the alternative is to let the bankers continue to create new money out of thin air and profit from the interest. But there are indeed proposals to create sovereign or public money that avoids inflation and at their centre are two simple propositions: 1) money should be produced interest free and in a planned and democratic way; and 2) this new money should be spent on productive activities that benefit society and urgently address climate change and the need for renewable energy among defeating other unnecessary social ills like homelessness, poverty and hunger.

If you think that this is impossible, consider the fact that Switzerland will be holding a referendum on whether to stop private banks from creating new money while putting the control of new money creation solely in the hands of the Swiss National Bank. The elected government will then instruct the Swiss National Bank how it should spend new money into the economy, closely monitoring the effects of new money creation.

Today, much of the new money created by banks has gone into speculative asset inflation, particularly in real estate and the stock markets of the world. And this brings us to some of the key consequences of allowing commercial banks to issue the majority of the money supply and to charge interest for it. We can list them as follows:

  • Democratic governments are not in control of most of their money supply and are structurally forced into debt to a minority of private social forces who profit from this relationship. The fact that the state has the power to tax the population allows for private social forces to capitalise on this power process and direct a stream on income to themselves through government securities.  As Creutz pointed about long ago, it is a mathematical certainty that due to the ownership of government securities (the minority) and the payment of taxes (the majority) more money will be received by the minority of the bondholders from the majority of taxpayers. See also the forthcoming book from Sandy Brian Hager on Public Debt, Inequality and Power in the United States of America;
  • While governments do set spending, distribution and allocation priorities based on a budget, it is largely commercial banks that set allocation/distribution priorities for society given that they are the primary institutions of new money creation. Banks need not create money for productive purposes and can create money to speculate on securities and real estate;
  • There is always more debt in the system than the ability to repay. This is because when banks create loans they do not create the interest. For example, a US$100 dollar loan at 10% interest will mean that the borrower has to repay US$110 to discharge the loan. But the bank creates only US$100, not US$110. The money has to be obtained from elsewhere, which is also a key trigger for the need for economic growth and the greater commodification and monetisation of nature;
  • The sabotage of the possibility of public or sovereign money and the private ownership of the capacity to create new money leads to an inevitable need for credit/debt when incomes do not meet spending expectations or a desired lifestyle. For example, most people are forced into debt if they want to buy a home or car. But as Susanne Soederberg points out in her wonderful book Debtfare States, many low income groups have been turning to consumer credit just to make ends meet; and
  • Money/debt is based on creditworthiness and tied to assets and income, hence the already rich can borrow more money, leading to greater inequality. For example, hedge fund managers can typically leverage their assets by about ten times, meaning if they have assets of US$1 billion, they can borrow another US$10 billion from commercial banks to speculate on income-generating assets. We have to recall that a 5% return on US$10 billion is far greater than a 5% return on US$ 1 billion! Hence, the proliferation of hedge fund billionaires;
  • The owners of banks essentially profit from a fraud. Fraud is typically understood to be a deliberate deception in order to secure an unfair gain or advantage. Since the banks create new money and do not act as intermediaries between savers and borrowers, they are indeed deceiving the public and certainly are securing unfair financial gains. There is a reason why the banking sector is the most heavily capitalised sector of the global economy each year and that an orgy of bonuses and luxury spending follows each fiscal year. See below:


  • Interest on money/debt is a key driver of differential inflation. Interest is a cost to business and gets pushed on to consumers. So consumers not only pay for the base costs of a good or service, but also a portion of the interest the business owes to the banks as well as whatever mark-up on costs the business feels it can get away with. This is interest inflation and profit inflation. Just so that we’re clear that most businesses to do not finance their expansions out of their retained earnings, here’s the level of non-financial corporate debt in the United States (and we assume a similar trajectory in capitalist economies):


  • Government fiscal policy is incredibly important and has more to do with monetary policy than the monetary policy of central banks – which basically regulates the inter-bank market. This is so because should an economy stagnate with low or negative growth and high unemployment then it is only the government that can help create effective demand by spending into the economy. The only problem with this solution is that, at present, thanks largely to Keynes’ denial of sovereign money, governments are forced into debt at interest to do so when they need not be;
  • There is another consequence for entrepreneurs who may have a great idea but not enough money to invest in their business to make it viable. Since banks typically do not lend to new small businesses without collateral or some other guarantee, this means that entrepreneurs have to turn to venture capitalists and the like for an investment and therefore give up equity in their companies; and
  • We need to abandon the notion that savings lead to investment. This is false. No saving has to take place before new money can be issued. Furthermore, more saving means less money in an economy, not more.

