This is a chapter from the book:
The Democratic State

Chapter 7: Financial policy — Budget — Government debt

Taxation enables the state to serve its citizens, but it also directly hampers their economic pursuits. Consequently, the state’s resources and therefore its services are limited by its citizens’ economic success, which it must not jeopardize by ruthless taxation. It must fulfill its tasks, but with limited means to do so. In the budget the state regulates its functions for which limited revenue is available. It allots its revenues in such a way that it can still maintain the antagonistic mode of production. Since its activities are indispensable it does not keep to the funds actually available but maintains its ability to function by going into debt.

a) Budgetary principles are established…

In the legal regulations the state issues against itself it acknowledges the economic limits on its actions. These laws are aimed at preserving its ability to function, which is continually endangered by the limited means society puts at its disposal. In keeping with this goal, the state has established the principle of budgetary unity whereby all receipts are fundamentally funds for all expenditures. This effectively bars its citizens from making legal claims for specific expenditures. However, once the expenditures have been decided upon by the state (appropriated) the funds are tied to these purposes. The state prohibits itself from using general revenue funds (slush funds!) which while not tying state moneys to certain areas also make them inaccessible regardless of current needs. Another budgetary principle is to fix the amount of an expenditure for a certain purpose for a set time period. All these fine budgetary principles are intended to prevent the government from neglecting functions which it could well afford (and squandering the funds on unnecessary things), as well as from manipulating its accounting to transform deficits into a sound budget.

b) …only to be circumvented!

When the state plans its budget it must consider the “extent and composition of anticipated expenditures and the possibilities of financing them in their interaction with the projected development of macroeconomic capacity” (Report on the State of the Nation [Germany] 1972). Since this prognostic activity is difficult in view of all the freedom the state grants the economic actors, it offers itself a way out for false forecasts. It circumvents all the glorious principles it has set up itself with the help of the savings clause, which enables balancing of surplus and deficit between different items, and the transfer clause, which allows payment during the following fiscal year. Necessary tasks must be taken care of even when those in charge have made mistakes when planning the budget, so that “extraordinary” and “off-budget” expenses are also allowed. And since the necessary money is not available when all receipts have already been budgeted, the state goes into debt. In America, for example, legislation is passed to raise the “debt ceiling,” while in Germany, Article 115 of the Constitution states the conditions which must be met. Debts are part and parcel of bourgeois state financial policy because the functions of the state must be carried out regardless of the competing citizens’ ability to provide it with funds.

c) The result is inflation.

As the “ideal collective capitalist” (Chapter 5 b) the state makes sure that the interests of banking capital do not endanger the functioning of the credit system for industrial accumulation, and sets limits on the accumulation of money capital by regulating the expansion of credit. However, it contributes to increasing credit by its own debt. When it comes to its own economic existence it does not mind in the least that debts circulate and are used for the fictitious realization of capital. It accepts the fact that national debts, by circulating as credit money “backed” by the state, influence the relation between supply and demand so as to result in inflation. It can also live with the resulting aggravation of conflicts between the classes whose buying power is diminished by inflation.

d) Historical remarks

By using government debt as a means to carry out its functions for the preservation of class society, the state acknowledges that its powers in relation to its citizens involve an economic dependence on them. Its financial sovereignty is based on forgoing any direct economic powers itself and turning into a power that serves the economic goals of its citizens. The early bourgeois state was itself an economic actor, but became more and more dependent on trade and industry and was forced to make one concession after another. Only after the state relinquished its own wealth and allowed it to be used by capitalists, did it become the modern state which serves its society while ruling over it. The indebtedness of the state, which meant that it no longer existed as an independent economic power, became one of the levers of primitive accumulation.

e) Ideologies

The loss of price stability concerns citizens only to the extent that their bank accounts or wallets signal that everything they must buy has become more expensive. They always grumble that taxes are not used enough for the items they favor. All they usually have to say about the budget is how unnecessary they think the expenditures are. Some like to take a stand for the social state and against national security and to deplore the high salaries of state officials. Others use Sweden as a counterargument to stress the high cost of social programs, and even discover that it’s the citizens who have to pay for it all. Hence, “Down with the control of the individual and his happiness by the welfare state!” The ultimate in this kind of “critique” comes again from the revisionists, with their demands such as, “Education not arms!” However, their adversaries are more successful with their demands for a cut in social expenditures in favor of more direct and indirect support for their profits. The pure form of civic virtue is exhibited in the desire for “sound finances” as such. This desire is shared by the fascists, who always complain about the “laxness” of the democratic administration of office. Once they reach power, of course, they are more generous in their use of money than any democratic bureaucracy. Their policies of a “free” people’s state “independent” of the economic conditions of society lead to a sovereign use of funds, to the creation of economic means without an economic basis (e.g. printing money). The political power proves itself by continually entering debts on the asset side of the balance sheet.