China and the End of Growth

Because the news today is dominated by Chinese debt, I thought I share David Graeber’s ideas about the Chinese government’s potential responses. I’m sharing not because I agree, per se, but because I think it’s a relatively novel approach that bridges both left- and right-wing critiques of monetary policy. Not many people can lasso Ron Paul and Keynes together. I’ll acknowledge at the outset that I might be reducing or misrepresenting what’s actually a very complicated argument that came at the end of 500 pages of establishing premises.

Graeber starts by making an interesting observation that there’s always been a shadow eschatology in capitalist systems. Inside ourselves, we know the party can’t go on forever. We have to believe that this is finite for what we’re doing to work. Curiously, you find the exact opposite in countries that had a socialist revolution: they do assume a certain degree of immortality.

… the moment that fear of imminent social revolution no longer seemed plausible, by the end of World War II, we were immediately presented with the specter of nuclear holocaust. Then, when that no longer seemed plausible, we discovered global warming. This is not to say that these threats were not, and are not, real. Yet it does seem strange that capitalism feels the constant need to imagine, or to actually manufacture, the means of its own imminent  extinction. It’s in dramatic contrast to the behavior of the leaders of socialist regimes, from Cuba to Albania, who, when they came to power, immediately began acting as if their system would be around forever—ironically enough, considering they in fact turned out to be something of an historical blip.


Perhaps the reason is because what was true in 1710 is still true. Presented with the prospect of its own eternity, capitalism—or anyway, financial capitalism—simply explodes. Because if there’s no end to it, there’s absolutely no reason not to generate credit—that is, future money—infinitely. Recent events would certainly seem to confirm this. The period leading up to 2009 was one in which many began to believe that capitalism really was going to be around forever; at the very least, no one seemed any longer to be able to imagine an alternative. The immediate effect was a series of increasingly reckless bubbles that brought the whole apparatus crashing down.

Graeber links all this back to a monetarist versus chartalist interpretations of money. Think of the two sides of the coin – one shows an explicit value, the other shows the government authority that printed and guarantees it. Which side is “right”? Is money actually linked to some intrinsic value (monetarist) or are is the value actually a social invention by central banks? This harkens to critiques we’re hearing in the Republican Party about Obama’s policies of quantitative easing – that we can’t just “print money.”

But the chartalist position actually says, “yeah you can.” That’s what Central banks do. Some, like Keynes, say we can use this to decrease inequalities and manage the economy. But to believe that money actually has some intrinsic value is to take a monetarist view. The quote, “the problem with socialism is that you run out of other people’s money” comes to mind. That’s a very monetarist position, and it’s the paradigm Graeber argues is needed to believe that they’re trading finite commodities of “real” value.

Graeber is bringing attention to what he see’s as this paradox: capitalists need to believe in a monetarist view even though all of their growth is fed by chartalism. We are just “printing money” and they’re usually the beneficiaries, but to believe that upends monetarist views that they, not governments, are generating growth. The value of all that they’ve acquired is actually set by central banks. And when debt gets too large, those central banks can just print off more money. Graeber then makes the argument:

“Presented with the prospect of its own eternity, capitalism—or anyway, financial capitalism—simply explodes. Because if there’s no end to it, there’s absolutely no reason not to generate credit—that is, future money—indefinitely…. The period leading up to 2008 was one in which many began to believe that capitalism was going to be around forever…. The immediate effect was a series of increasingly reckless bubbles…”


Taking this interpretation to China, the news today is about massive loans (usually made to local governments and state-owned enterprises) that aren’t bearing fruit. The People’s Bank can make it mostly disappear in a matter of months by pumping out the People’s Money (Renminbi). This has already caused quite some inflation. But Graeber is arguing that if it does this, if it shows it’s cards, the game is over. Graeber uses the metaphor of pulling the curtains hiding Oz. It must maintain the illusion that there are limits everywhere to economic growth and that the prior growth was “real” rather than the government just passing tokens out.

I think there’s something to this. Where I see this critique in action is when I look at GOP critiques of Obama’s economic policy during the 2008 election cycle. Although I can’t say what they were really thinking, you see a very similar critique: “you’re pulling up the curtain too soon! You’re pumping out money when everyone knows the economy is in decline. You’re showing that the recovery is, to an extent, fake. And if the recovery is fake…” If we believe that the fiat money isn’t really tied to anything, then the system begins to fall in on itself.

Wayne Price actually thinks it’s the weakest part of the book:

Was the period before the recent period (say, the post-World War II apparent prosperity) one where people did not believe that capitalism would be around forever? (I lived through the 60s, and I can assure Graeber that most people, alas, thought capitalism was eternal.) Did investors turn to “financialization” in the 80s because they had a new faith in capitalism? Is there any evidence for these claims? If this was so, then why did the bubbles ever pop? A sudden belief in the limitations of capitalism?

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