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FISCAL

CRISIS
of the

STATE
FISCAL
CRISIS of tke

STATE
James 0 Connor T

With a new introduction by the author

Routledge
Taylor & Francis Group
LONDON AND NEW YORK
Originally published in 1973 by St. Martin's Press

Published 2002 by Transaction Publishers

Published 2017 by Routledge


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Library of Congress Catalog Number: 2001018906

Library of Congress Cataloging-in-Publication Data

O'Connor, James (James R.)


The fiscal crisis of the state / James 0' Connor; with a new introduction
by the author.
p. cm.
Originally published: New York: St. Martin's Press, 1973.
Includes bibliographical references and index.
ISBN 0-7658-0860-9 (pbk : alk. paper)
1. Finance, Public—United States. 2. Budget—United States.
3. Taxation—United States. I. Title.

HJ257.2 .026 2001


352.4'.213'0973—dc21 2001018906

ISBN 13: 978-0-7658-0860-8 (pbk)


ACKNOWLEDGMENTS

T h i s w o r k springs from two articles—"The Fiscal Crisis


of the State" a n d " I n f l a t i o n , F i s c a l C r i s i s , a n d the W o r k i n g Class"—
that were p u b l i s h e d i n the j o u r n a l Socialist Revolution. I w i s h to
t h a n k the editors for l e t t i n g m e use the pages o f Socialist Revolution
to e x p e r i m e n t w i t h the ideas d e v e l o p e d i n this b o o k , as w e l l as for
t h e i r e n c o u r a g e m e n t a n d m a n y h e l p f u l criticisms. I a m i n d e b t e d to
D o u g D o w d , J o a n R o b i n s o n , a n d L y n n T u r g e o n for t h e i r useful
c r i t i c i s m s o f the o r i g i n a l article, " T h e F i s c a l C r i s i s o f the State." I
especially appreciate the c r i t i c i s m s o f the e n t i r e m a n u s c r i p t m a d e b y
S t e p h a n L i e b f r i e d , D a v i d G o l d , a n d m e m b e r s o f the M a x - P l a n c k -
I n s t i t u t e i n S t a r n b e r g , G e r m a n y , d u r i n g m y v i s i t i n the f a l l o f 1972—
i n p a r t i c u l a r , C l a u s Offe a n d U l r i c h R o d e l . T h a n k s also are d u e to
D a n F e s h b a c h , w h o has m a d e m e aware o f the i m p o r t a n c e o f recent
d e v e l o p m e n t s i n r e g i o n a l p l a n n i n g a n d r e g i o n a l g o v e r n m e n t . I n ad­
d i t i o n , I w i s h to t h a n k E l l e n E s t r i n , whose c r i t i c a l research was i m ­
p o r t a n t d u r i n g the f o r m a t i v e stage o f this w o r k . L a s t b u t n o t least, I
w a n t to stress that studies such as this o n e o w e a great d e a l to the
g e n e r a l upsurge i n M a r x i s t a n d c r i t i c a l e c o n o m i c studies, w h i c h i n
t u r n is a t t r i b u t a b l e to the c u r r e n t crisis o f the c a p i t a l i s t system at
h o m e a n d o n a w o r l d w i d e scale. Specifically, I w a n t to express m y
g r a t i t u d e to the m a n y audiences w h o h a v e h e a r d m e present the fiscal
crisis thesis i n v a r i o u s stages o f its d e v e l o p m e n t a n d whose questions
a n d c o m m e n t s were e x t r e m e l y i m p o r t a n t i n h e l p i n g m e w o r k o u t
m a n y of the p a r t i c u l a r ideas set o u t i n this b o o k .

James O ' C o n n o r
F o r the w o r k e r s , the u n e m p l o y e d , the poor,
the students, a n d others whose struggles
a g a i n s t t h e state h a v e m a d e t h i s w o r k p o s s i b l e
CONTENTS
TRANSACTION INTRODUCTION xiii

INTRODUCTION 1
T h e T h e o r e t i c a l B a n k r u p t c y of T r a d i t i o n a l E c o n o m i c s 3
S u m m a t i o n of the T h e o r y of the F i s c a l C r i s i s 5

CHAPTER 1
A N A N A T O M Y OF AMERICAN STATE
CAPITALISM 13
Introduction 13
T h e C o m p e t i t i v e Sector 13
T h e M o n o p o l y Sector 15
T h e State Sector 17
W a g e a n d P r i c e D e t e r m i n a t i o n i n the P r i v a t e Sector 18
I n t e r r e l a t i o n s h i p s B e t w e e n P r i v a t e a n d State Sectors 23
Surplus Capacity and Surplus Population 25
Surplus Capitalists 29
W a g e I n f l a t i o n i n the State Sector 30

CHAPTER 2
D I M E N S I O N S O F T H E CRISIS 40
Introduction 40
T a x a t i o n a n d I n f l a t i o n a n d W o r k i n g Class S o l i d a r i t y 42
C h a n g e s i n P r o d u c t i o n R e l a t i o n s i n M o n o p o l y I n d u s t r i e s 44
S t a b i l i t y of the System: State C a p i t a l i s m ' s T h r e e O p t i o n s 46
M a n a g e d R e c e s s i o n a n d W a g e a n d P r i c e C o n t r o l s 48
A S o c i a l - I n d u s t r i a l C o m p l e x ? 51

CHAPTER 3
POLITICAL POWER AND BUDGETARY
C O N T R O L IN T H E U N I T E D S T A T E S 64
Introduction 64
A P o l i t i c a l F r a m e w o r k for B u d g e t a r y A n a l y s i s : T h e F e d e r a l
Government 65
B u d g e t a r y P r i n c i p l e s of the F e u d a l a n d E a r l y C a p i t a l i s t
State 70
State C a p i t a l i s t B u d g e t a r y P r i n c i p l e s a n d C o n t r o l 72
Congress a n d the E x e c u t i v e : C o n t e m p o r a r y R e l a t i o n s h i p
P o l i t i c a l P o w e r a n d B u d g e t a r y C o n t r o l : State a n d L o c a l
Government 82
T h e " C h a l l e n g e to F e d e r a l i s m " 89

CHAPTER 4
SOCIAL C A P I T A L EXPENDITURES:
S O C I A L I N V E S T M E N T 97
Introduction 97
Social Investment: Physical C a p i t a l 101
Social Investment: T r a n s p o r t a t i o n 105
Social Investment: H u m a n C a p i t a l 111

CHAPTER 5
SOCIAL C A P I T A L EXPENDITURES:
S O C I A L C O N S U M P T I O N 124
Introduction 124
S u b u r b a n E x p l o i t a t i o n o f the C i t y 125
S o c i a l C o n s u m p t i o n i n the S u b u r b 130
S o c i a l C o n s u m p t i o n i n the C i t y 133
F r o m U r b a n R e n e w a l to R e g i o n a l P l a n n i n g 135
E c o n o m i c Insecurity a n d S o c i a l I n s u r a n c e 137

CHAPTER 6
SOCIAL EXPENSES OF P R O D U C T I O N :
T H E WARFARE-WELFARE STATE 150
Introduction 150
S u r p l u s C a p i t a l a n d the W a r f a r e State 151
S u r p l u s P o p u l a t i o n a n d the W e l f a r e State 158
P o l i t i c a l Struggle a n d the M o d e r n W e l f a r e System 162
S u r p l u s C a p i t a l i s t s a n d S o c i a l i s m for the R i c h 168
A p p e n d i x : T h e S o c i a l Expenses o f E n v i r o n m e n t a l
Pollution 175
CHAPTER 7
FINANCING T H E BUDGET:
STATE ENTERPRISE AND STATE DEBT 179
Introduction 179
State E n t e r p r i s e : G e n e r a l C o n s i d e r a t i o n s 180
State E n t e r p r i s e i n E u r o p e 183
T h e State D e b t : H i s t o r i c a l Aspects 188
F e d e r a l G o v e r n m e n t D e b t i n the U n i t e d States 189
State a n d L o c a l G o v e r n m e n t D e b t 193

CHAPTER 8
FINANCING T H E BUDGET:
THE T A X STATE 203
Introduction 203
Ideologies o f T a x E x p l o i t a t i o n 203
T a x a t i o n o f the C a p i t a l i s t Class 205
T a x E x p l o i t a t i o n o f the W o r k i n g Class 208
R e v e n u e S h a r i n g a n d the C r i s i s of F e d e r a l i s m 211

CHAPTER 9
T H E SCOPE A N D LIMITS O F C A P I T A L I S T
REFORM 221
Introduction 221
T a x a b l e C a p a c i t y a n d the T a x R e v o l t 226
M o v e m e n t s o f State W o r k e r s 236
M o v e m e n t s o f State C l i e n t s 243
C o u n t e r a t t a c k by the State 246
B e y o n d R e f o r m 249

BIBLIOGRAPHY 261

INDEX 269
INTRODUCTION
T O T H E TRANSACTION E D I T I O N
Fiscal Crisis of the State (1973), w r i t t e n i n the late 1960s a n d
early 1970s, was the p r o d u c t o f a u n i q u e c o m b i n a t i o n o f p e r s o n a l , i n t e l ­
lectual a n d political experiences:

(1) M y b a c k g r o u n d i n p u b l i c finance c o m e s f r o m m y expe­


r i e n c e as a graduate s t u d e n t at C o l u m b i a U n i v e r s i t y i n the late 1950s,
w h e n I was a n assistant to C a r l S h o u p , t h e n d e a n o f p u b l i c f i n a n c e studies
i n the U n i t e d States T h i s w o r k m a d e m e d i m l y aware t h a t what I w o u l d
later c o m e to t h i n k o f as b o u r g e o i s e c o n o m i c s h a d n o t h e o r y o f the state
budget, d e f i n e d as a c o h e r e n t e x p l a n a t i o n o f the size o f the b u d g e t a n d
its m a i n e x p e n d i t u r e s , o f the a m o u n t a n d type o f t a x a t i o n , a n d o f the
distributive i m p a c t o f the b u d g e t as a w h o l e . A s a n e c o n o m i s t - i n - t r a i n i n g
w h o h e l d some leftist p o l i t i c a l o p i n i o n s , I was u n a w a r e at the time that
s u c h a t h e o r y w o u l d have to be b o t h p o l i t i c a l e c o n o m i c a n d p o l i t i c a l
sociological. A b o u t the former, I k n e w little at the t i m e ; a b o u t the latter, I
k n e w less.
(2) M y study o f P a u l B a r a n ' s a n d P a u l Sweezy's Monopoly
Capital ( 1 9 6 6 ) . M y a t t e n t i o n was d r a w n to the a u t h o r s ' u n p r o b l e m a t i c
1

t r e a t m e n t o f state e x p e n d i t u r e s — a l l o f w h i c h were d e f i n e d as " e c o n o m i c


surplus" (i.e., n o t e v e n i n d i r e c t l y p r o d u c t i v e o f value a n d surplus v a l u e ) .
M y studies i n d i c a t e d that some types o f e x p e n d i t u r e s h a d the effect o f
r a i s i n g the p r o d u c t i v i t y o f l a b o r (directly o r i n d i r e c t l y ) h e n c e ceteris pari­
bus i n c r e a s i n g surplus value. B u t , o t h e r types o f state s p e n d i n g , f o r ex­
ample, welfare payments, c o u l d n o t be so regarded, w h i c h created a puzzle.
A t this p o i n t I r e a l i z e d that there wasn't a satisfactory t h e o r y o f the state
b u d g e t i n e i t h e r b o u r g e o i s o r M a r x i s t e c o n o m i c s . I c a m e to believe that
there was s o m e t h i n g very w r o n g about theoretically treating military spend­
i n g i n the same way that o n e w o u l d i n t e r p r e t , say, the e d u c a t i o n budget.
O n the o t h e r h a n d , the U . S . m i l i t a r y t r a i n e d a l o t o f future
workers a n d the U . S . e d u c a t i o n system was o r g a n i z e d i n partly militaristic
ways, h e n c e b u d g e t items c a n ' t always be neatly c a t a l o g u e d i n ways pleas­
i n g to theorists. M o r e problematically, the social a n d e c o n o m i c functions
o f any g i v e n e x p e n d i t u r e category may carry o n e o r a n o t h e r m e a n i n g
a c c o r d i n g to the h i s t o r i c a l c o n j u n c t u r e o f a p a r t i c u l a r capitalist c o u n t r y
o r social f o r m a t i o n .

