A recurring feature of the business cycle is that in deep recession years governments run huge annual deficits as a result of declining tax revenue, increased spending on unemployment and poverty relief and assorted stimulus. This causes government debt levels to skyrocket. In the case of the American “Great Recession,” this manifested itself as a $1.4 trillion deficit in Obama’s first years in office (down to a more normal $400 billion today), and trillions in new federal debt. A closely associated feature is widespread alarm that the accumulated debt burden is dragging the economy down. A good recent example is a warning by Goldman Sachs that the developed world’s debt burden is unsustainable (Szu Ping Chan, “The world is drowning in debt, warn Goldman Sachs” Daily Telegraph, May 26).

As Nick Gillespie argued at Reason (“Global Debt is ‘Sinking’ Economy As Populations Age in Rich Countries,” May 26), the overhead from servicing this debt is a major burden that makes economies less resilient and flexible and impedes economic growth.

In addition, from an economic justice standpoint, high debt burdens mean a major share of GDP is eaten up by rentiers.

So it’s quite true that debt and the cost of servicing it are a serious drag on the economy. That’s one side of the truth. The other side is that without high government deficits and a large government debt, the economy would collapse.

The capitalist system was characterized from the beginning by an alliance between propertied classes and the state. Wealth was concentrated in the hands of the economic ruling class, through state-enabled robbery and enslavement; and the propertied classes continued to collect rents on this stolen loot with the help of artificial property rights and monopolies enforced by the state. This meant that most income tended to go to people who would reinvest it rather than spend it on consumption goods, while the people who tended to spend most of their incomes on the necessities of life had incomes limited by the monopoly rents they paid to the ruling class. As a result there was a chronic tendency towards the accumulation of capital with a shortage of profitable outlets for investment, because of insufficient demand to make new production facilities profitable.

On top of this, the economic system that emerged in the late 19th century — of giant industrial corporations in alliance with the state — further encouraged over-investment in large, capital-intensive industrial facilities that could not dispose of their full output when running at capacity.

As a result, throughout the twentieth century and right up to the present the state has played a central role in keeping corporate capitalism afloat, with deficit spending to stimulate demand. And the enormous public debts accumulated by government provide a guaranteed return to surplus capital that would otherwise have no profitable outlet.

The problem is that the tendency of state capitalism is to increasing levels of stagnation, with larger and larger deficits required to prevent depression. Even in the upswing phase of the business cycle, the U.S. government must run deficits that are enormous by historical standards. And this means snowballing government debt as well. If balanced budgets were the rule, the economy would go into a chronic state of depression — something that almost happened in the Great Depression, but was averted by the permanent war economy that emerged around 1940. If the government debt was paid off, the trillions in capital dumped back into the economy would drive the rate of profit down to catastrophic levels.

Of course this is unsustainable, necessary or not. As deficits grow larger and interest on accumulated debt grows as a share of the government’s budget, we approach a tipping point at which a fiscal train wreck becomes unavoidable.

So the statist imperatives for the continued existence of corporate capitalism are also driving it towards its own destruction. This is a fundamental contradiction of the 500-year-old capitalist system, and of the corporate-state alliance that emerged 150 years ago. Like all systems founded on violence, capitalism — as opposed to free markets — is a house divided against itself. It cannot stand.

Translations for this article:

• Italian, Indebitati o no, non c’è Speranza.