V
The protagonists of this "humbug of finance", who frown
upon fiscal deficits even when the economy is demand constrained, and even
when the savings generated by the fiscal deficit occur within the public
sector itself (and who believe that selling public sector equity mitigates
the effects of a fiscal deficit), often fall back on two additional arguments.
The first states that State intervention in the economy should be eschewed
because it promotes "inefficiency". This argument too is "humbug",
like the rest of the "humbug of finance". If State intervention
in a situation of demand constraint increases
total output, then calling it "inefficient" is a travesty of the
truth. Propositions such as "State intervention causes inefficiency"
invariably assume comparisons between two situations in both of which all resources are fully employed. These propositions
become completely meaningless, nay absurd, when the non-State intervention
situation is demand-constrained.
The second argument runs as follows: the point is not what a
fiscal deficit is intrinsically (i.e. in a ceteris
paribus sense) capable of doing in a particular situation; the point
in today's context is what foreign capital thinks
it would do. And if foreign capital is suspicious of any increase in the
fiscal deficit, then, even if this suspicion is ill-founded, it would nonetheless
ensure that adverse consequences would follow from an enlarged fiscal deficit,
in the form of capital flight for example. The effect on the balance of
payments in this case would be as real, despite the existence of demand-constraint,
as if the fiscal deficit had impacted on it in a situation of supply constraint.
This argument has some merit, but it needs to be inverted. If
the confidence of foreign capital requires a curb on democracy, then that
is no reason for curbing democracy; if foreign capital has more confidence
when the Prime Minister is an ex-employee of the World Bank, then that is
no reason for limiting the country's choice for the post of Prime Minister
only to that set; likewise if workers agitating for their demands dents
foreign capital's confidence then that is no reason for banning workers'
agitations. In all these cases the better course for society to adopt is
to put curbs on foreign capital rather than dance to its tune.
VI
Two questions inevitably arise: first, if the "humbug of
finance" is mere humbug, then how does one explain its revival more
than half a century after it had been buried? This is a complex question
relating to political economy, a convincing answer to which requires answering
two distinct questions: whose interests does it serve? Have some of the
elements whose interests it serves become stronger in recent years?
The basic objective behind propagating the "humbug of finance"
is to prevent, or roll back, any activity on the part of the State to become
a producer, or an active investor, or a controller of capital. This not
only opens up more space for capital, not only permits its grabbing hold
of State assets at throwaway prices, but ushers in a bout of centralisation
of capital in the crisis that follows State withdrawal. It follows then
that different elements of capital have an uneven interest in embracing
or propounding the "humbug of finance": larger capital has greater
interest than smaller capital, and finance capital has greater interest
than manufacturing capital (which benefits from the expansion of the market
caused by State activity).
This is a general picture. Looking at the matter in the context
of the world as a whole, it follows that international capital generally,
and international finance capital in particular, would be the strongest
votary of the "humbug of finance", especially of inflicting it
on third world countries. The third world State acted after decolonisation
as a bulwark against foreign capital and was used by the domestic bourgeoisie
to strengthen itself at the expense of foreign capital. Rolling back the
third world State, in particular relatively autonomous and powerful third
world States like the Indian State, by imposing the "humbug of finance",
represents therefore a major triumph for international (or more accurately
metropolitan) capital. It is able to achieve this triumph partly because
it has become much stronger owing to the inter-related phenomena of subsidence
in inter-imperialist rivalry, and the ascendancy of a new form of metropolis-dominated
supra-national finance capital.
The second question that inevitably arises is: why should the
domestic bourgeoisie in third world have gone along with the propagation
of the "humbug of finance"? In part it has to do with the unsustainability
of the earlier post-independence trajectory of State-sponsored bourgeois
development: having reached a dead end the big bourgeoisie now feels that
its future lies in linking up as a junior partner of metropolitan capital.
In part, the answer has to do also with the pressures exerted by metropolitan
capital itself whose increase in strength in its new incarnation has already
been referred to. It follows then that the third world bourgeoisie has had
a role reversal. In the new historical conjuncture it can no longer play
the positive role of leading the struggle for emancipation of the national
economy from the control of metropolitan capital.
In this context it becomes absolutely and urgently necessary for
all of us, who are not wedded to the cause of the big bourgeoisie or of
metropolitan capital, to expose the "humbug of finance" which
is being used to justify the decimation of the capital goods sector of the
economy and the useless stock-piling of millions of tonnes of foodgrains
in a country of starving people.
