The Need to take on the issue of Government Debt:

Extracts from K.C.Adams.

Government Debt and the Need for a New Direction for the Economy

Destructive Practice of Government Debt
to Private Lenders

Government debt to private lenders at the federal, provincial and municipal levels is an extremely damaging aspect of the anti-social offensive. Canadian governments annually pour $60 billion of public funds into the coffers of finance capital as unnecessary interest payments. The cumulative tribute has climbed to $1.1 trillion since 1974, when U.S.-led international finance capital dictated an end to government borrowing from the Bank of Canada. The anti-social practice of governments borrowing from private lenders and paying the ongoing interest, resulting in enormous public debts, has become yet another neo-liberal excuse to impose austerity on the people and cut social programs and public services…

Neo-liberals say public loans to governments from the Bank of Canada are inflationary, as they may increase the money supply beyond an increase in the value of the country’s goods and services. This argument is deceptive and contrary to the historical experience of capitalism.

The deception arises from the fact that all institutional lending either public or private increases the money supply, as the amount loaned is greater than the reserve of social wealth the institution holds. If the borrowing results in productive employment of the working class, the newly produced value should be greater than the borrowed value. The reason for inflation is not whether government or any borrowing comes from public or private sources but the use to which the borrowed money is put.

The neo-liberal argument regarding inflation is also contrary to the historical record. During the formative period of capitalism, the practice of private entrepreneurs borrowing from private owners of social wealth at interest rates less than the anticipated average profit greatly accelerated the development of the forces of industrial mass production. This modern practice stood in stark opposition to feudalism and its forces of scattered petty production and retrogressive practice of usury, which overwhelmed and captured all profit inhibiting any growth.

With the overthrow of the feudal state, the new capitalist state began the practice of government borrowing not only from public accumulation but also based on the prospect of future production of value greater than the borrowed amount. This method of state borrowing for material and social infrastructure projects became an effective method to advance the aim of nation-building.

Any loan, public or private, that results in workers producing added-value, reproducing the value of their capacity to work, and transferring already-produced value into new production adds to social wealth in excess of the original loan. Such a practice cannot be inflationary.

Any loan, public or private, that results in spending without workers producing new value, such as for war or the buying and continuous transfer of already-produced social wealth in hopes of increasing it without producing anything, does not add to social wealth. Such borrowing practices may increase the money supply beyond an increase in the overall value of the country’s goods and services and lead to a cheapening of the currency and rise in prices…

The economic thesis of a general benefit from government borrowing from the Bank of Canada was proved in practice through the post-WWII formative years of Canadian nation-building. The Bank of Canada, a Crown corporation, furnished public funds to the three levels of government mostly for the building of material and social infrastructure and public services, without causing any serious price inflation. The total value of public material and social infrastructure and public services increased enormously in the early post-war period…

This situation existed under the overall conditions of the post-war social contract between the Canadian working class and owners of monopoly capital. The progressive trend demanded by the victorious anti-fascist forces after WWII called for a restriction of the powerful merged monopolies of financial and industrial capital that had caused recurring crises and disasters during the first half of the twentieth century. Important was the demand for the financial sector, not just the Bank of Canada, to become a public utility making funds available at low or zero interest rates throughout the economy for productive development and to strengthen the material and social infrastructure, including health care and education for all…

The reactionary trend refused to accept the anti-fascist verdict of WWII and opposed any restrictions on class privilege and monopoly right. On the financial front, the reactionary trend demanded an overall regression into government borrowing from private institutional sources controlled by the monopolies…

The people led by a conscious and organized working class with its own independent politics can put an end to finance capital’s anti-social austerity agenda and nation-wrecking. The consolidation of an organized force for change based on concrete political work with links on the ground is the key to political renewal, to turning around the anti-social offensive, restricting monopoly right, ending class privilege and building the new…

Finance capital imposes unnecessary and onerous demands for tribute without end. Private finance capital is not needed for the productive development of the country. Canada is quite capable of providing investment money from its own public resources based not only on public accumulation but also on the prospect of new value the working class can produce when mobilized and actively working.

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