xiii
O n the tax side, b o t h b o u r g e o i s a n d M a r x i s t t h e o r y also
s e e m e d to be unnecessarily weak. I n t h e o r i z i n g tax cuts, f o r e x a m p l e ,
n e i t h e r type o f e c o n o m i c s m a d e a d i s t i n c t i o n b e t w e e n c u t t i n g taxes o n
the p o o r because " p e o p l e n e e d e d m o r e m o n e y to s p e n d " versus r e d u c ­
i n g taxes o n the m i d d l e class because "the e c o n o m i c system n e e d e d
p e o p l e to s p e n d m o r e m o n e y . " T h e first is a social welfare a p p r o a c h to
tax cuts, the s e c o n d a s i m p l e K e y n e s i a n m a c r o e c o n o m i c a p p r o a c h .
B o t h approaches c o m p e t e d with still a n o t h e r rationale for cutting
taxes, namely, r e d u c i n g the tax b u r d e n o n the r i c h because "the eco­
n o m i c system n e e d e d m o r e savings a n d i n v e s t m e n t . " T h e class struggle
s e e m e d to be e m b e d d e d i n the language o f tax p o l i c y i n o t h e r ways.
W h i l e it was a s s u m e d t h a t t h e r i c h w o u l d i n v e s t m o r e o f t h e i r i n c o m e s
o n l y i f t h e y r e c e i v e d m o r e m o n e y f r o m t h e state v i a a tax c u t , i t was
t h o u g h t t h a t the p o o r w o u l d s u p p l y m o r e l a b o r p o w e r to the l a b o r
m a r k e t o n l y i f they r e c e i v e d less m o n e y f r o m the state v i a (for e x a m p l e )
a c u t i n welfare benefits T h e class analysis a n g l e ( w h i c h I f a i l e d to fully
e x p l o i t i n Fiscal Crisis) y i e l d e d m o r e results o f interest w i t h respect to the
sociological m e a n i n g o f the various types o f taxes i m p o s e d . V a l u e a d d e d
taxes w e r e i m p o r t a n t i n E u r o p e , w h e r e t h e class s t r u g g l e was r e l a ­
tively d e v e l o p e d , b e c a u s e they h e l p e d to c o n c e a l the fact that the bur­
d e n fell m a i n l y o n w o r k i n g p e o p l e . I n the U . S . , i n d i v i d u a l i n c o m e taxes
y i e l d e d m o s t f e d e r a l g o v e r n m e n t revenue: i n c o m e taxes were ( a n d are)
d e d u c t e d f r o m wages d i r e c t l y by the g o v e r n m e n t a n d m o s t workers s o o n
got u s e d to f i g u r i n g t h e i r wage i n c o m e "after taxes." O v e r the years, the
U . S . i n c o m e tax b e c a m e i n c r e a s i n g l y less progressive because ( a m o n g
o t h e r reasons) the r i c h o p e n e d u p literally t h o u s a n d s o f l o o p h o l e s f o r
themselves. Instead o f f i g h t i n g to o p e n u p l o o p h o l e s f o r l a b o r a n d the
p o o r , u n i o n s a n d p o p u l a r o r g a n i z a t i o n s wasted lots o f time a n d e n e r g y
t r y i n g to close l o o p h o l e s f o r the r i c h .
(3) I r e c a l l r e a d i n g the p a p e r o n e m o r n i n g i n 1967, a n d
n o t i n g that the first page was f i l l e d w i t h stories a l l o f a p i e c e : a welfare
struggle, a teachers' strike, a n e w g o v e r n m e n t subsidy to business, a c o n ­
flict over taxes. T h i s was w h e n I first r e a l i z e d that the class struggle h a d
b e e n d i s p l a c e d ( i n part) o n t o the state a n d its b u d g e t — a fact that h a d
2

i m p o r t a n t i m p l i c a t i o n s for b o t h M a r x i s t t h e o r y a n d social m o v e m e n t s .
(4) W h e n a few o f us r e v i v e d the o l d Studies on the Left i n
the f o r m o f the n e w Socialist Revolution ( n o w Socialist Review), I p u b l i s h e d
m y first a t t e m p t to t h e o r i z e the b u d g e t i n the first issue (1970). C l a u s
Offe, the p o l i t i c a l sociologist, visited B e r k e l e y shortly after a n d he i n v i t e d
m e to w o r k a t j i i r g e n H a b e r m a s ' n e w t h i n k t a n k i n S t a r n b e r g (West G e r ­
many) for four months, where I f o u n d a sympathetic a n d upbeat critical
ear. H a b e r m a s was w o r k i n g o n the administrative c o n t r a d i c t i o n s (or steer­
i n g p r o b l e m s ) o f the capitalist state w h i l e Offe f o c u s e d o n p r o b l e m s o f
p o l i t i c a l l e g i t i m a t i o n . B o t h types o f studies c o m p l e m e n t e d m y o w n w o r k

xiv INTRODUCTION TO T H E TRANSACTION EDITION


o n the state's fiscal c o n t r a d i c t i o n ( o r c r i s i s ) , so this was a fruitful p e r i o d
f o r us a n d f o r social t h e o r y i n this field generally.
(5) B e t w e e n the Socialist Revolution article (1970) a n d the
S t a r n b e r g visit (1973), d u r i n g a v a c a t i o n i n H a w a i i , I finally g r a s p e d the
m a i n thesis o f Fiscal Crisis, o r what I w a n t e d the m a i n thesis to be. T h i s was
s i m p l y that the "the state grows because it grows." F o r m e a e u r e k a m o ­
m e n t , I r e a l i z e d that I was t h e o r i z i n g the e x p a n s i o n o f the state b u d g e t
( a n d state functions) i n terms o f the g r o w i n g b u d g e t a n d state themselves
(see b e l o w ) .
Since 1980 o r so, however, two w o r l d h i s t o r i c a n d closely
r e l a t e d p h e n o m e n a clearly d e m a n d e d a m e n d m e n t s to m y t h e o r y o f the
b u d g e t . U n d e r a n i n t e r n a t i o n a l r e g i m e w i t h the U . S . as the i m p e r i a l he-
g e m o n , the globalization o f capital reestablished ( a n d t h e n some) capital's
p o w e r o v e r l a b o r a n d the i m p o s i t i o n o f n e o l i b e r a l theory a n d practice
r e g a i n e d p o w e r f o r the U . S . ( a n d the N o r t h generally) over the S o u t h .
M o r e , w i t h h i n d s i g h t we c a n see that n e o l i b e r a l i s m was ( a n d is) the politi­
c a l f o r m o f g l o b a l i z a t i o n o f c a p i t a l w h i l e the latter was ( a n d is) the eco­
n o m i c f o r m o f n e o l i b e r a l i s m . N e o l i b e r a l i s m a n d g l o b a l capital were ( a n d
are) b o t h c o n t e x t a n d c o n t e n t o f o n e a n o t h e r : the g r o w t h o f g l o b a l i s m
s t i m u l a t e d ( a n d stimulates) m o r e n e o l i b e r a l i s m a n d the w i d e n i n g a n d
d e e p e n i n g o f the n e o l i b e r a l p r o j e c t stimulates m o r e g l o b a l capital. A n
i n n e r , n o t e x t e r n a l , c o n n e c t i o n thus exists b e t w e e n n e o l i b e r a l i s m a n d
g l o b a l i s m . A s g l o b a l capital seeks m o r e g l o b a l i n v e s t m e n t chances, mar­
kets a n d easily e x p l o i t a b l e l a b o r p o w e r , g o v e r n m e n t s a n d i n t e r n a t i o n a l
agencies f o r c e d ever m o r e n e o l i b e r a l i s m o n the S o u t h a n d i n somewhat
d i f f e r e n t f o r m s o n the N o r t h itself. T h e s e d e v e l o p m e n t s p u t a n e n d to
w h a t s o m e c a l l the " g o l d e n age" o f c a p i t a l i s m (social d e m o c r a c y i n E u ­
r o p e , l a b o r i s m i n B r i t a i n , N e w D e a l i s m i n the U . S . , a n d nationalist devel­
o p m e n t i n the S o u t h ) .
P u t t i n g a l l this aside f o r a m o m e n t , today I w o u l d still de­
f e n d Fiscal Crisis's thesis that the "state grows because it grows" ( a l t h o u g h
c e r t a i n l y n o t all the specific analyses f o u n d i n the b o o k ) a n d i t s h o u l d be
e m p h a s i z e d that I was careful to i n c l u d e a d i s c l a i m e r that the b o o k was a
study o f one particular historical conjuncture of the U.S. economy and society, and
the U.S. state and state budget. Y e t o n e c a n find m a n y "fiscal-crisis type"
p h e n o m e n a i n o t h e r countries i n the same e r a a n d also i n today's globalist
era.
F G S h a d a n u m b e r o f c o n s e q u e n c e s . I m e t o t h e r social sci­
entists, state w o r k e r unionists, a n d others i n different countries, w h o were
w o r k i n g o n the same g e n e r a l p r o b l e m o f the capitalist state i n the p o l i t i ­
c a l c o n t e x t o f R u d i Deutsche's l a m e n t o f the early 1970s. T h i s l i n e o f
t h o u g h t was basically that the N e w L e f t was stalled because its leaders
r e l i e d o n " t i m e - h o n o r e d f o r m u l a e a n d t i m e - w o r n slogans" w i t h respect to
the n a t u r e o f the m o d e r n state a n d state power, a n d the m e a n i n g o f the

INTRODUCTION TO T H E TRANSACTION EDITION xv


state budget. T h i s lack o r absence i n s p i r e d m e , with the h e l p o f a G e r m a n
p o l i t i c a l scientist, to l a u n c h the j o u r n a l Kapitalistate, w h i c h lasted e i g h t
years, a n d w h i c h was d e v o t e d to w h a t c a m e to be c a l l e d "state theory." I n
the States, I o r g a n i z e d a n e d i t o r i a l g r o u p w i t h C l a r e n c e L o , E r i k O l i n
W r i g h t , M a r g a r e t Fay, D a v i d G o l d a n d h a l f a d o z e n o t h e r y o u n g e r left
scholars w h o later m a d e n a m e s f o r themselves i n a c a d e m i a , i n the w o r l d
o f m o v e m e n t research a n d p o l i c y - m a k i n g , a n d i n activism. Kapitalistate
d i d n ' t cause the e x p l o s i o n o f r e s e a r c h a n d w r i t i n g o n the capitalist state
a n d the state i n capitalist society f r o m t h e mid-1970s u n t i l the last h a l f o f
the 1980s, b u t it definitely was a n i n f l u e n c e . T h e cause was the u t t e r
c o n f u s i o n w i t h i n activist circles, u n i o n s , a n d o t h e r groups, a b o u t w h a t
c o u l d be e x p e c t e d f r o m the state (stick o r c a r r o t ) ; h o w to go about strug­
g l i n g w i t h i n a n d against the state to d e f e n d gains w h i c h even t h e n were
starting to erode; a n d , a m o n g m a n y o t h e r questions a n d issues, h o w a n d
w h y the state b u d g e t a n d a d m i n i s t r a t i o n generally h a d the effects that
they d i d o n the n a t i o n a l m a c r o - e c o n o m y . O t h e r w o r k s o n state f i n a n c e
appeared, some f o l l o w i n g the m e t h o d s a n d theory o f FCS, others develop­
i n g m o r e o r t h o d o x M a r x i s t theories, still others f o r g i n g n e w paths. N e w
types o f debates s p r a n g u p ; m a n y h i s t o r i c a l studies o f state budgets a n d
p r o g r a m s were c o m p l e t e d ; i n t e r n a t i o n a l c o m p a r a t i v e research o n state
s p e n d i n g i n r e l a t i o n to G D P ( a n d so o n ) was c a r r i e d o u t . Finally, t h e r e
d e v e l o p e d by the mid-1980s a b i g a c a d e m i c i n d u s t r y o f state t h e o r y a n d
research. N e w left-of-center j o u r n a l s were l a u n c h e d that focused o n the
state a n d r e l a t e d p r o b l e m s , a n d j o u r n a l s that h i t h e r t o h a d failed to p u b ­
l i s h i n this area b e g a n to p r i n t articles o f the Kapitalistate type. By the m i d -
1980s, h a l f a d o z e n years after I a c c e p t e d a p o s i t i o n at the U n i v e r s i t y o f
C a l i f o r n i a (Santa C r u z ) , "state theory" g e n e r a l l y a n d the state finances i n
specific h a d b e c o m e c e n t r a l a n d respectable subjects—especially i n p o ­
l i t i c a l s o c i o l o g y a n d a m o n g "left-Weberians." S y m b o l i c politics; the p r o b ­
l e m o f "no-cost claims" a n d state policy; the growth o f theories o f the state
a n d h u m a n , n a t u r a l a n d c o m m u n a l capital; a n d a host o f o t h e r issues a n d
questions a p p e a r e d i n m a n y leftist s c h o l a r l y j o u r n a l s a n d p o p u l a r leftist
magazines, as w e l l as i n m a i n s t r e a m j o u r n a l s .
B y t h e n I was d e e p i n t o a n e w study o f the d e v e l o p m e n t o f
the U . S . ( a n d by e x t e n s i o n ) W e s t e r n w o r k i n g classes; the U . S . n a t i o n a l
i d e o l o g y o f i n d i v i d u a l i s m ; a n d the c o n n e c t i o n b e t w e e n changes i n class
c o m p o s i t i o n , i d e o l o g y i n the G r a m s c i a n sense, a n d the m a c r o - e c o n o m i c s
o f U . S . capitalism. W h e n I r e a c h e d a level o f u n d e r s t a n d i n g that I t h o u g h t
4

was a d e q u a t e to the p r o b l e m o f t h e o r i z i n g the l a b o r a n d social m o v e ­


ments i n the States, I t u r n e d away f r o m "state theory." Two short works are
significant e x c e p t i o n s : o n e is the seventh c h a p t e r o f Accumulation Crisis
(1984), t r e a t i n g the state a n d the r e p r o d u c t i o n costs o f l a b o r p o w e r ; the
o t h e r is a n essay titled " T h e C o n d i t i o n s o f P r o d u c t i o n a n d the P r o d u c ­
tion o f C o n d i t i o n s , " i n w h i c h I d e p l o y e d "state theory" to h e l p to e x p l a i n

xvi INTRODUCTION TO T H E TRANSACTION EDITION


the r e l a t i o n s h i p between e n v i r o n m e n t a l a n d social conflicts a n d the r o l e
o r "functions" o f the state t h e r e i n . 5