There is considerably more to debate and discuss, but I hope this blog post is enough to encourage scholars in IPE to talk more about money – particular before the next crisis hits, debt mounts and politicians cry out for balanced books and more austerity. When we learn that the current system is a historical legacy/creation and in no way a natural or inevitable one, using debt as an excuse to make certain political choices that ultimately benefit the 1% and undermine the public will hopefully be a non-starter.

Democratic societies should be in control of their own money supply, not a minority of private bank owners and their functionaries who profit enormously from capitalising on everyone else paying interest.

Dick Bryan, Navigating in a Fog: Plotting a Marxist Political Economy

Published by Anonymous (not verified) on Sun, 17/04/2016 - 5:03pm in


Blog, Marxism

The Department of Political Economy recently hosted a lecture by Professor Dick Bryan to celebrate his outstanding contributions to political economy.

The lecture, entitled Navigating in a Fog: Plotting a Marxist Political Economy, results from his retirement from the University of Sydney. A short synopsis of the lecture (provided by Dick) follows along with a video of the actual lecture.

In the 1980s Marxian economics entered a fog. Perhaps the fog came from the end of the long boom, or the demise of manufacturing as the ‘model’ of advanced capitalism, or the fall of the Soviet Union. But the fog has remained. Capitalism keeps evolving, while I see that Marxian economics stays still. It keeps asserting its old taxonomies and modes of analysis and its old conclusions even though a materialist method would require that analytical categories adapt to changing circumstances.

I think Marxian political economy now appears too readily as dogmatic value theory or it has vacated the domain of value theory, finding purpose in ideological and moral critiques of capital.

Yet political economy needs to engage Value. So the requirement is to re-think value theory so as to analytically engage capital at its frontier of development – it’s liquidity and fungibility – and to explore the contradictions produced at this frontier.

This talk is an engagement with that project.


Radical History: Thinking, Writing and Engagement (Part 1)

Published by Anonymous (not verified) on Fri, 15/04/2016 - 8:00am in


Blog, Space

Kicking away the props

In recent years, in various places and on our blog ‘Radical Sydney/Radical History’ I have written, in collaboration with Terry Irving, about radical history. As radical historians we seek out, explore, and celebrate the diversities of alternatives and oppositions, arguing there is a basic tension between radical history and  ‘mainstream history’, a history that is constituted to prop up both capitalism and the state. We see our history as part of the struggle against capitalism and the state. In researching the past, we do not do it nostalgically, but with utilitarian, political intent, recognising that the past has the capacity to variously inspire and inform the present and the future. In a nutshell, while mainstream history would like people to read it, radical history wants its readers to act as history makers; while mainstream history props, radical history unprops.

So, in more abstract terms we believe radical history has three distinguishing features:  its subject matter, its political stance, and its relationship to its audience. Radical historians write about the struggles of disempowered people to stand up to their oppressors and exploiters, and to take control of their lives by attacking coercive authority and by socialising power. They tell stories of resistance and agency, not of ruling and maintaining order, which are the signs of ruling class history. Radical historians, secondly, are partisan. They write with a social purpose, and in doing so they draw on radical philosophies and methods. They write history as a political act. Thirdly, although writing about the past, they want to encourage people in the present to resist and rebel. Because the radical past was always being made anew their work is pregnant with possibilities, alerting their readers to the possibilities for action in their own situations. This has consequences for how they write. Readers must be given space to reflect on the present as well as the past. It is not enough to tell stories; the stories have to be shaped by theory, sharpened by the historian’s passion, and riddled with unresolved political questions. Moreover, whether writing for other radical intellectuals, engaging with scholarship and theory, or seeking a wider audience, radical historians place a high value on clarity of expression, avoiding like the plague the over-theoreticised language of academic in-groups, and their self-aggrandising citation of trendy thinkers.

We write radical history from an urban perspective. The capitalist city is as distinctive a historical space as, say, the nation-state, the free-trade empire or the eighteenth/nineteenth century slave ship. Like them it is organised by the processes of capital accumulation and class relations into zones of activity and meaning that change over time. Because radicalism in capitalist cities expresses resistance to the exploitation and oppression inherent in those processes, it is never free of spatial dynamics. It always exhibits a desire to appropriate space, to make places into resources for radical struggle and symbols of popular rights to the capitalist city. The task of the historian of the radical city is to find the patterns in these dynamics and to relate these to the changing nature of radical struggle.

