The science fictional financial district of Shanghai...
The science fictional financial district of Shanghai... Post-90s landscape and urban recorder born in Shanghai./gettyimages.com

The big economic news this week is that China is for the first time selling debt with a negative interest rate. The reason why is not hard to find: "To take advantage of the record low cost of money amid the global coronavirus pandemic to finance its borrowing."

The South Sea Morning Post:

The Ministry of Finance sold about €750 million worth of a five-year note bearing an interest rate of -0.15 per cent overnight on Wednesday, the smallest tranche of a €4 billion (US$4.74 billion) sale of euro-denominated debt.

China has the only major economy that's growing during the pandemic. The US is expected to be out of it until the third quarter of the following year. Europeans are, according to CNN, "[snapping] up the the bulk of the debt as they seek to gain exposure to the only major global economy expected to grow this year."

One might see in this report the signs of the US's economic decline.

But the world has yet to lose its appetite for US debt, and if it did it would cause a financial cataclysm that would dwarf the 2008 crash. (The world, including Africa, sends dollars to the US to pay for its current account deficit and the consumption of its goods.)

Yes, there is talk about China "dumping" treasury securities, but its communist party still owns $1.062 trillion of US debt. The thing to consider here instead is why hasn't cheap money resulted in the "euthanasia of the rentier" and the elimination of poverty?

The key economic mind of the previous century, John Maynard Keynes, was opposed to high interest rates because, according to his thinking, they deliberately made capital scarce. He championed low borrowing rates because they would stimulate consumption and reduce the power of a class that made money not from making things but from exchanging paper on financial markets (i.e., the rentier). But we now live in a time when high interest may be a thing of the past, and yet capital has never been more scarce, and inequality is returning to levels that Europe and the US have not seen since the age of the robber barons.

A 21st century decade explained in a tweet by the mainstream progressive activist Robert Reich:


So, the rich are getting far richer; interest rates (the cost of capital) are at or below zero; and capital is still scarce not only for most citizens but also for city and state governments? What did Keynes, who, like most of the leading leftist economists of our day, prioritized consumption over saving, get wrong?

The answer is he misunderstood capitalism. This is understandable, because he was trained in what's called the marginalist school.

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This form of education atomizes capitalism into self-interested participants. In the world of this thinking, reality was determined by market prices, and the participants (those who own capital, those who sell their labor, those who own and organize production, and those in research and development) must form their expectations to the facts of this ruling reality.

Keynes's path to socialism targeted the capital-owning class. If they went, so his thinking went, then the remaining economic participants (the entrepreneur, the worker, the expert) could finally establish a harmonious social order with lots of cheap money. And the profession of economics would mirror that of dentistry. It would be a plain matter of locating and pulling out what's rotting in the marketplace.

Capitalism, however, is not an economy but rather the politics (and indeed the religion) of one. (Many of the early political economists were not by accident reverends). This is the point that the US social critic Nancy Fraser has repeatedly made over the years. Capitalism did not break free from the irrational feudal institution (church, court, city, village) but simply replaced it with another institution (university, state, finance, nation), that itself claimed to be rational. But a modern economist (and even a brilliant one) believing that low interest rates alone could demolish the class-stratified institution of capitalism was like a monk of old believing that the institution of feudalism could be struck down by translating Aristotle into the language of European peasants.