As for my o w n politics, I became a defender o f a k i n d o f


neo-or-quasi-Leninist strategy o f d e m o c r a t i z i n g the state b u r e a u c r a c y ( o r
a d m i n i s t r a t i o n ) t h r o u g h struggles " w i t h i n a n d against the state." I be­
l i e v e d ( a n d still believe) that this is a w i n n i n g r a d i c a l strategy, i n that i t
overcomes the weakness o f Rousseau-type state t h e o r i z i n g a n d also o f the
s t a n d a r d anarchist view o f the state ( i n b o t h theories a specifically d e m o ­
cratic state a d m i n i s t r a t i o n is rejected). It also m e s h e d nicely w i t h the n e w
m o v e m e n t for "radical democracy," that is, the d e m a n d to d e m o c r a t i z e all
institutions i n society, the state bureaucracy (as contrasted w i t h the elected
o r representative bodies) b e i n g the key to r a d i c a l p o l i t i c a l c h a n g e . C o ­
w o r k e r s p r o d u c e d n e w terms, f o r e x a m p l e , " p o p u l a r b u r e a u c r a c i e s . "
T h e s e were based o n the i d e a that bureaucracies as W e b e r d e f i n e d t h e m
(a perfect f o r m for d o i n g r o u t i n e business) were increasingly i n a d e q u a t e
as the capitalist state b e g a n to c h a n g e m o r e r a p i d l y i n various ways d u r i n g
the U . S . - l e d p u s h to globalize the capitalist system, a n d that l o o s e r d e f i n i ­
tions o f a d m i n i s t r a t i o n ( o r b u r e a u c r a c y ) that p l a c e d m o r e emphasis o n
i n d i v i d u a l initiatives, h o r i z o n t a l s h a r i n g o f i n f o r m a t i o n a n d d e c i s i o n ­
m a k i n g , a n d the porosity o f the state f r o m the s t a n d p o i n t o f social m o v e ­
m e n t s , m a d e sense t h e o r e t i c a l l y a n d practically.
I n the States, today, almost every struggle a r o u n d the c o n d i ­
tions o f p r o d u c t i o n has at least i m p l i c i t l y a p o l i t i c a l goal—to d e m o c r a t i z e
state d e c i s i o n - m a k i n g — w i t h o u t , however, the p a r t i c i p a n t s b e i n g r e a l l y
aware o f what they're d o i n g ! I n S a n t a C r u z , to take a l o c a l e x a m p l e , w h i l e
the homeless activists a n d the w o m e n ' s m o v e m e n t against domestic abuse
a n d v i o l e n c e b o t h struggle w i t h i n a n d against City H a l l a n d the p o l i c e
d e p a r t m e n t f o r changes i n the way p o l i c e w o r k is d e f i n e d a n d w i t h re­
spect to the d i v i s i o n o f l a b o r a n d r e w a r d system w i t h i n the p o l i c e forces,
n e i t h e r g r o u p is aware that they have the same political goal (even t h o u g h
b o t h are aware that they are u s i n g political means to struggle f o r specific
social goals). A t the n a t i o n a l a n d w o r l d level, the c u r r e n t struggle to
d e m o c r a t i z e (or abolish) the I n t e r n a t i o n a l M o n e t a r y F u n d ( I M F ) , W o r l d
B a n k , a n d (most recently) the W o r l d T r a d e O r g a n i z a t i o n , indicates the
i m p o r t a n c e o f the " d e m o c r a t i z e the state" l i n e today. M y writings o n this
subject were p u b l i s h e d i n Kapitalistate, Natural Causes, a n d the j o u r n a l I
h e l p e d f o u n d i n 1988, Capitalism, Nature, Socialism.

* * *

P e r h a p s the first q u e s t i o n present-day readers o f Fiscal Cri­


sis would ask is, w h a t h a p p e n e d to the fiscal crisis? H a s n ' t i t d i s a p p e a r e d ,
at least i n the U.S.? H a s n ' t the I M F b e e n f o r c i n g b a l a n c e d budgets o n the
S o u t h as p a r t o f its n e o l i b e r a l S t r u c t u r a l A d j u s t m e n t P r o g r a m s (SAPs)

INTRODUCTION TO T H E TRANSACTION EDITION xvii


f r o m the late 1970s to the present? T h e " N e w D e m o c r a t s " (e.g., C l i n t o n )
a n d defenders o f the " T h i r d W a y " (Blair) are a d o p t i n g a k i n d o f social
supply-side e c o n o m i c p o l i c y w h i c h c o n c e p t u a l i z e s e d u c a t i o n a n d h e a t h
s p e n d i n g , for e x a m p l e , as social o r h u m a n capital, i n a way s i m i l a r to that
d e f i n e d i n FCS. O n the o t h e r h a n d , d o e s n ' t the d o m i n a n t i d e o l o g y o f
n e o l i b e r a l i s m reject the i d e a that state s p e n d i n g has any p r o d u c t i v e r o l e
to play a n d that state t a x a t i o n s h o u l d be h u g e l y r e d u c e d to l o w e r interest
rates a n d free m o n e y u p f o r private c a p i t a l investment, as w e l l as to
s t r e n g t h e n private incentives to a c c u m u l a t e c a p i t a l (thus r e j e c t i n g o r
q u a l i f y i n g the K e y n e s i a n l i n e that state s p e n d i n g is n e e d e d to s h o r e u p
aggregate d e m a n d a n d the social d e m o c r a t i c view that t a x a t i o n o n work­
i n g p e o p l e s h o u l d be r e d u c e d ) ?
It's true that the U . S . f e d e r a l b u d g e t f o r the time b e i n g is
s h o w i n g a surplus, that s o m e f e d e r a l d e b t is b e i n g r e t i r e d , a n d that m o s t
State-level g o v e r n m e n t s are r u n n i n g fiscal surpluses o r b a l a n c e d b u d ­
gets. Yet these surpluses have a r i s e n i n p a r t because o f a f o u r - f o l d g r o w t h
o f U . S . State a n d l o c a l s p e n d i n g — m a i n l y o n social c a p i t a l — i n the 1990s
(after fluctuating a r o u n d a zero growth t r e n d l i n e i n the 1970s a n d 1980s).
T h e s u p p l y o f ( i n d i r e c t l y p r o d u c t i v e ) e d u c a t e d laborpower, o f p o r t , air­
p o r t , a n d freeway capacity, o f a g r i c u l t u r a l research i n b o t h b i o e n g i n e e r -
i n g crops a n d o r g a n i c f a r m i n g , a n d o f o t h e r capitalist social investments
h e l p e d to create the 1990s b o o m ( w h i c h f r o m the s t a n d p o i n t o f p e r capita
G D P growth was m o r e a "modest e x p a n s i o n " t h a n a n " e c o n o m i c b o o m " i n
any case).
T h e fact r e m a i n s that Fiscal Crisis f a i l e d to anticipate the
rise o f n e o l i b e r a l i s m a n d g l o b a l i z a t i o n a n d the r e e s t a b l i s h m e n t o f U . S .
p o l i t i c a l h e g e m o n y after the fall o f the Soviet e m p i r e . T h e s e r e v o l u t i o n ­
ary ( o r c o u n t e r - r e v o l u t i o n a r y ) changes have i m p o r t a n t i m p l i c a t i o n s f o r
the way that the U . S . e c o n o m y works, w h i c h i n t u r n have i m p o r t a n t effects
o n fiscal politics a n d the budget. W h i l e I was perfectly aware o f the role o f
i m p e r i a l i s m a n d n e o c o l o n i a l i s m i n w o r l d e c o n o m y i n the 1950s a n d 1960s, 6

I wasn't able to integrate m y studies o f i n t e r n a t i o n a l p o l i t i c a l e c o n o m i c


relations i n t o FCS (see b e l o w ) .
T h e m a i n r e a s o n w h y Fiscal Crisis d i d n ' t anticipate the U . S .
b u d g e t surplus o f the late 1990s, n o r cast its theses i n terms o f the c o n t e x t
o f w o r l d capitalist e c o n o m y as a w h o l e , p e r t a i n e d to the m e t h o d I used i n
w o r k i n g o n the book, w h i c h was to develop m y o w n t h i n k i n g i n the f o r m o f a
critique o f bourgeois e c o n o m i c accounts o f state expenditures a n d taxa­
tion. B o u r g e o i s e c o n o m i c s a d o p t e d one o f two points o f view toward the
budget: the first is a normative account o f what an economically efficient a n d
socially equitable s p e n d i n g a n d tax structure w o u l d l o o k l i k e — i n the m i r ­
r o r o f neoclassical welfare e c o n o m i c s ( w h i c h by the way is o n e o f the p a ­
7

thetically weak edifices o n w h i c h globalist capitalism is b e i n g d e v e l o p e d


today). T h e second is a practical account o f m a c r o e c o n o m i c s t a b i l i z a t i o n . 8