Radical history as a tradition, as an approach to viewing and writing history, has depth in terms of time and variety. It includes magisterial works like those of A. L. Morton (A People’s History of England, 1938), G.D.H. Cole and Raymond Postgate (The Common People, 1938), Howard Zinn (A People’s History of the United States, 1980), and Edward Vallance (A Radical History of Britain, 2009). It is the tradition in which practitioners like maritime historian Marcus Rediker and commons historian Peter Linebaugh work. When Australian historians conceived  ‘labour history’ in the early 1960s, they did so in the radical history tradition, determining to make working people part of Australian historical discourse and challenge the prevailing hegemony of imperial/colonial/ruling class histories, and seeking to use the study of labouring people and their institutions as a political tool to assist the shaping of the present and future. In 1983 Eric Fry, one of these pioneers, published Rebels & Radicals, asserting the role of conflict, struggle and rebellion as important parts of the Australian story, a notion that had become muted in the academic study of labourism.

sydneyBefore the 1960s, and particularly within the orbit of the Communist Party of Australia, labour intellectuals (such as Bob Walshe, James Rawling, Bill Wood, and Rupert Lockwood) researched, wrote, and published in labour movement outlets, radical histories of Australian struggles for popular democracy and of the agency of working people. The work and output of these historians is, still, virtually unfurrowed by researchers, and undeservedly so. Their approach to popularising radical history can be traced back to socialist pioneer, agitator, artist and poet, William Morris, whose writings Nicholas Salmon has collected in William Morris on History (Sheffield: Sheffield Academic Press, 1996). Dorothy Thompson, radical historian of Chartism, recalled that in 1991 she asked husband E P Thompson whether he was still the Marxist historian he once was, and he replied “that he preferred to call himself ‘a Morrisist’”.  This reply is both poetic and political, capturing the step ‘beyond’ to which radical historians aspire.

It is the aspiration that publisher Ian Syson (Vulgar Press) and authors Jeff and Jill Sparrow brought to the radical history of the geographical-political space that is Melbourne in Radical Melbourne: A Secret History (Vulgar Press: Melbourne, 2001). Since then other ‘radical city’ books have followed: Radical Melbourne II (by the same authors and publisher, 2004), Radical Brisbane (edited by Raymond Evans and Carole Ferrier, Vulgar Press, 2004), and Radical Sydney (UNSW Press, 2010), featured in a review on the spatial resources of radical Sydney. Earlier at the University of Ballarat in 2009, Robert Hodder successfully produced a two-part doctoral thesis (exegesis and documents) titled ‘Radical Tasmania: Rebellion, reaction and resistance: A thesis in creative nonfiction.’ Later, a Wollongong team, working from a script written by John Rainford, released their 60 minute-long film Radical Wollongong: A People’s History of Wollongong in 2014, which went on to tour Australia and parts of Asia and to win two Awards at the Canadian Labour International Film Festival (2014), including ‘Best in Festival’. As the co-authors of Radical Sydney, we are keen to see this form of radical history continued.

Radical Newcastle: inventing the wheel?

The reader picking up Radical Newcastle (NewSouth Publishing, Sydney, 2015), edited by James Bennett, Nancy Cushing, and Erik Eklund, could be forgiven for thinking that the editors, all University of Newcastle historians, have invented the wheel, for there is no recognition in the book that Radical Newcastle is part of this vibrant and visible, if somewhat marginalised in Australian academic circles, area of historical work. The editors seem completely indifferent to the long tradition of writing about history from a radical perspective, the tradition of radical history of which the ‘radical city’ books are a part. Nor are they aware of the recent radical scholarship by Mike Davis, David Harvey, Justin McGuirk, and others, that has transformed the study of cities.

The editors of Radical Newcastle describe their book as ‘the outcome of community-engaged research’ that aimed to connect ‘with the interests and concerns of our local community’. In other words its genre is public history with community involvement. Fair enough; that’s a recognised kind of history, although one frequently derailed by deceptive ideas of social unity. The problem is that the subject of their history book is radicalism, and radical history is a tradition the editors don’t engage with. Should they have? Well, imagine writing a book called ‘Indigenous Newcastle’ but neglecting to take into account the literature of Aboriginal history.

A version of this post was originally published on the ‘Labour History Melbourne’ site 14 March 2016.

