Bernie Sanders, in a recent opinion piece, attacked Republicans for trying to get concessions out of the Biden administration under threat of debt default, stating, “Defaulting on our nation’s debt would be a disaster.” Writers at Jacobin echo Bernie’s sentiment.
Unfortunately, it seems like modern socialists are against default; however, historic socialists are not on the same page as our contemporaries. Karl Marx, Vladimir Lenin, and other socialists were in favor of debt default, and after communist revolutions, the leaders of those regimes almost always defaulted on the national debt, making socialists consistent with libertarians on this issue.
Marx’s rhetoric on public debt ranges from neutral to negative. Despite giving public debt credit for the transition from primitive to modern economies, Marx labels the public debt as “fictitious” and “illusory.” He rightly points out that the money lent was not invested by the state but consumed, and in that sense, it was never capital at all.
In The Communist Manifesto, Marx states, “During the subsequent regimes, the government, placed under parliamentary control—that is, under the direct control of the propertied classes—became . . . a hotbed of huge national debts and crushing taxes.” This casts a negative picture of the national debt. It was an instrument of the propertied classes.
The national debt is clearly placed in the context of class conflict. Marx states,
The accumulation of the capital of the national debt has been revealed to mean merely an increase in a class of state creditors, who have the privilege of a firm claim upon a certain portion of the tax revenue. . . . Titles of ownership to public works, railways, mines, etc., are indeed, as we have also seen, titles to real capital. . . . They merely convey legal claims to a portion of the surplus-value to be produced by it.
The accumulation of surplus value is the defining mark of modern class conflict for socialists, and Marx identifies the public debt as aiding that process.
Friedrich Engels further states, “In order to maintain this public power, contributions from the state citizens are necessary—taxes. With advancing civilization, even taxes are not sufficient; the state draws drafts on the future, contracts loans, state debts.”
The relevance of public debt for Marx and the socialists is intuitive. The “bourgeois state” needs money so it obtains funds from capitalists and imposes a tax on the general populace. The government gets funds, the capitalist class is reimbursed with principal plus interest, and the public is forced to bear the cost. Thus, for Marx, public debt is a machine for exploitation of the proletariat.
If Marx’s criticism of the national debt is not sufficient or clear enough, Lenin starkly attacks it as illegitimate. There are sporadic references to the national debt throughout the collected works of Lenin, becoming more prescient in the writings composed shortly before, during, and after the Bolshevik revolution. In his 1916 “The Peace Programme,” Lenin writes, “As a positive slogan, drawing the masses into the revolutionary struggle and explaining the necessity for revolutionary measures to attain a ‘democratic’ peace, we must advance this slogan: repudiation of debts contracted by states.”
Lenin writes that the “annulment of the national debt” should be a measure of socialist revolution. He makes mention of the “burden of a debt running into billions” and states, “The mountain of war debts shows the extent of the tribute the proletariat and the propertyless masses ‘must’ now pay for decades to the international bourgeoisie.” In 1918, Lenin called again for the “repudiation of the state debt.”
At least the Bolsheviks got something right.
In practice, the socialists defaulted on their debt when taking power as well. Bernie’s precious Soviet Union repudiated their national debts after the Russian Revolution. Lenin’s writings from this time stress heavily the necessity to repudiate the debts contracted by the czar. Repudiation was most definitely a prime goal of Lenin and the Bolsheviks and one of the many motivations for the Russian Revolution.
Furthermore, Communist China repudiated debt accumulated in the form of imperial bonds. Chairman Mao Zedong calls for the repudiation of “all the foreign debts contracted by Chiang Kai-shek during the civil war period” in point 8 of the “Manifesto of the Chinese People’s Liberation Army.”
Revolutionary Cuba did the same. Fidel Castro’s regime refused to recognize the debts accumulated by previous administrations, calling the debt “illegitimate.” As recent as this year, 2023, Cuba was being sued in British court for unpaid Castro-era debt. Should Cuba be obligated to extract funds from their unwilling populace to pay off these debts? Socialists and libertarians alike are opposed to this.
More quotes can doubtlessly be pulled from Marx, Engels, Lenin, Mao, and many other socialists, but Murray Rothbard succinctly and cogently explains the fundamental problem with the national debt:
Shouldn’t public debt be governed by the same principles as private? The answer is no, even though such an answer may shock the sensibilities of most people. The reason is that the two forms of debt-transaction are totally different. If I borrow money from a mortgage bank, I have made a contract to transfer my money to a creditor at a future date; in a deep sense, he is the true owner of the money at that point, and if I don’t pay I am robbing him of his just property. But when government borrows money, it does not pledge its own money; its own resources are not liable. Government commits not its own life, fortune, and sacred honor to repay the debt, but ours. This is a horse, and a transaction, of a very different color.
A socialist should be inclined to agree. Libertarian conflict theory pits the state versus the private sector: “[Government] intervention necessarily creates conflict between those classes of people who are benefited or privileged by the State and those who are burdened by it.” Socialist class theory would accept this, but they broaden it to bourgeois versus proletariat. The libertarian is obliged to oppose the public debt, but the socialist is obliged to oppose all debt, private and public.
Today’s socialists like Bernie Sanders flip this on its head. They oppose private debts, such as student loans, but they defend the sanctity of the public debt. Ironically, the public debt is held by a host of institutions such as the Federal Reserve, mutual funds, banks, state and local governments, pension funds, insurance companies, foreign governments, and governmental agencies. Right now, the American people are paying taxes to transfer wealth to these institutions, many of which progressives and especially socialists would like to see snuffed out.
Bernie wants to pass a progressive income tax and increase corporate taxes to avoid default. He laments about the “top 1 percent” in his recent opinion piece, but the top 1 percent would be devastated by default. Continuing the national debt racket will continue to deepen the issue of inequality that Bernie cares so much about.
Of course, there are consequences of default that would have a negative impact on Bernie’s interest groups, such as the disadvantaged and elderly. For instance, the Social Security Administration (SSA) holds about 9 percent of US debt because, unfortunately, the SSA is required by law to invest its revenue into US debt obligations. Regardless, default will also help Social Security dependents by releasing them from paying US creditors through taxation. The general effects of default may be a net positive for socialists.
Why should any of this stop Bernie though? If he is willing to take the risk of default to avoid Republicans getting the budget they want, he should be in favor of default because of its positive effects. He should at least be cautiously supportive of defaulting on the national debt because the lion’s share of it is held by the rich and powerful. Being against the national debt and pushing for repudiation would make Bernie Sanders more consistent with his predecessors.
So, no, Bernie, defaulting on the national debt would not be a “disaster.” In fact, you should be with the radical Republicans in advocating for default or the total repudiation of US debt as socialists before you have, and if not, then you are merely being an accessory to what Marx called the “class of state creditors.”