xviii INTRODUCTION TO T H E TRANSACTION EDITION


I n the m a c r o e c o n o m i c s o f the 1960s, the budget was treated
as a n e x o g e n o u s variable i n e c o n o m i c g r o w t h m o d e l s , as a way that the
g o v e r n m e n t c o u l d regulate aggregate d e m a n d to a v o i d o r c o n t r o l b o t h
recession a n d i n f l a t i o n ( a n a p p r o a c h that was b l o w n a p a r t i n the U . S . by
the stagflation o f the 1970s). M y goal was to p r o d u c e a sociological, politi­
cal sociological, a n d p o l i t i c a l e c o n o m i c e x p l a n a t i o n o f h o w a n d why vari­
ous e x p e n d i t u r e s f o u n d t h e i r way i n t o the b u d g e t i n the first place, a n d
why these items were m o r e o r less costly. P u t a n o t h e r way, I rejected the
n o r m a t i v e (wish-thinking) view that w h a t the e c o n o m i s t s o u g h t as eco­
n o m i c a l l y desirable state p o l i c y i n fact explained the major budgetary items
a n d t h e i r changes over time.
W h a t e v e r validity a p u r e l y m a c r o e c o n o m i c - t y p e a r g u m e n t
m i g h t have i n p a r t i c u l a r circumstances, it isn't i n t e r e s t i n g f r o m the p o i n t
o f view o f p o l i t i c a l e c o n o m y a n d p o l i t i c a l sociology. M o r e i m p o r t a n t , it
d o e s n ' t r e q u i r e a Marxist-type class analysis ( w h i c h i n m y view is i n d i s ­
pensable i n a class society). T h e thesis o f Fiscal Crisis therefore is n o t
basically a m a c r o e c o n o m i c a r g u m e n t . It's a t h e o r y that d e p e n d s o n two
k i n d s o f observations, the first p o l i t i c a l - e c o n o m i c , the s e c o n d p o l i t i c a l -
sociological.
First, g i v e n the i n c r e a s i n g l y s o c i a l n a t u r e o f capitalist p r o ­
d u c t i o n a n d e x c h a n g e , the state has to b u i l d , for e x a m p l e , m o r e o r better
freeways as p h y s i c a l i n p u t s i n t o r o a d freight a n d i n t o w o r k c o m m u t e s .
F a i l u r e to e x p a n d o r m o d e r n i z e roadways ( a n d airports, seaports a n d so
o n ) w o u l d d r i v e u p the cost o f the c o m m u t e (or freight) a n d h e n c e i n ­
crease the cost o f wages ( o r transport costs). T h i s a r g u m e n t p e r t a i n s to
the " p h y s i c a l i t y " o f c a p i t a l i s m as w e l l as to the w o r k i n g s o f the m a r k e t .
T h i s type o f s p e n d i n g I c a l l e d s o c i a l c a p i t a l b e c a u s e i t i n c r e a s e s ( o r
prevents a d e c r e a s e i n ) l a b o r p r o d u c t i v i t y . H u m a n c a p i t a l as a f o r m o f
s o c i a l c a p i t a l is a n o t h e r e x a m p l e : a n e x p a n s i o n o f h u m a n m e n t a l
c a p a c i t i e s r e l e v a n t to p r o d u c i n g a n d r e a l i z i n g v a l u e a l s o r e d u c e s l a ­
b o r costs a n d i n c r e a s e s p r o d u c t i v i t y i n v a r i o u s ways. T h e r e s u l t : c o u n ­
tries t h a t p e r m i t w o r k e r s to a c q u i r e m o r e years o f e d u c a t i o n are typi­
c a l l y m o r e e c o n o m i c a l l y a n d p r o d u c t i v e a n d b e t t e r - p a i d . I n the U . S . ,
w o r k e r s w i t h a c o l l e g e e d u c a t i o n o n the average e a r n twice as m u c h as
workers w i t h o n l y a h i g h s c h o o l e d u c a t i o n .
I n c r e a s e d quantity a n d q u a l i t y o f physical a n d h u m a n so­
cial capital p e r t a i n to the i n p u t side o f private capitalist p r o d u c t i o n . T h e
s e c o n d p a r t o f the a r g u m e n t pertains to the o u t p u t side. S o c i a l capital is
a n i n p u t i n t o private p r o d u c t i o n a n d r o u g h l y measures h o w m u c h private
c a p i t a l a p p r o p r i a t e s free-of-charge o r w i t h m i n i m a l outlay w h a t it needs
f r o m the social p r o d u c t as a w h o l e . Private p r o d u c t i o n i n t u r n results n o t
o n l y i n m a r k e t a b l e c o m m o d i t i e s b u t also u n m a r k e t a b l e social costs a n d ,
m o r e generally, u n w a n t e d social c o n s e q u e n c e s . T h e s e costs a n d conse­
q u e n c e s are a r o u g h m e a s u r e o f h o w m u c h d a m a g e private c a p i t a l c a n

INTRODUCTION TO T H E TRANSACTION EDITION xix


w r e a k w i t h o u t p a y i n g the h a r m e d party o r parties ( w h i c h i n some cases
i n c l u d e s society as a w h o l e ) any c o m p e n s a t i o n . S o c i a l c a p i t a l a n d social
costs d e f i n e d i n the b r o a d e s t sense t o g e t h e r m e a s u r e the p o w e r that
private c a p i t a l exercises i n the p o l i t i c a l system. L a r g e u n c o m p e n s a t e d
social costs, f o r e x a m p l e , i n d i c a t e h o w little p o w e r l a b o r u n i o n s , c o n ­
s u m e r groups, a n d c o m m u n i t y o r g a n i z a t i o n s have i n the polity.
" E x t e r n a l i z e d " costs o r damages are m a n y a n d varied: envi­
ronmental a n d ecological destruction, urban p o l l u t i o n a n d congestion,
h i g h rents, unsafe o r u n h e a l t h y water a n d foods, l e a c h e d o u t soils a n d dry
water tables, d e p l e t e d forests a n d fisheries, w o r k e r a n d c o m m u n i t y m a l -
h e a l t h , u n e m p l o y m e n t a n d poverty, a n d , at a m o r e systemic level, social
d i s o r d e r a n d p o l i t i c a l d e l e g i t i m a t i o n . State b u d g e t f u n d s a l l o c a t e d to
mitigate o r c o m p e n s a t e f o r these k i n d s o f externalities c a n be carrots o r
sticks (for e x a m p l e , m o r e welfare s p e n d i n g o r m o r e p o l i c e a n d prisons,
m o r e funds f o r o r g a n i c a g r i c u l t u r e o r m o r e funds f o r r e p r e s s i n g social
m o v e m e n t s against agribusiness, m o r e m o n e y for d r u g r e h a b i l i t a t i o n o r
m o r e m o n e y f o r d r u g wars). State m o n i e s e x p e n d e d o n these k i n d s o f
carrots a n d sticks I c a l l e d social expenses
I n short, state outlays o n s o c i a l capital m a k e private capital
grow o r accumulate. Private capital g r o w t h results i n m a n y kinds o f "nega­
tive externalities" o r h a r m to workers, c o m m u n i t i e s , a n d e n v i r o n m e n t s .
Historically, there arose (first i n the West, today everywhere o n the globe)
l a b o r a n d o t h e r s o c i a l m o v e m e n t s w h i c h d e m a n d e d t h a t e i t h e r private
capital p r e v e n t the d a m a g e it causes o r mitigate this d a m a g e i n different
ways. O r what is m o r e typical, social movements d e m a n d that the state pay
for capital's systemic h a r m to the "losers" i n the g r o w t h game. T h e s e have
i n c l u d e d s m a l l business a n d farmers whose l i v e l i h o o d is t h r e a t e n e d by
b i g business; u n e m p l o y e d workers a n d the w o r k i n g p o o r ; e n v i r o n m e n t a l
s p e n d i n g to c l e a n u p projects s u c h as t o x i c d u m p sites w h e n it is i m p o s ­
sible to attribute d a m a g e to any p a r t i c u l a r guilty c a p i t a l ( s ) , for e x a m p l e ,
S u p e r f u n d sites. S o c i a l m o v e m e n t s i n c l u d i n g l a b o r m o v e m e n t s place
these d e m a n d s o n the guilty party(ies) o r the state b u d g e t o r b o t h . S o c i a l
m o v e m e n t s c a n be leftist o r rightist i n o r i e n t a t i o n a n d the d e m a n d may
be f o r m o r e g o v e r n m e n t j o b s a n d welfare payments o r m o r e p o l i c e a n d
t o u g h e r p r i s o n sentences. W h a t e v e r the case, the state tends to s p e n d
m o r e o n social expenses to mitigate the b a d effects o f private capitalist
accumulation.
A c c o r d i n g to the Fiscal Crisis thesis, s o c i a l c a p i t a l s p e n d i n g
fulfills the state's " a c c u m u l a t i o n f u n c t i o n " w h i l e s o c i a l expenses m e e t
the state's " l e g i t i m a t i o n f u n c t i o n " ( w h i c h m a y p e r t a i n to g o v e r n m e n t s i n
power, a p o l i t i c a l party, o r the p o l i t i c a l system as s u c h ) . T h e s e terms were
p e r h a p s u n f o r t u n a t e because s o m e reviewers o f FCS c o n c l u d e d that m y
w o r k was "functionalist." T h i s m e a n s that they b e l i e v e d that I a s s u m e d
that the system generates c e r t a i n needs a n d also the p o l i t i c a l , administra-

xx INTRODUCTION TO T H E TRANSACTION EDITION


tive, a n d fiscal means by w h i c h these n e e d s c a n be m e t o r fulfilled. I n fact,
I d i d n ' t argue this l i n e , b e l i e v i n g that c a p i t a l i s m is a h i g h l y c o n t r a d i c t o r y
system i n w h i c h social movements, corporate power i n the state, a n d state
p o l i c i e s typically have m a n y k i n d s o f u n i n t e n d e d o r u n f o r e s e e n conse­
quences. T o illustrate, take j u s t o n e c o n t r a d i c t i o n , that between the func­
tional needs o f capital as a w h o l e ( d e f i n e d by the p o l i t i c a l party i n power)
a n d the interests o f i n d i v i d u a l capitals ( o r businesses). T h i s c o n t r a d i c ­
tion still ratchets u p g o v e r n m e n t s p e n d i n g . I n M a y o f 2000, it was re­
v e a l e d that M e d i c a r e s p e n d i n g for h o m e care n u r s i n g w h i c h the govern­
m e n t h a d p l a n n e d to r e d u c e by a p e r c e n t a g e p o i n t o r two, i n fact h a d
f a l l e n by t e n to t w e n t y p e r c e n t . D i s a b l e d a n d e l d e r l y p e o p l e w e r e
u n a b l e to get M e d i c a r e a u t h o r i z a t i o n f o r h o m e care a n d so h a d to stay
i n more expensive n u r s i n g homes a n d hospitals longer than w o u l d
o t h e r w i s e be the case. M a n y w h o c o u l d n ' t a f f o r d n u r s i n g h o m e s d i e d
b e f o r e t h e i r t i m e (the u l t i m a t e " e x t e r n a l i t y " ) . T h e a t t e m p t to f i n d a
less e x p e n s i v e g e n e r a l s o l u t i o n to t h e p r o b l e m o f r i s i n g h e a l t h c a r e
costs (a systemic n e e d ) was thwarted by the p o l i t i c a l l y w e l l - o r g a n i z e d
d r u g c o m p a n i e s a n d o t h e r "special interests." M e d i c a r e ' s b i l l thus w e n t
u p , n o t d o w n , a n d it is e x p e c t e d to increase further i f a n d w h e n funds are
r e s t o r e d f o r h o m e n u r s i n g care.
I n terms o f e c o n o m i c theory, it's clear that i n Fiscal Crisisl
t r i e d to e x p l a i n m a c r o e c o n o m i c changes i n the e c o n o m y i n terms o f the
state b u d g e t (social c a p i t a l at o n c e a d d i n g p r o d u c t i v e capacity a n d de­
m a n d to the e c o n o m y ) , n o t vice versa, w h i c h was the standard a p p r o a c h o f
economists at the time. T h e n a n d o n l y t h e n d i d I seek to e x p l a i n changes
i n the growth a n d c o m p o s i t i o n o f the b u d g e t — s o c i a l e x p e n s e s — i n terms
o f the mal-effects o f m a c r o e c o n o m i c c h a n g e s ( u n d e r g i r d e d i n the first
place by social c a p i t a l ) .
I was at the time n o t fully c o n s c i o u s o f the "missing l i n k " i n
m y t h e o r y o f the fiscal crisis, namely, the effect o f the e x p a n s i o n o f social
expenses o n the m a c r o e c o n o m i c b e h a v i o r o f the e c o n o m y . O n e answer
c o u l d have b e e n : S o c i a l expenses n o t b e i n g a (social) f o r m o f c a p i t a l are
basically a d r a i n o n surplus value h e n c e o n a c c u m u l a t i o n . T h i s is the l i n e
d e v e l o p e d by P a u l M a t t i c k , b u t c o n c e r n i n g state s p e n d i n g as a w h o l e a n d
n o t j u s t social expenses. O t h e r s t r i e d to study the effects o f the g r o w t h o f
welfare a n d p o l i c e functions o n l a b o r d i s c i p l i n e o r m o r a l e , a n d the growth
o f ghettos a n d r e d l i n i n g o f investments. I s h o u l d have p e r h a p s p l a y e d u p
m o r e the warfare side o f w h a t I c a l l e d the A m e r i c a n w e l f a r e / w a r f a r e
state. Interestingly, B r i s t o w H a r d i n , o n e o f m y P h . D . students, wrote a
thesis s h o w i n g that i n terms o f e d u c a t i o n subsidies, h o u s i n g allowances,
h e a l t h care a n d c h i l d care, i n s u r a n c e a n d r e t i r e m e n t benefits—the U . S .
m i l i t a r y was the U . S . welfare state, o r a large p a r t o f same. T h i s is o n e o f
9

m a n y studies that d e v e l o p e d i n critical ways the themes o f FCS. P e r h a p s i f


I h a d c a r r i e d o u t the full l i n e o f r e a s o n i n g i n h e r e n t i n the FCSs a c c u m u -