Why IPE Needs to Talk about Money: On Austerity, Financial Power, and Debt (Part 1)

Published by Anonymous (not verified) on Wed, 13/04/2016 - 6:16pm in


Blog, Debt, money

The esteemed science fiction writer and Professor of Biochemistry at Boston University, Isaac Asimov once said that the most interesting phrase to hear in science is not ‘Eureka! I’ve found it’, but ‘gee, that’s funny.’ It turns out that the ‘gee, that’s funny’ moments are the most exciting because they can set you on a path to find those ‘eureka’ moments. Ten years ago, when I was a graduate student at York University I had my own ‘gee, that’s funny’ moment.  I was having lunch with a well-respected visiting professor of political economy and we were casually discussing the state of the world economy just before the global financial crisis. Eventually, it dawned on me to ask him where money came from in the first place. He said he felt embarrassed, that he used to know, but had somehow forgotten the answer along the way to his professorship.

‘Gee, that’s funny.’

I figured if one of the world’s leading critical political economists didn’t seem to care much about how new money entered the economy, then it might not be important. At the time, I was finalising my PhD on what I thought (at the time) was a completely different topic, so I didn’t think to pursue my question any further. But not knowing continued to gnaw on me, particularly because I considered myself a critical political economist and this means a critical engagement with the history, theory and practice of capitalist accumulation. If the main goal of capitalists is the pursuit of evermore money, it would be a pretty good idea, I thought, to know how new money is produced.

DebtSurprisingly, the literature in International Political Economy (IPE) was of very little help in my search. I canvassed all leading IPE textbooks and not one discusses the history of money, how money is produced or the problems and consequences – read: relations of power and inequality – of the present monetary system. I also canvassed leading textbooks in political economy that have a less international focus.  Same thing. How is it, as scholars and educators of IPE, that we have not addressed these questions? In my estimation, the oversight is nothing short of scandalous given the centrality of money to everyday life, well-being and the ebbs and flows of the global political economy more generally.

With some considerable exceptions in heterodox political economy and sociology, much of the extant literature is uncritical and lacks deep historical and theoretical analysis. At the moment, I’m finalising my literature review for a new book with Richard H. Robbins called Money: A Critical Introduction, due out with Routledge in early 2017. The book aims to offer an accessible introduction to the history, theory and literature on money with a critical analysis of how new money enters the economy and the consequences and power relations that result. We intend it to be a companion volume to our recently published Debt as Power with Manchester University Press in the UK and Oxford University Press in the USA.

In Debt as Power we consider the ubiquity of debt at all levels of the global economy and argue that debt is a technology of capitalist power known by its effects on bodies, built environments and nature.  As we claim in the book:

the world is awash in debt and though we should recognise that debt levels and access to credit are radically unequal within and between countries, the commonality of all modern political economies is not so much that they are market oriented but that they are all debt based political economies. Indeed, as Rowbotham noted: ‘the world can be considered a single debt-based economy’ (1998: 159).  To take an international perspective, according to the global management consulting firm McKinsey and Co., as of 2012 the total outstanding debt across 183 countries was US$175 trillion (Update: it’s now US$199 trillion as of a 2015 McKinsey Report). In 1990, the same figure was only US$45 trillion or a 288% increase over the period. As identified in Table 1.1, all categories of debt have increased considerably with government debt, financial industry debt and securitised debt (e.g. mortgages, commercial real estate) leading the categories by percent increase.

Table 1.1 (2012 dollars)

Type of Debt

US $Trillion

US $Trillion
Percent Increase

Government Bonds

Financial Bonds

Corporate Bonds


Non-Securitized Loans

But the concept and prevalence of debt in capitalist modernity needs to be critically theorised. Our starting point, and primary argument, is that debt within capitalist modernity is a social technology of power and its continued deployment heralds a stark utopia. Our claim is not that debt can be thought of as a technology of power but rather that debt is a technology of power. By technology we simply mean a skill, art or manner of doing something connected to a form of rationality or logic and mobilised by definite social forces. In capitalism, the prevailing logic is the logic of differential accumulation and given that debt instruments far outweigh equity instruments, we can safely claim that interest-bearing debt is the primary way in which economic inequality is generated as more money is redistributed to creditors.

