Noose of Silver

 “The Debt System – A History of Sovereign Debts and their Repudiation,” by Eric Toussaint, 2019

This book contains extremely detailed case studies of national debt in 5 countries in the 1800s: Mexico, Greece, Egypt, Tunisia and Latin America re: 'Gran Columbia' – the area of Columbia, Venezuela, Panama and Ecuador. It is the roots of present-day national debt problems. There are also successful examples of debt repudiation after revolutions in Mexico and Russia, along with many others. These sovereign debts reflect the methods of neo-colonialism and later, modern imperialism.

There are certain consistencies across all the stories. The most well known is the pursuit of extractive profit by European and U.S. banks through 'free trade' and sovereign loans. This is nothing new and Toussaint shows this has been going on for 200 years after formal independence had been declared by the indebted nations. This extraction relates to the theory of 3^rd world underdevelopment verbalized by Gunder Frank. There was even a debt 'troika' consisting of Russia, England and France in the 1820s loaning to Greece after their 'national liberation' fight. The heavy fact most reformists, nationalists and geopoliticians ignore is that in each country the local ruling class or comprador bourgeoisie actively support their country going into debt so as to avoid taxes, among other significant reasons. In other words, 'national' debt is actually a class question in the indebted country – it is not simply a national problem of a poor country oppressed by foreign banks. The simplistic 'north-south' dyad hides this.

The second point Toussaint makes is that actual 'independence' is a rarity for most countries. A world capitalist economy mitigates against this – no matter who their lenders are or what country they partner with. Lenin defined imperialism as the need of big capital to export capital and this was present in spades in the 1800s. Bukharin identified the state and national capital functioning together, but now production is spread across the world. Toussaint uses a grid of capitalist crises developed by Ernest Mandel to show the 4 main crises world capital went through from the early 1800s until the early 1900s. These started in 1825; 1846; 1873; 1890 and are not regular like Krondratiev waves. He is insistent on the point that the suspension of debt payments by debtor countries during these collapses was not the cause but the consequence of the economic failures in the imperial centers.

ODIOUS DEBT

The normal sovereign loan was heavily extractive. The debtor countries did not get the face amount of the loan – sometimes only 30% though they had to pay interest as if they had received 100%! This was because of bank commissions, bonds sold under their par value to third-parties, secondary market speculation, penalties, war debts, bribes and high rates. Simon Bolivar, after getting British loans for newly 'independent' Gran Columbia, realized the countries were in a 'debt trap' that would drain them for years. In addition, local political hacks would steal funds, while local capitalists would profit from national government loans coming from the international debt. In Mexico, much of the loan money went to the railroad barons. Other funds went to buy products or arms from the same countries loaning the money, thus enervating the local economy. The local population, working-class and peasant, were the last consideration.

Local capitalist classes – landowners, latifundists, merchant capital, rail bosses and industrialists - wanted to evade taxes, so promoted getting money from overseas sources. They invested in their countries' government bonds, thus becoming enriched too. Local merchant capital gained because they could import goods from the creditor country. The wealthy were the main recipients of the international loans from their governments. Ignoring the role of local capital is an idea common among some reformist leftists. Approval of every loan is based on a relationship between creditor and debtor and not always forced at the point of a bayonet.  You can't loan money to countries that don't want a loan.

The French occupation of Tunis

Loan periods lasted for many years – few were forgiven. New loans – 'restructuring' – was granted to cover old loans. In some cases agencies were set up to control the debt country's spending, having control over their economy, including selling infrastructure. Egypt actually sold its shares in the Suez Canal to the British government to meet their payments. To pay debts, some corrupt leaders greatly increased taxes on the population, like Tunisia. Examples of countries that tried to industrialize, build state industries and develop without loans like Egypt or Mexico were stopped by the dominant powers, usually though military intervention, and put in the debt trap. Negotiations between world powers led to a partitioning of places like Africa into spheres of influence. This happened openly in the case of Tunisia and Egypt. Tunisia itself was invaded by France to satisfy creditors – a debt situation that continued into modernity under successive corrupt rulers. Toussaint uses the phrase 'odious debt' to describe this kind of cruel debt system, a phrase first developed by an economics lawyer, Alexander Sack. Marx called 'public debt' one of the original sources of primitive accumulation of capital.

Toussaint cites many legal arguments to support national bankruptcy, cancellation of debts or the rejection of old debts by new political forces, such as in a revolution, coup or civil war, especially if the debts are “against the interests of the nation” contracted by a possibly 'despotic regime' and “hostile creditors' as Sack put it. Toussaint widens this definition to include normal governments with no need for a ruling by an international court and which would include debts under structural adjustment programs (SAPs) and with international credit agencies. Countries that do not observe social rights would also be liable for cancellation, even if 'democratically' elected. The purpose of loans should be to benefit the population, pure and simple, and not for any other purpose like enriching local capitalists according to Toussaint. Here he seems to be endorsing interest-bearing govt. bonds that are useful and not exploitative.

Toussaint has a whole chapter on debt repudiations from the 1830s to 2008 by countries all over the world as proof debt is not ironclad, some of which included the U.S. Another chapter is devoted to the Bolshevik repudiation of Czarist debts in 1918, especially the war debts. Debt repudiation was first raised by the 1905 St. Petersburg Soviet in a financial manifesto in December, after which all their members were arrested, including Trotsky. The 1918 cancellation was denounced by all the capitalist powers. In 1926 the USSR began getting loans from European banks. After 1991 Yeltsin agreed to reimburse holders of Russian bonds at a very low rate.

MODERNITY

Toussaint thinks the debt system has changed over the years. The BRICs, especially China, are using loans to bring in interest, though perhaps not at the previous rates or conditions as the 'western' banks, World Bank or IMF. Troubled Venezuela and Argentina are both in debt to China. Toussaint cites Japan as one country which developed without subordinating their economy to the debt system by relying on internal development. Besides the aforementioned spread of ownership across the globe, another modern change is that exports from 'emerging economies' were half of world production in 2000 and this has gotten larger since then. These are the same areas where productivity and working-class jobs have increased too, so debt dynamics as to export/import considerations would be different. Toussaint does not mention the tendency of the rate of profit to fall as a cause of crises, as that is not his subject.

Altogether a specialty book on debt that is of most benefit to people interested in the countries specially looked into, confirming in detail the role of debt in imperial exploitation. It confirms a socialist view on national debts that contrasts with the capitalist view, which is that payment of debts is nearly sacrosanct, no matter what conditions prevail.  Socialists support socially-owned banks, not private entities, that might loan money, but at low interest that is plowed into maintenance, not profiteering, or at no interest at all.  They also oppose the deceitful concept of 'free trade' in the present unequal context.

Prior blog reviews on this subject, use blog search box, upper left, to investigate our 16 year archive, using these terms: “Debt – the First 500 Years” (Graeber); “Debt & Capital,” “The Debt Trap – How Student Loans Became a National Catastrophe,” “J is for Junk Economics” (Hudson); “Modern DeFacto Slavery,” “The Deficit Myth” (Kelton); “The Law of Worldwide Value” (Amin); “How Will Capitalism End?” “Blood and Earth,”

And I bought it at May Day Books!

Red Frog

August 15, 2023