INTRODUCTION TO T H E TRANSACTION EDITION xxi


l a t i o n m o d e l , I c o u l d have better a n t i c i p a t e d certain n e o l i b e r a l r e f o r m s —
for e x a m p l e , the a b o l i t i o n o f welfare. B u t I d i d n ' t . W h a t I d i d was to w o r k
o u t the logic o f the situation n o t for the m a c r o e c o n o m y but for the future
o f the b u d g e t itself. I n o t e d the s t r u c t u r a l gap between state s p e n d i n g
a n d state revenues (taxes), w h i c h I t e r m e d a "fiscal crisis," a n d p o s e d a
series o f questions as to h o w this c o u l d be o v e r c o m e . H e r e I was pretty
m u c h o n the mark: m y n o t i o n o f a "social-industrial c o m p l e x " to l o w e r 10

average social capital costs (e.g., mass transit over cars, H M O s i n the h e a l t h
field) a n d also to l o w e r the costs o f social expenses (e.g., p r i s o n labor,
welfare "reform") c a p t u r e d fairly accurately the actual t u r n o f events i n
the 1980s a n d 1990s. H o w e v e r , m y " p r e d i c t i o n s " w o u l d have b e e n m o r e
s o u n d l y based h a d I c o m p l e t e d the circle o f r e a s o n i n g to i n c l u d e the
effects o f a g r o w t h o f social expenses o n m a c r o e c o n o m i c g r o w t h a n d ,
e v e n m o r e so, i f I h a d a n t i c i p a t e d the sea o f changes c o m i n g u p i n the
S o u t h , b e g i n n i n g w i t h the 1980's d e b t crisis a n d the I M F a n d W o r l d B a n k
SAPs, a n d c o n t i n u i n g i n t o the 1990's d e b t a n d f o r e i g n exchange crises i n
L a t i n A m e r i c a , Southeast A s i a , a n d Russia.
I s h o u l d a d d h o w e v e r that i n the late 1970s a n d 1980s,
research i n S o u t h e r n c o u n t r i e s s u c h as B r a z i l a n d M e x i c o a n d some o t h ­
ers, some o f it i n s p i r e d by FCS, t h e o r i z e d fiscal e c o n o m i c s a n d p o l i t i c s i n
l i g h t o f the o v e r r i d i n g p h e n o m e n a o f the time—the 1980s d e b t crisis a n d
g r o w t h o f n e o l i b e r a l i s m a n d S A P s i n the S o u t h . O n the o t h e r h a n d , the
pillars o f n e o l i b e r a l i s m — p r i v a t i z a t i o n , l i b e r a l i z a t i o n o f f o r e i g n e x c h a n g e
markets a n d investments, d e r e g u l a t i o n , a n d h a r m o n i z a t i o n — a r e a l l c o n ­
sistent w i t h the analysis i n FCS, a l t h o u g h as n o t e d above a p r o p e r explana­
tion o f n e o l i b e r a l i s m w o u l d have r e q u i r e d a m o r e g l o b a l theory t h a n the
o n e I p r o v i d e d i n FCS.
I f I were to take i n t o a c c o u n t the w o r k i n g s o f g l o b a l i z a t i o n
today, I w o u l d have to m o d i f y the basic m o d e l o f A m e r i c a n capitalism that
I d e v e l o p e d f o r the study o f the fiscal crisis. P u t simply, i n the o r i g i n a l
m o d e l there were three e c o n o m i c sectors: the m o n o p o l y sector, the c o m ­
petitive sector, a n d the state sector. I s h o w e d h o w capital a c c u m u l a t i o n i n
the m o n o p o l y sector was typically labor-saving a n d often l a b o r - s p u r n i n g ;
h e n c e a c c u m u l a t i o n t e n d e d to increase the supply o f l a b o r p o w e r offered
to the labor-intensive c o m p e t i t i v e a n d state sectors. T h e r e a d e r w i l l f i n d
m u c h m o r e t h a n this s i m p l e r e l a t i o n s h i p i n the b o o k itself; however, the
i d e a o f a d i s p l a c e m e n t o f l a b o r f r o m the m o n o p o l y to the c o m p e t i t i v e
sector is sufficient to u n d e r l i n e h o w g l o b a l i z a t i o n today dictates that the
o r i g i n a l m o d e l needs to be m a d e m o r e realistic i n o r d e r to r e t a i n its
validity. It's the m o n o p o l y sector, o f course, that's b e i n g g l o b a l i z e d ( i n the
f o r m o f f o r e i g n d i r e c t investment, o u t s o u r c i n g , d o w n s i z i n g , i n c r e a s e d
c o m p e t i t i o n j o i n t ventures across borders, mergers a n d acquisitions across
b o r d e r s , the e s t a b l i s h m e n t o f a single w o r l d m a r k e t p r i c e for m a n y c o m ­
m o d i t i e s , etc.). W h i l e p r o d u c t i o n i n heavy m a n u f a c t u r i n g (the h e a r t o f

xxii INTRODUCTION TO T H E TRANSACTION EDITION


the m o n o p o l y sector) as a p e r c e n t a g e o f G D P h a s n ' t c h a n g e d m u c h i n
the past 20 years o r so, the r a t i o o f m a n u f a c t u r i n g e m p l o y m e n t to m a n u ­
f a c t u r i n g o u t p u t has t a k e n a b i g nose dive. G i v e n the n e o l i b e r a l i s t slow­
d o w n o f the e x p a n s i o n o f g o v e r n m e n t e m p l o y m e n t , the effect has b e e n to
f l o o d the c o m p e t i t i v e sector w i t h "cheap" labor. T h i s has r e v i v e d a l l k i n d s
o f s m a l l business v e n t u r e s h i t h e r t o d o r m a n t o r that were m e r e l y e x t e n ­
sions o f b i g c a p i t a l a n d r e p r o d u c e d the p o o r c o n d i t i o n s o f existence o f
African-Americans and other oppressed minorities.
T h e e x p a n s i o n o f l a b o r supply i n the low-wage c o m p e t i t i v e
sector ( w h i c h I believe was the single most i m p o r t a n t factor i n c r e a s i n g
e m p l o y m e n t i n the U S. i n the 1990s, w i t h o u t s t i m u l a t i n g i n f l a t i o n ) a n d
the c o n c o m i t a n t w e a k e n i n g o f the u n i o n s i n the m o n o p o l y sector ( h e n c e
the sluggish g r o w t h o f m o n e y wages a n d l o w e r l a b o r costs p e r w o r k e r i n
that sector) were i n t e n s i f i e d by the g r o w t h o f l e g a l f o r e i g n w o r k e r s a n d
u n d o c u m e n t e d workers f r o m M e x i c o , Central A m e r i c a , Asia, a n d other
c o u n t r i e s a n d regions, w h i c h t e n d e d to p u s h m o n e y wages d o w n still
further. A l s o , the d e c l i n e i n wage i n c o m e i n the competitive sector f o r c e d
families to increase l a b o r force p a r t i c i p a t i o n rates to m a i n t a i n established
levels o f family i n c o m e , thus t e n d i n g to r e d u c e wages p a i d by s m a l l busi­
ness still further. I n some parts o f the U . S . , this w o u l d b e c o m e a d o w n w a r d
cycle o f f a l l i n g wages, i n c r e a s i n g h o u r s o f w o r k by the t y p i c a l family, fur­
t h e r d e c l i n e s i n wages, h i g h e r rents, a n d finally, o u t - m i g r a t i o n o f the
g r o w i n g class o f the " w o r k i n g p o o r " to regions a n d cities w i t h relatively
fast e c o n o m i c growth.
T h u s the b i r t h o f the n e w low-inflationary, " f u l l e m p l o y ­
m e n t , " low-wage U . S . e c o n o m y o f 2000, i n the U . S . - l e d e c o n o m i c a l l y glo­
b a l i z e d w o r l d o f h y p e r - c o m p e t i t i o n d i s c i p l i n e d by f i n a n c i a l markets a n d
I M F / W o r l d B a n k SAPs. C o m b i n e d w i t h the c e n t r a l i z a t i o n o f capital (i.e.,
c a p i t a l e x p a n s i o n by a c q u i s i t i o n n o t v i a n e w i n v e s t m e n t ) , this b e c a m e a
f o r m u l a for a n increase i n r i c h e s f o r the few, p o v e r t y f o r t h e m a n y , a n d
u n t i l 1996, s t a g n a n t wages f o r the majority. T h e m o n o p o l y s e c t o r i t s e l f
came u n d e r i n c r e a s i n g attack by b i g foreign capital, h e n c e m o n e y
wage i n c r e a s e s f a i l e d to k e e p p a c e w i t h p r o d u c t i v i t y a d v a n c e s . T h i s
was p a r t l y offset by n e w i n v e s t m e n t s f r o m f o r e i g n c o r p o r a t i o n s i n t h e
U . S . , w h i c h , however, w e r e m o s t o f t e n d i f f i c u l t o r i m p o s s i b l e to u n i o n ­
ize. M e a n w h i l e , as n o t e d , the n e o - l i b e r a l i z i n g f e d e r a l state sector f a i l e d
to a b s o r b its " n o r m a l " o r h i s t o r i c a l s h a r e o f d i s p l a c e d w o r k e r s , w h i c h
f u r t h e r e x p a n d e d l a b o r s u p p l i e s i n the c o m p e t i t i v e sector. O n e c o u l d
c o m p l i c a t e t h i s m o d e l i n v a r i o u s ways, b u t its e s s e n c e is o b v i o u s : t h e
c o n t r a d i c t i o n s o f t h e s y s t e m are n o l o n g e r d i s p l a c e d as f r e q u e n t l y
i n t o t h e state a n d state f i n a n c e s as t h e y are i n t o the s e c t o r o f s m a l l o r
c o m p e t i t i v e c a p i t a l . T h e r e s u l t : the l o w e r o n e - t h i r d o r o n e - h a l f o f t h e
U . S . w o r k i n g class suffers i m p a i r e d c o n d i t i o n s o f life a n d r e a l i n ­
c o m e s . I n o t h e r w o r d s , t h e state's " l e g i t i m a t i o n f u n c t i o n " n o l o n g e r

INTRODUCTION TO T H E TRANSACTION EDITION xxiii


r e q u i r e s "pay offs" to e c o n o m i c losers (e.g., s m a l l b u s i n e s s o r its w o r k
f o r c e ) , as was t r u e o f t h e C o l d W a r e r a w h e n p o l i t i c a l p a r t i e s a n d t h e
state a d m i n i s t r a t i o n h a d to d o w h a t e v e r i t t o o k to m a i n t a i n t h e C o l d
W a r p o l i t i c a l c o n s e n s u s . T h e p r o b l e m o f l e g i t i m a t i o n has b e e n trans­
f o r m e d i n t o the p r o b l e m o f "competitiveness i n the g l o b a l m a r k e t ­
p l a c e . " T h i s has b e c o m e the first task o f the state—a first i n t h e U . S .
w h i c h i n the past enjoyed a well-integrated n a t i o n a l economy. O n l y S o c i a l
S e c u r i t y a n d M e d i c a r e have survived m o r e o r less intact i n the w o r l d o f
21st c e n t u r y g l o b a l c a p i t a l i s m , b u t the p r i v a t i z a t i o n o f r e t i r e m e n t a n d
h e a l t h care i n s u r a n c e (as w e l l as water, power, e d u c a t i o n a n d o t h e r facili­
ties that may be p r i v a t i z e d u n d e r n e w W T O rules) m a y destroy those
r e d o u b t s o f t r a d i t i o n a l social democracy, too.
O n e o f the m o s t i m p o r t a n t changes since the late 1960s
a n d early 1970s is the c e n t r a l r o l e o f fiscal d i s c i p l i n e i n the e v o l u t i o n o f
n e o l i b e r a l i s m at h o m e a n d overseas. T h i s has b e e n m a n i f e s t e d i n m a n y
ways:

(1) t h e r e p l a c e m e n t o f fiscal policy by a variety o f


monetarism;
(2) the a t t e m p t to free m o n i e s f r o m t h e i r e m p l o y m e n t by
the state for the private capital m a r k e t ( h e n c e a v o i d i n g increases i n inter­
est rates);
(3) privatization, w h i c h reduces state functions a n d m o n e y -
l o s i n g businesses a n d d i s c i p l i n e s state w o r k e r s ;
(4) a tax revolt that n e v e r b e c a m e g e n e r a l i z e d to i n c l u d e
m o s t o f the wage a n d salary w o r k i n g p o p u l a t i o n , o r to i n c l u d e the i n d i ­
v i d u a l i n c o m e tax itself (the m a i n source o f f e d e r a l r e v e n u e s ) . P r o p e r t y
taxes were r e d u c e d i n n u m e r o u s states a n d localities b u t p a y r o l l taxes
( f i n a n c i n g S o c i a l S e c u r i t y a n d M e d i c a r e ) have i n c r e a s e d s h a r p l y s i n c e
the early 1970s. W h y the tax revolt d i d n ' t s p r e a d b e y o n d p r o p e r t y i n c o m e
(real estate, c a p i t a l gains, w e a l t h , a n d i n h e r i t a n c e taxes) to the h e a r t o f
the fiscal system ( p a y r o l l a n d p e r s o n a l i n c o m e taxes) has n e v e r b e e n
s t u d i e d . S u c h a study w o u l d have to c o n t a i n a s t r o n g class analysis;
(5) i n the S o u t h , S A P s that focus o n r e d u c i n g state b u d g e t
deficits a n d taxes a n d e x p e n d i t u r e s generally;
(6) the r e d u c t i o n o f social services a n d welfare.

