On economic fetishism

Paul Krugman column today “marks to market” his early prediction that, from the get-go, the European monetary union was bound to “fail.” That may seem impressive to some readers, but I am going to argue next that Paul Krugman’s apparent prescience is evidence of a formalistic or, perhaps more appropriately, a reified conception of social life, and that this reified or fetishistic conception of social life is a big part of the problem.  Here’s why.

By and large, we live in a society in which capital rules. In this setting, the essence of the social condition of humanity lies in the distribution of wealth ownership (i.e., who winds up deciding on, using, or consuming the subsequent flow of social production, a.k.a. income). The question of who, right now, owns the productive wealth of society (i.e. who will control and benefit from the deployment of such productive wealth over time) is the fundamental social question.  (Notice the “right now” conditional clause in my sentence, as the present is the only real time, as Octavio Paz used to say.  The past was, but is now irretrievably gone, and the future is not here yet.)

Any “mechanism” by which wealth ownership is transferred from person to person right now — be it exchange in markets, fiscal transfers, gift giving, etc. — either increases or not the measure of control that capital exercises over our lives at this very moment.  Non-owners, regular working people, obviously tug the rope in exactly the opposite direction so they enhance their current control over their own lives.

People like Krugman (let’s call them “economists”) focus on the “legal fiction” of ownership.  They take the content of that legal form as warranted.  And insofar as the “legal fiction” matches the “economic content” (who effectively owns what), then the economists are on target. But crises are precisely the situations in which the divorce between the “legal fiction” of ownership and its effective “economic content” suddenly bubbles to the surface of life.

Consider the subprime mortgage boom. You have poverty in the U.S., exacerbated by four to five decades of real-wage stagnation. Working people bearing the brunt of the economy’s “systemic risk.”  That is the tragic reality that a term such as “poverty” or “inequality” captures.  Capital seeks its own expansion, people and nature be damned (as Pope Francis so eloquently puts it in his Laudato Si), but capitalists need people not only to make what they sell but also to buy it, and impoverished working people as consumers lack the ability to pay in cash for their purchases. Creative bankers offer them loans, persuade them to borrow against their future (and very uncertain!) income.  (By definition of poverty, the future income of the poor is very uncertain.)  The bankers don’t need to try very hard.  Impoverished workers will jump at the prospect of receiving credit.

What can workers do in the situation? If you are given a credit line, and you are hungry, need medical care, etc., by all means you are going to eat, have your medical needs taken care of, etc., even if you must max out your credit card! If you need shelter, you will borrow to buy a house, even if you may eventually have to face eviction! Etc.

But if many people do that, that’s unsustainable! — Paul Krugman will argue; and he’ll be very right, formally so. It looks like a matter of simple arithmetic. You can project people’s current income (or some other likely income) and see whether a debt of a given size can be repaid or not. But this kind of exercise is based on assumptions that we must question, however warranted they may appear to be; namely, that the face value of debt is to be honored, that the state will deploy resources to enforce the debt, that people will comply, etc.

When the crisis comes (and it’ll come, indeed it came already, and it will recur no doubt while capital continues to rule our lives)… well, people will cross the proverbial bridge when they come to it. Working people will then have to realize that wealth redistribution is required to make legal form correspond to economic substance and, furthermore, that the way in which people access the entire stock of society’s wealth needs serious reorganization.  Meanwhile, as they say in Mexico: “Who can take away what we already danced?” Who can take away the food we already ate, the medical services we already received, the housing services we already enjoyed? 

It is a matter of available alternatives.  If the argument is that working people should not enter into a mortgage contract when they can instead receive housing for free, then the formalistic argument is exactly right. However, if the argument is instead that working people should go homeless now because borrowing to buy a house will expose them to mass foreclosure and humiliating eviction tomorrow, then the argument is vacuuos. If a more secure way exists for people to meet their needs, people will take it.  If it does not exist, people will take their chances.  Simple as that.  (I know there are intermediate scenarios between free housing and homelessness, but I am taking the polar extremes to emphasize my point.) 

The key point is that when tomorrow comes, the enforcement of financial claims will have to collide with the reality on the ground. It will not be a slam dunk. Those financial claims will have to be viewed as legitimate for people to comply with them, their enforcement will entail a cost, the fact that their enforcement requires to mobilize the machinery of the state is also crucial, and that terrain is contested politically.

The fight, of course, will continue, though now, in the midst of the crisis, over who will have (and how much) access to present and future food, medical care, housing, etc. That is the essential Gordian knot that workers must cut if they are going to survive and even emerge stronger from the crisis. Possession is not too bad a position from which to bargain. The onus is on the creditor to collect, to carry out an eviction, etc. Maybe under these new conditions, we’ll be able to wage a better fight for public health care, public housing, etc.

Back to the story about the European monetary union. In the 1990s, when the euro was being put together, Krugman’s argument was that, without fiscal unity, the euro would be something akin to the old, rigid, and failed gold standard, making up for a strong cycle. The larger the euro boom, the more catastrophic the upcoming euro bust. Back then, one could see their point, but there wasn’t or couldn’t be much of a left opposition in Greece or Spain to getting on the euro train. This is why the predictive marksmanship of Krugman et al is not as impressive as it seems at first sight. Back then the debate was academic in the ivory-tower sense. Politically, the argument was technocratic and, hence, untimely.  If I had been the left in Greece, I would not have cared much about the issue, because whether to join the euro or not would be largely beyond my control and therefore irrelevant to the immediate needs of working people in Greece at the time!

Was it not reckless, irresponsible, etc. to go along with the euro? No. It was not. Back in the late 1980s and 1990s, when the monetary union was being cooked, the workers in Greece, Spain, etc. were in no position to act “prudently” and “responsible” with regard to the monetary union.  Under the circumstances, the prospects of a booming capitalist economy advanced the immediate interest of these workers. Remember, those were the times when the Cold War was ending, there was “no alternative” to capitalism, etc. In this fundamental sense, Krugman and those who argued like him were wrong back then!

But regardless of who was right or wrong, in the abstract or in the concrete, it is not too bad an outcome when the veil of legality or finance that clouds the effective distribution of wealth evaporates before our eyes, and the balance of class forces between wealth owners and direct producers appears to us in all its raw nakedness.



  1. Krudman’s fraud is his claim that the US monetary zone is advantaged by its ‘political union’. No, the US’ advantage is being the world’s largest debt colony. The Eurozone attempted to evade that solution by strict regional accounting with exceptional “loans”. The US debt vampires sabotaged the Eurozone and the Krudman cynically eulogizes, “they failed to follow the one true way [of the fraudsters’].” Truly, theirs is an evil empire.

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