This fact not only has implications for growing inequality and the rise of the 1% and billionaire class. As many of us are aware in IPE, the fear of ballooning public debts is virtually always the perennial justification for neoliberal austerity politics. It seems that almost everyone is living beyond their means but the bankers and the 1%. But when we critically examine how new money enters the economy, the need for neoliberal austerity policies should be understood as a political choice rather than one that is historically inevitable by some iron law of debt and public spending. These policies (privatisation, fiscal discipline, deregulation, cutbacks, layoffs, user fees, more indirect taxes, tax cuts for the wealthy, etc…) also tend to cause incredible damage to the livelihoods and well-being of ordinary people, not to mention the most vulnerable.

So why are neoliberal austerity policies a political choice rather than a historical necessity? The story in brief, drawing from Debt as Power and the additional work to come, can be told as follows.

Layout 1First, let us consider the simple fact that there is considerable mystery when it comes to understanding money and specifically how new money enters an economy.  It is highly likely that our politicians do not have a clear understanding of monetary mechanics and are themselves beholden to ‘received truths’ passed down by generations of faulty or misleading scholarship – particularly in Economics where money is treated as unimportant and a neutral veil. In our view, money and particularly the production of it, is far from neutral and involves perhaps the most important power relationship in capitalism (see the seminal and vastly understudied work of Geoffrey Ingham, The Nature of Money). So our first point is that we are governed by politicians who likely have: 1) no understanding of how money enters the economy or 2) have a faulty, muddled or outdated understanding of how new money enters the economy.

As it turns out, this is an excellent situation for the private social forces that actually do own and control how new money enters the economy. Our money supply, as it were, is capitalised by the owners of commercial banks. So now, let’s take a closer look at how new money actually does enter an advanced capitalist economy like the United States.

Many would be surprised to find out that the vast majority of the money supply in leading capitalist countries (we have focused on the US and UK in our research) is issued by commercial banks when they make loans – over 90% in most advanced capitalist economies. Most of this money does not consist of notes and coins, but numbers in computers organised by double-entry bookkeeping. This form of bookkeeping is an historical creation that has been naturalised and taken for granted rather than critically examined for its effects.

But now is not the time to take double-entry bookkeeping to task.  Let’s focus on why the fact that banks create money is crucial for understanding neoliberal austerity policies as a political choice rather than a product of some iron law that must be followed to the letter.

The important point is this: most people assume that banks are intermediaries. That is, they take money in from savers and because it is assumed the savers don’t need their money right away, the bank is able to lend some of this money at interest to willing borrowers. This view is completely wrong. In reality, when banks make loans to willing borrowers – individuals,  businesses and governments – they are creating new money as deposits in the accounts of their customers. For example, if I take out a loan or a credit card for US$10,000, the bank records this as a liability (they owe me this credit facility) on their balance sheets. To offset the liability side of the balance sheet, they record my promise to pay (remember, we sign a contract for loans and credit cards) as an interest bearing asset. The contract is the bank’s asset and the loan/deposit, the bank’s liability.  This has been confirmed by the recent work of Josh Ryan-Collins et. al., Where Does Money Come From?.  It should also be noted that Post-Keynesians and neo-chartalists have also recognised endogenous money but have oddly never problematised the fact that banks create new money when they issue loans. While this research has hardly caused a dent in mainstream or popular thinking across the world, even Martin Wolf of the Financial Times had to recognise the glaring facts in a 2014 article.

What this means is that our democracies have relegated the power to create new money to privately owned (though publically traded) commercial banks (with a key role for central banks of the world not discussed here). There is a rich history of how this arrangement came about and we explore this in our work, but the key point to emphasise in this blog post is that if our governments want to spend more money than they take in in taxes, fees and fines, they are structurally forced to borrow at interest. There is no legitimate reason why this has to happen, but there is a historical one and it has to do with power, inequality and ultimately a very tiny minority getting something for nothing. Put simply, there is a structural reason why the collective ‘national’ debts of the world’s governments currently stands at US$ 58 trillion and counting according to the Economist’s debt clock.




So the question now becomes who are our governments borrowing from? As it turns out, there are five major sources: 1) individuals/families who purchase government debt as a safe investment – typically through a financial vehicle and/or intermediary; 2) non-financial corporations can place surplus cash in government interest bearing securities; 3) foreign governments and corporations; 4) domestic commercial and central banks; and 5) government entities.

But of these five options, it is only the domestic commercial and central banks that have the power to create money for the purpose of purchasing government securities. In other words, whereas the other four options involve investing money that is already in existence, when domestic commercial and central banks purchase government securities they do so by creating the money and expanding their balance sheets accordingly.  Effectively, this means that the owners of commercial banks are getting something for nothing. The implications of this are vast and the subject of the second part of this post, next week.