T h e s e a n d o t h e r c h a n g e s b o t h caused a n d were c a u s e d by
the r i s i n g p o w e r o f g l o b a l c a p i t a l , a n d f i n a n c e c a p i t a l a n d f i n a n c i a l m a r ­
kets (at the expense o f the w o r k i n g class the w o r l d over) A l l these changes
are m o s t p r o n o u n c e d i n the U . S . a n d i n U . S . - d o m i n a t e d i n t e r n a t i o n a l
institutions s u c h as the I M F . W i t h l o w e r interest rates a n d p l e n t y o f m o n e y
c a p i t a l available f o r business b o r r o w i n g a n d investment, stock m a r k e t
s p e c u l a t i o n , a n d m o r t g a g e a n d c o n s u m e r credit; w i t h a h i g h - f l y i n g stock

xxiv INTRODUCTION TO T H E TRANSACTION EDITION


m a r k e t a n d real estate markets that generated h i g h e r c o n s u m p t i o n spend­
i n g via the "wealth effect;" w i t h a strong d o l l a r (despite a g r o w i n g i m p o r t
surplus) w h i c h c h e a p e n e d i m p o r t s a n d k e p t i n f l a t i o n d o w n , o n the o n e
h a n d , a n d attracted h u g e sums o f m o n e y f r o m crisis-struck A s i a n , L a t i n
A m e r i c a n a n d some E u r o p e a n countries, o n the o t h e r ; a n d w i t h J a p a n i n
the d o l d r u m s a n d the euro weak a n d E u r o p e a n U n i o n g r o w i n g o n l y slowly;
a n d finally w i t h the U . S . g e t t i n g back its m o n o p o l y o n h i g h t e c h i n n o v a ­
tion a n d e x p o r t m a r k e t s — a l l these came together to p r o d u c e the export-
l e d b o o m o f the early 1990s a n d the faster-growing c o n s u m e r - l e d a n d
h i g h - t e c h - l e d i n v e s t m e n t b o o m o f the late 1990s T h i s r a p i d l y i n c r e a s e d
tax revenues (while e x p e n d i t u r e s rose relatively little) s u c h that by 1999
the f e d e r a l deficit h a d t u r n e d i n t o a budgetary surplus. (As n o t e d above,
this process was significantly a i d e d by the g r o w t h o f State-level a n d l o c a l
social c a p i t a l s p e n d i n g . )
It s h o u l d be stressed, however, that the n e w e r a o f fiscal
surpluses (or the " e n d o f the fiscal crisis") was c o n f i n e d m a i n l y to the U . S .
I n J a p a n , Italy, a n d dozens o f e c o n o m i e s i n the S o u t h , i n c r e a s i n g fiscal
deficits were the r u l e d u r i n g the 1990s. I f i n most o f E u r o p e deficits were
too s m a l l to be w o r r i s o m e , it was because the G e r m a n state a n d c e n t r a l
b a n k i m p o s e d l o w d e f i c i t / G D P ratios o n the E u r o p e a n states j o i n i n g the
E u r o p e a n M o n e t a r y U n i o n . I n s u m , the U . S . fiscal crisis at the f e d e r a l
level was "solved" p r i m a r i l y because o f the l o n g i s h b o o m o f the 1990s,
especially the fast-growing late 1990s, h e n c e the b i g increase i n i n c o m e
tax revenues by the n a t i o n a l government. B u t U . S . growth generally w o u l d
have b e e n i m p o s s i b l e w i t h o u t g l o b a l i z a t i o n (or the " A m e r i c a n i z a t i o n " o f
the w o r l d ) , w h i c h f u n n e l e d h u g e sums o f m o n e y to the U . S . f r o m a b r o a d
a n d h a d o t h e r effects favoring l o w inflation, growth, a n d l a r g e r tax collec­
tions.

* * *

T o c o n c l u d e , a few words o n the r e c e p t i o n by reviewers o f


/CISmight be i n order. G e n e r a l interest i n the b o o k is i n d i c a t e d by its sales
figures (35,000 o f the E n g l i s h language e d i t i o n o v e r 25 years); by the
n u m b e r o f translations ( G e r m a n , Italian, S p a n i s h , G r e e k , P o r t u g u e s e ,
J a p a n e s e , a n d K o r e a n ) ; a n d by the n u m b e r o f i n v i t a t i o n s to l e c t u r e at
universities h e r e a n d a b r o a d o n various subjects c o v e r e d by the b o o k
( l o t s ) . T h e reviews o f the b o o k i n s c h o l a r l y j o u r n a l s a n d p o p u l a r p e r i ­
odicals, however, were m i x e d . S o m e ( M a r x i s t e c o n o m i s t ) reviewers
d i d n ' t l i k e the b o o k b e c a u s e i t d e p a r t e d t o o m u c h f r o m the o r t h o d o x
M a r x i s t t r e a t m e n t o f the state a n d state b u d g e t . T h e M a r x i s t Monthly
Review gave FCS to a h o s t i l e reviewer. S o m e ( m a i n s t r e a m e c o n o m i s t )
r e v i e w e r s p a n n e d t h e b o o k b e c a u s e i t "wasn't e c o n o m i c s " (FCS was a
s t u d y i n p o l i t i c a l e c o n o m y a n d p o l i t i c a l s o c i o l o g y ) . B o t h sets o f re-

INTRODUCTION TO T H E TRANSACTION EDITION xxv


v i e w e r s w e r e r i g h t , i n t h e i r o w n ways, a l t h o u g h n e i t h e r h a d e n o u g h
c o n f i d e n c e i n t h e i r o w n m e t h o d s a n d t h e o r i e s to s u s p e n d d i s b e l i e f i n
t h e i r o w n p a r a d i g m s l o n g e n o u g h to a p p r e c i a t e w h a t I was t r y i n g to d o .
B o t h M a r x i s t a n d straight economists still have t r o u b l e t h e o r i z i n g a r e l a ­
tively n e w c o n c e p t o f " s o c i a l c a p i t a l , " b r o k e n d o w n i n t o h u m a n c a p i ­
t a l , n a t u r a l c a p i t a l , a n d c o m m u n a l c a p i t a l ( g o o d s o r services t r e a t e d
as i f they are c o m m o d i t i e s e v e n t h o u g h t h e y a r e n ' t p r o d u c e d as c o m ­
m o d i t i e s ) . T h e r e w e r e also reviews t h a t w e r e i n effect d e b a t e s o n the
m e t h o d I u s e d i n FCS: as n o t e d , s o m e r e v i e w e r s a n d c o m m e n t a t o r s
have said that FCS is flawed by its " f u n c t i o n a l i s m ; " o t h e r s that it is m a r r e d
by its voluntaristic (class struggle) theory o f the b u d g e t . T h i s was o n e o f
those cases w h e r e some reviewers were c o n d e m n i n g n o t so m u c h m y
b o o k b u t o t h e r reviewers w i t h different m e t h o d o l o g i c a l perspectives. A l l
o f t h e m , however, c o m m e n d e d m e f o r t a c k l i n g the s o c i o l o g y o f p u b l i c
f i n a n c e , w h i c h J o s e p h S c h u m p e t e r l o n g ago said h e l d great p r o m i s e , b u t
w h i c h u n t i l FCS r e m a i n e d o n e o f the m o s t u n d e v e l o p e d f i e l d o f study i n
social t h e o r y a n d social science.
B y a n d large, p o l i t i c a l sociologists l i k e d the b o o k , as d i d
r a d i c a l p o l i t i c a l e c o n o m i s t s w h o h a d n ' t tied themselves d o w n to any par­
ticular m e t h o d o f studying a n d t h e o r i z i n g m o d e r n c a p i t a l i s m . A s m u c h as
social t h e o r e t i c a l b o o k s are r e a d at a l l i n the l a b o r m o v e m e n t , FCS h a d a
a p p r e c i a t i v e r e a d e r s h i p . T h i s was e s p e c i a l l y t r u e o f l e a d e r s a n d staff
i n o r g a n i z a t i o n s o f state w o r k e r s a n d c l i e n t s , e.g., t e a c h e r s ' u n i o n s
a n d w e l f a r e r i g h t s g r o u p s . FCS h a d its b e s t r e a c t i o n a m o n g l e f t
Weberians o f various kinds, political sociologists w h o read Weber's
m a s t e r texts o n b u r e a u c r a c y a n d p o l i t i c s i n ways that k e p t t h e i r m i n d s
o p e n . A s n o t e d above, F C S w e n t over best a m o n g those w o r k i n g o n p r o b ­
lems o f administrative rationality (crisis) a n d p o l i t i c a l l e g i t i m a t i o n (cri­
sis) o f the m o d e r n state, as the theory o f the fiscal crisis c o m p l e m e n t e d
these works very w e l l .
I c o n c l u d e by n o t i n g that u n t i l I f i n i s h e d Accumulation Cri­
sis a n d The Meaning of Crisis I was u n a b l e t h e o r e t i c a l l y to integrate the
i d e o l o g i c a l n a t u r e o f everyday life i n U . S . c a p i t a l i s m i n t o theories o f p o ­
litical e c o n o m y a n d p o l i t i c a l sociology. Reviewers o f the f o r m e r b o o k w h o
were k n o w l e d g e a b l e a b o u t the c r i t i q u e o f i d e o l o g y i n the M a r x i s t tradi­
tion (especially that o f A n t o n i o G r a m s c i ) p r a i s e d this w o r k . Reviews o f
the Meaning of Crisis were few a n d far b e t w e e n a n d f a i l e d to grasp the
t a x o n o m y o f crisis theory d e v e l o p e d t h e r e i n (at o n e e x t r e m e I n o t e d that
m a r k e t theories o f crisis were the most abstract, at the o t h e r e x t r e m e that
p s y c h o l o g i c a l theories o f personality crisis were the least abstract, a n d
i n d i c a t e d that social theorists c o u l d m o v e b e t w e e n d i f f e r e n t levels o f
crisis t h e o r y i n ways that w o u l d e n h a n c e t h e i r o w n w o r k o n e c o n o m i c ,
social, p o l i t i c a l , a n d p s y c h o l o g i c a l crises i n late 2 0 t h c e n t u r y U . S . capital­
i s m ) . Finally, m y latest w o r k , Natural Causes, b a s e d o n a c o m b i n a t i o n o f

xxvi INTRODUCTION TO T H E TRANSACTION EDITION


m e t h o d s d e r i v e d f r o m e n v i r o n m e n t a l history, M a r x i s m , a n d the w o r k o f
K a r l P o l a n y i , was gready a p p r e c i a t e d by e c o n o m i c sociologists a n d socio­
logical economists, as well as by some e n v i r o n m e n t a l historians a n d schol­
ars w o r k i n g i n the g e n e r a l f i e l d o f p o l i t i c a l ecology, a n d also by m a n y
e n v i r o n m e n t a l activists, b u t i g n o r e d o r t r i v i a l i z e d by o r t h o d o x Marxists
a n d o r t h o d o x e c o n o m i s t s . T h e circle was thus c l o s e d , as Natural Causes
was received i n the same p o o r way as Fiscal Crisis by b o t h o f these groups o f
h i d e b o u n d academics.

James O ' C o n n o r
M a y 15, 2000

NOTES AND REFERENCES

1. Paul A Baran a n d Paul M Sweezy, Monopoly Capital: An Essay on the


American Economic and Social Order, New Y o r k : M o n t h l y Review Press, 1966; J a m e s
O ' C o n n o r , " M o n o p o l y Capital," New Left Review 40, N o v e m b e r - D e c e m b e r , 1966
2. T h e s e e m i n g t r i u m p h o f n e o l i b e r a l i s m i n the recent past has to
some u n k n o w n degree p u s h e d the class struggle out o f the state budget a n d back into
the labor market a n d p o i n t o f p r o d u c t i o n
3. F o r a selection o f representative articles first p u b l i s h e d i n this
j o u r n a l , see James Weinstein a n d David W Eakins, eds , For a New America: Essays in
History and Politics from 'Studies on the Left' 1959 - 1967, N e w York: R a n d o m H o u s e ,
1970
4. See James O ' C o n n o r , Accumulation Crisis, New Y o r k a n d O x f o r d :
Basil Blackwell, 1984; The Meaning of Crisis: A Theoretical Introduction, New York and
O x f o r d : Basil Blackwell, 1987
5. See James O ' C o n n o r , Natural Causes: Essays in Ecological Marxism,
New York: G u i l f o r d Press, 1998
6. M o s t i m p o r t a n t , the "age o f n e o l i b e r a l i s m " d i d n ' t really b e g i n
until c 1980, m o r e than ten years after I started writing FCS See, for example, "The
M e a n i n g o f E c o n o m i c Imperialism," i n my The Corporations and the State: Essays in the
Theory of Capitalism and Imperialism, New York, H a r p e r a n d Row, 1974
7. Fiscal Crisis, op c i t , p p 3-5
8. "Scientific a n d Ideological E l e m e n t s i n the E c o n o m i c T h e o r y o f
G o v e r n m e n t Policy," The Corporations and the State, o p cit
9. Bristow H a r d i n , "The Militarized S o c i a l D e m o c r a c y a n d Racism:
T h e Relationship Between Militarism, Racism a n d Social Welfare Policy i n the U n i t e d
States " P h D dissertation, University o f C a l i f o r n i a at Santa C r u z , 1991
10. T h e social-industrial c o m p l e x I saw as a n attempt to reduce oudays
o n the c o m m u t e to work, health care, a n d education In the 1960s, H u b e r t H u m p h r e y ,
last o f the great C o l d W a r social democrats i n the U S , n o t e d that i n his state urban
dwellers c o m m u t e d to the suburbs to work, a n d that suburbanites c o m m u t e d to the
city f o r e m p l o y m e n t , h e n c e that a r e o r g a n i z a t i o n o f w o r k e r s ' h o u s i n g c o u l d save
"society" (capitalism) a significant a m o u n t o f social capital oudays Today this tradition
is i n the hands o f the "new democrats" a n d "third wayers " F o r e x a m p l e , the H M O
m o v e m e n t seeks to lower health care costs by pardy socializing health care; the anti-
u r b a n sprawl m o v e m e n t aims to lower the costs o f transportation a n d economize o n

INTRODUCTION TO THE TRANSACTION EDITION xxvii


energy a n d o t h e r resources via r e g i o n a l p l a n n i n g . In Accumulation Crisis I w o u l d
interpret changes o r movements such as these i n terms o f the cost o f r e p r o d u c i n g
l a b o r p o w e r (or the value c o n t e n t o f the c o n s u m p t i o n basket). T h i s has b e c o m e a
m o r e complicated subject due to the effects o f globalization, that is, the a b u n d a n c e o f
cheap c o n s u m e r articles p r o d u c e d i n export platforms, e g , C h i n a , which tend to raise
real wages i n the U . S without the necessity o f i n c r e a s i n g m o n e y wages E d u c a t i o n ,
health care, p u b l i c recreation, environmental amenities, a n d the like can't be global­
ized without creating political opposition, h e n c e the i m p o r t a n c e o f the social-indus­
trial complex or o f p l a n n i n g to reduce the cost o f r e p r o d u c i n g laborpower as a c o m p l e ­
m e n t to globalization T h i s theme, needless to say, I missed i n Fiscal Crisis

xxviii INTRODUCTION TO T H E TRANSACTION EDITION


INTRODUCTION

" L o c k h e e d Gets L o a n G u a r a n t e e s / ' " P r e s i d e n t Says, ' N o


V i e t n a m D i v i d e n d / " " N e w $50 M i l l i o n B A R T Issue," " M e d i c a r e
S p e n d i n g U p 2 0 % , " " 3 0 % C i t y B u d g e t Increase," " T e a c h e r s ' S t r i k e
Begins T h i r d Week," "Violence Mars Welfare Rights Demonstration"
—these were some of the t y p i c a l h e a d l i n e s of the 1960s a n d early
1970s. E a c h is a v a r i a t i o n o n the same t h e m e : C o r p o r a t i o n s w a n t gov­
e r n m e n t to b u i l d m o r e freeways; bankers a n d investors w a n t govern­
m e n t to u n d e r w r i t e m o r e loans a n d investments; s m a l l b u s i n e s s m e n
a n d farmers w a n t m o r e subsidies; o r g a n i z e d l a b o r wants m o r e social
i n s u r a n c e ; welfare rights g r o u p s w a n t h i g h e r i n c o m e allowances, m o r e
h o u s i n g , a n d better p u b l i c h e a l t h services; g o v e r n m e n t employees
w a n t h i g h e r wages a n d salaries; a n d g o v e r n m e n t agencies w a n t m o r e
appropriations.
O t h e r f a m i l i a r h e a d l i n e s — " S c h o o l B o n d Issue V o t e d
D o w n , " " G a l l u p P o l l : T a x Relief T o p W o r r y , " " U n i f i e d School Dis­
trict R e f e r e n d u m D e f e a t e d , " " C o m m u t e r T a x D e c l a r e d U n c o n s t i t u ­
t i o n a l , " " H o m e o w n e r s V o t e to Shift T a x to D o w n t o w n B u s i n e s s , "
" R e a g a n S u p p o r t s State W i t h h o l d i n g T a x " — t e l l a s i m i l a r story.
L a r g e c o r p o r a t i o n s a n d w e a l t h y investors w a n t w o r k i n g p e o p l e a n d
s m a l l b u s i n e s s m e n to foot the b i l l for a i r p o r t m o d e r n i z a t i o n , freeway
e x p a n s i o n , r a p i d transit, water i n v e s t m e n t projects, a n d p o l l u t i o n
c o n t r o l . S m a l l b u s i n e s s m e n a n d h o m e o w n e r s w a n t p r o p e r t y tax re­
lief. M i d d l e - i n c o m e wage a n d salary earners w a n t i n c o m e tax relief.
P o o r p e o p l e w a n t tax relief, p e r i o d . S u b u r b a n i t e s d o n ' t w a n t to pay
taxes i n the c e n t r a l c i t y w h e r e they w o r k , a n d they d o n ' t w a n t central-
c i t y residents to get a n y o f the taxes that they p a y i n the suburbs.
E v e r y e c o n o m i c a n d social class a n d g r o u p wants gov­
e r n m e n t to s p e n d m o r e a n d m o r e m o n e y o n m o r e a n d m o r e things.
B u t n o o n e wants to pay n e w taxes o r h i g h e r rates o n o l d taxes. I n ­
deed, n e a r l y everyone wants l o w e r taxes, a n d m a n y g r o u p s have agi­
tated successfully for tax relief. Society's d e m a n d s o n l o c a l a n d state
budgets s e e m i n g l y are u n l i m i t e d , b u t people's w i l l i n g n e s s a n d ca­
p a c i t y to p a y for these d e m a n d s a p p e a r to be n a r r o w l y l i m i t e d . A n d
at the federal l e v e l e x p e n d i t u r e s have increased s i g n i f i c a n t l y faster
t h a n the g r o w t h of t o t a l p r o d u c t i o n . I n the w o r d s of the h e a d o f the
F e d e r a l R e s e r v e System,

1
W e s t a n d at a c r o s s r o a d s i n o u r fiscal a r r a n g e m e n t s . M a n y of our
c i t i z e n s are a l a r m e d by the i n c r e a s i n g s h a r e o f t h e i r i n c o m e s t h a t
is t a k e n a w a y b y F e d e r a l , S t a t e , a n d local taxes. . . . T h e pro­
p e n s i t y to s p e n d m o r e t h a n w e are p r e p a r e d to finance through
taxes is becoming deep-seated a n d ominous. An early end to
F e d e r a l deficits is n o t n o w i n sight. N u m e r o u s F e d e r a l programs
have a h u g e g r o w t h of e x p e n d i t u r e s b u i l t into them, a n d there
are p r o p o s a l s p r e s e n t l y b e f o r e the C o n g r e s s t h a t w o u l d raise ex­
p e n d i t u r e s b y vast a m o u n t s i n c o m i n g years. 1

W e h a v e t e r m e d this tendency for g o v e r n m e n t e x p e n d i ­


tures to outrace revenues the "fiscal crisis of the state." T h e r e is n o
i r o n l a w that e x p e n d i t u r e s m u s t always rise m o r e r a p i d l y t h a n rev­
enues, b u t i t is a fact that g r o w i n g needs w h i c h o n l y the state c a n
meet create ever greater c l a i m s o n the state budget. Several factors,
singly o r i n c o m b i n a t i o n , m a y offset the crisis. P e o p l e w h o need gov­
e r n m e n t - p r o v i d e d services m a y be i g n o r e d a n d t h e i r needs neglected,
as h a p p e n e d i n N e w Y o r k ' s welfare c u t b a c k d u r i n g the 1970-1971
recession. C o r p o r a t i o n s that w a n t loans a n d subsidies f r o m the gov­
e r n m e n t m a y not get t h e m , as h a p p e n e d i n the C o n g r e s s i o n a l defeat
of p r o p o s e d subsidies for the d e v e l o p m e n t of the S S T . G o v e r n m e n t -
e m p l o y e e i n c o m e m a y f a l l b e h i n d p r i v a t e sector i n c o m e o r b e l o w the
cost of l i v i n g , b u t this does not m e a n that these workers get a u t o m a t i c
pay increases. I n fact, the g o v e r n m e n t m a y even freeze wages a n d
salaries i n a n a t t e m p t to a m e l i o r a t e the fiscal crisis. F u r t h e r m o r e ,
p e o p l e c a n be f o r c e d to pay h i g h e r taxes. S h o u l d they be u n w i l l i n g
to pay taxes d i r e c t l y because large n u m b e r s oppose p a r t i c u l a r spend­
i n g p r o g r a m s , the g o v e r n m e n t c a n force t h e m to p a y taxes i n d i r e c t l y
by financing increased e x p e n d i t u r e s v i a i n f l a t i o n o r c r e d i t e x p a n s i o n
—as the J o h n s o n A d m i n i s t r a t i o n d i d d u r i n g the p e a k years of A m e r i ­
c a n aggression i n Southeast A s i a .
A c o m b i n a t i o n o f some o f these countertendencies re­
s u l t e d i n b u d g e t a r y surpluses i n m a n y state a n d l o c a l g o v e r n m e n t s i n
1972. A c c o r d i n g to o n e " o p t i m i s t i c " estimate, state a n d l o c a l govern­
ments w i l l be able to meet t h e i r n o r m a l needs t h r o u g h 1975 by i n ­
creasing tax rates b y n o t m o r e t h a n 5 p e r c e n t . 2

T h e v o l u m e a n d c o m p o s i t i o n of g o v e r n m e n t e x p e n d i ­
tures a n d the d i s t r i b u t i o n of the tax b u r d e n are n o t d e t e r m i n e d by
the laws of the m a r k e t b u t r a t h e r reflect a n d are s t r u c t u r a l l y deter­
m i n e d b y social a n d e c o n o m i c conflicts between classes a n d g r o u p s .
T h e E n g l i s h P r i m e M i n i s t e r G l a d s t o n e once said that "budgets are
n o t m e r e l y matters o f a r i t h m e t i c , b u t i n a t h o u s a n d ways go to the
r o o t of p r o s p e r i t y of i n d i v i d u a l s , a n d r e l a t i o n s of classes, a n d the
strength of K i n g d o m s . " T h e " r e l a t i o n s of classes" were t h e n expressed

2 INTRODUCTION
i n m a n y ways that today are of o n l y h i s t o r i c a l interest. I n m o d e r n
A m e r i c a i n d i v i d u a l w e l l - b e i n g , class r e l a t i o n s h i p s , a n d n a t i o n a l
w e a l t h a n d p o w e r are b o u n d u p i n the agony o f the cities, p o v e r t y
a n d r a c i s m , profits of b i g a n d s m a l l business, i n f l a t i o n , u n e m p l o y m e n t ,
the balance-of-payments p r o b l e m , i m p e r i a l i s m a n d war, a n d other
crises that seem a p e r m a n e n t part of d a i l y life. N o one is e x e m p t f r o m
the fiscal crisis a n d the u n d e r l y i n g social crises w h i c h i t aggravates.
W e n e e d a way to t h i n k a b o u t a n d u l t i m a t e l y act o n this fiscal crisis
that clarifies the c o n t r a d i c t o r y processes w h i c h find b o t h their reflec­
t i o n a n d cause i n the g o v e r n m e n t budget. W e n e e d a theory of gov­
e r n m e n t b u d g e t a n d a m e t h o d for d i s c o v e r i n g the m e a n i n g for the
p o l i t i c a l e c o n o m y a n d society as a w h o l e .
P e r h a p s t h e n we w i l l be able to answer such questions
as: W h o w i l l pay for r i s i n g g o v e r n m e n t e x p e n d i t u r e s ? W i l l some k i n d s
of s p e n d i n g rise w h i l e others are cut back? C a n the g o v e r n m e n t de­
l i v e r m o r e services for less taxes? W h y d o n ' t A m e r i c a n s w a n t to pay
for services that p r e s u m a b l y benefit the " p e o p l e " ? C a n the fiscal sys­
t e m s u r v i v e i n its present form? P o l i t i c a l - e c o n o m i c analysis is needed
to answer these a n d dozens of other e q u a l l y i m p o r t a n t r e l a t e d ques­
tions.

T H E THEORETICAL BANKRUPTCY OF
TRADITIONAL ECONOMICS

T h e theory of g o v e r n m e n t b u d g e t p u t f o r t h i n this
w o r k is based o n the study of fiscal p o l i t i c s , a n i n v e s t i g a t i o n of the
s o c i o l o g i c a l f o u n d a t i o n s of g o v e r n m e n t or state finances. T h e m a i n
3

concerns of fiscal p o l i t i c s are to discover the p r i n c i p l e s g o v e r n i n g the


v o l u m e a n d a l l o c a t i o n o f state finances a n d e x p e n d i t u r e s a n d the
d i s t r i b u t i o n of the tax b u r d e n a m o n g v a r i o u s e c o n o m i c classes. T h e
m a j o r w o r k of the G e r m a n M a r x i s t R u d o l p h G o l d s c h e i d , f o u n d e r
of the c o n t e m p o r a r y science of fiscal p o l i t i c s , a p p e a r e d i n the second
decade of this c e n t u r y . A few years thereafter J o s e p h S c h u m p e t e r
4

w r o t e g l o w i n g l y of the p r o m i s e of fiscal p o l i t i c s :

The public finances are one of the best starting points for an
investigation of society, especially though not exclusively of its
political life. T h e full fruitfulness of this approach is seen par­
ticularly at those turning points, or better epochs, during which
existing forms begin to die off and to change into something
new. T h i s is true both of the causal significance of fiscal policy
(insofar as fiscal events are an important element i n the causa­
tion of a l l change) and of the symptomatic significance (insofar

INTRODUCTION 3
as e v e r y t h i n g t h a t h a p p e n s has its fiscal r e f l e c t i o n ) . N o t w i t h s t a n d ­
i n g a l l the q u a l i f i c a t i o n s w h i c h a l w a y s h a v e to b e m a d e . . . we
may surely speak of . . . a special field: fiscal sociology, of w h i c h
m u c h may be expected. 5

Schumpeter's o p t i m i s m p r o v e d to be p r e m a t u r e . T h e
budget remains, i n his words, a " c o l l e c t i o n of h a r d , n a k e d facts" not
yet " d r a w n i n t o the r e a l m of s o c i o l o g y . " ' U n f o r t u n a t e l y , " one scholar
confesses, "there exists n o i n t e g r a t e d theory of the economics a n d
p o l i t i c s of p u b l i c finance w h i c h w o u l d serve as a f r a m e w o r k for
a n a l y z i n g [state] finance." N o b l u n t e r a d m i s s i o n of t h e o r e t i c a l
6

b a n k r u p t c y c a n be f o u n d t h a n the d e c l a r a t i o n that w i t h i n the m a i n ­


stream of W e s t e r n e c o n o m i c t h o u g h t ,

public finance, t r a d i t i o n a l l y , has neither contained a theory of


d e m a n d nor one of s u p p l y . . . . The scholar f r o m o u t e r space,
coming to earth in the post-Marshallian era, might have con­
cluded on p e r u s i n g the E n g l i s h - l a n g u a g e literature that govern­
ments exist w h o l l y apart from their citizens, that these units
i m p o s e taxes o n individuals and firms primarily to nourish the
state; a n d he might have thought that positive p u b l i c finance
consists i n p r e d i c t i n g the effects o f these t a x e s . 7

T h e " s c h o l a r f r o m o u t e r space" w o u l d have been o n l y


p a r t l y r i g h t . O r t h o d o x p u b l i c finance theorists are c o n c e r n e d not
o n l y w i t h the e c o n o m i c effects o f t a x a t i o n (and e x p e n d i t u r e s ) , b u t
also w i t h the p r o b l e m of w h a t the g o v e r n m e n t s h o u l d take away i n
taxes (and p r o v i d e i n e x p e n d i t u r e s ) . F o r e x a m p l e , i n his study of state
enterprise R a l p h T u r v e y writes that "because it is p u b l i c , w h a t i n ­
terests us a b o u t p u b l i c enterprise is h o w it o u g h t to behave. . . .
[W]e are n o t so m u c h c o n c e r n e d w i t h u n d e r s t a n d i n g its b e h a v i o r a n d
m a k i n g p r e d i c t i o n s as w i t h c r i t i c i z i n g a n d m a k i n g r e c o m m e n d a ­
tions." T u r v e y ' s interest lies i n h o w the b e h a v i o r of state enterprise
8

can be m a d e to c o n f o r m to a p r e c o n c e i v e d n o t i o n of e c o n o m i c op­
t i m u m . T h i s is the focus of the best k n o w n treatise o n p u b l i c finance,
R i c h a r d M u s g r a v e ' s The Theory of Public Finance. M u s g r a v e tries
to synthesize the entire m o d e r n l i t e r a t u r e o n g o v e r n m e n t finance a n d ,
i n p a r t i c u l a r , "to state the rules a n d p r i n c i p l e s that m a k e for a n
efficient c o n d u c t of the p u b l i c e c o n o m y . " M u s g r a v e devises a n "op­
t i m a l budget p l a n o n the basis of i n i t i a l l y defined c o n d i t i o n s " a n d
t h e n tries to "see h o w i t c a n be a c h i e v e d . " H e calls i t " a n o r m a t i v e
o r o p t i m a l theory of the p u b l i c h o u s e h o l d . " 9

T h e effect of this emphasis o n n o r m a t i v e theory has


b e e n to i g n o r e the a p p l i c a t i o n of the theory of e c o n o m i c g r o w t h . T h e

4 INTRODUCTION
absence o f a n " i n t e g r a t e d theory of the e c o n o m i c s a n d p o l i t i c s of
p u b l i c finance" (or " a t h e o r y of d e m a n d a n d s u p p l y of p u b l i c goods
a n d services") has c o m p e l l e d economists to a d o p t a n almost meta­
p h y s i c a l a t t i t u d e t o w a r d g o v e r n m e n t s p e n d i n g . F o r e x a m p l e , the
K e y n e s i a n Evsey D o m a r t h e o r i z e d that g o v e r n m e n t e x p e n d i t u r e s
c a n be dealt w i t h (1) by a s s u m i n g that they are exogenous, o r deter­
m i n e d by forces outside the e c o n o m i c system; (2) by m e r g i n g t h e m
w i t h c o n s u m p t i o n e x p e n d i t u r e s ; o r (3) by a s s u m i n g t h e m away alto­
gether. T h e last a l t e r n a t i v e is o b v i o u s l y c o m p l e t e l y unsatisfactory,
a n d to assume that g o v e r n m e n t s p e n d i n g is d e t e r m i n e d by u n d e f i n a b l e
outside forces is to b e g the q u e s t i o n . A n d m e r g i n g a l l g o v e r n m e n t
s p e n d i n g w i t h p r i v a t e c o n s u m p t i o n is m e r e l y a c o n v e n i e n t fiction.
M e t h o d s of analysis such as this have l e d two p u b l i c finance special­
ists to w r i t e that " g r o w t h models i n t h e i r present f o r m c a n n o t be
treated as a n y t h i n g m o r e t h a n exercises i n a t e c h n i q u e of arrange­
ment." 1 0

A s g o v e r n m e n t e x p e n d i t u r e s come to constitute a larger


a n d larger share of t o t a l s p e n d i n g i n a d v a n c e d c a p i t a l i s t countries,
e c o n o m i c theorists w h o i g n o r e the i m p a c t of the state b u d g e t d o so
at their o w n (and capitalism's) p e r i l . C u r r e n t l y , economists d o not
consider a c t u a l d e t e r m i n a n t s i n t h e i r t h e o r e t i c a l models b u t r a t h e r
restrict themselves to estimates of the v o l u m e of state s p e n d i n g neces­
sary to effect desired changes such as h i g h e m p l o y m e n t or m o r e r a p i d
a c c u m u l a t i o n a n d g r o w t h . T h e i r premise is that the g o v e r n m e n t
budget s h o u l d a n d c a n be increased o r l o w e r e d to compensate for
r e d u c e d o r increased p r i v a t e s p e n d i n g . M a n y o r t h o d o x economists
believe that the v o l u m e o f federal s p e n d i n g (if not its c o m p o s i t i o n ) is
d e t e r m i n e d by a n d i n v e r s e l y related to the v o l u m e of p r i v a t e s p e n d i n g .
A s w i l l be seen i n the course of this study, the o r t h o d o x
a p p r o a c h is at best s i m p l i s t i c . A l t h o u g h changes i n tax rates a n d
the tax structure have b e e n i n c r e a s i n g l y used to regulate p r i v a t e
e c o n o m i c a c t i v i t y , the g r o w t h of federal s p e n d i n g over the past two
o r three decades has n o t resulted f r o m the g o v e r n m e n t ' s a d o p t i n g
c o m p e n s a t o r y fiscal p o l i c i e s , "except perhaps to a very l i m i t e d de­
gree." 1 1
P a r t i c u l a r e x p e n d i t u r e s a n d p r o g r a m s a n d the b u d g e t as a
w h o l e are e x p l i c a b l e o n l y i n terms of p o w e r r e l a t i o n s h i p s w i t h i n
the p r i v a t e e c o n o m y .

SUMMATION OF T H E THEORY OF T H E FISCAL CRISIS

T o a v o i d "exercises i n a t e c h n i q u e of a r r a n g e m e n t , " we
have a t t e m p t e d to d e v e l o p a theory o f e c o n o m i c g r o w t h that is r o o t e d
i n the basic e c o n o m i c a n d p o l i t i c a l facts of late c a p i t a l i s t society. W e

INTRODUCTION 5
h o p e to e l u c i d a t e the r e l a t i o n s h i p between the p r i v a t e a n d state sec­
tors a n d between p r i v a t e a n d state s p e n d i n g . A l t h o u g h we b e l i e v e
that m a n y of the ideas presented can be a d a p t e d to the experience
of other a d v a n c e d capitalist countries, the focus is o n the p o s t - W o r l d
W a r I I U n i t e d States. B a s i c a l l y a n i n t e r p r e t a t i o n of the p e r i o d ' s
e c o n o m i c d e v e l o p m e n t a n d crisis tendencies, this study does not offer
a c o m p r e h e n s i v e analysis of state budgetary p l a n n i n g a n d p o l i c y or
a comprehensive g u i d e to state finance. M a n y of the data presented
have been chosen m o r e to i l l u s t r a t e a l i n e of theoretical a r g u m e n t
t h a n to verify a set of hypotheses.
T h e categories that m a k e u p this theoretical f r a m e w o r k
are d r a w n f r o m M a r x i s t economics a n d a d a p t e d to the p r o b l e m of
budgetary analysis. O u r first premise is that the c a p i t a l i s t i c state
must try to f u l f i l l two basic a n d often m u t u a l l y c o n t r a d i c t o r y func­
tions— accumulation a n d legitimization. (See C h a p t e r 3.) T h i s means
that the state must try to m a i n t a i n o r create the c o n d i t i o n s i n w h i c h
profitable c a p i t a l a c c u m u l a t i o n is possible. H o w e v e r , the state also
must try to m a i n t a i n or create the c o n d i t i o n s for social h a r m o n y . A
capitalist state that o p e n l y uses its coercive forces to h e l p one class
a c c u m u l a t e c a p i t a l at the expense of other classes loses its l e g i t i m a c y
a n d hence u n d e r m i n e s the basis of its l o y a l t y a n d s u p p o r t . B u t a state
that ignores the necessity of assisting the process of c a p i t a l a c c u m u l a ­
t i o n risks d r y i n g u p the source of its o w n power, the economy's sur­
p l u s p r o d u c t i o n capacity a n d the taxes d r a w n f r o m this surplus ( a n d
other forms of c a p i t a l ) . T h i s c o n t r a d i c t i o n e x p l a i n s w h y P r e s i d e n t
N i x o n calls a legislated increase i n profit rates a " j o b d e v e l o p m e n t
credit," w h y the g o v e r n m e n t announces that new fiscal p o l i c i e s are
a i m e d at " s t a b i l i t y a n d g r o w t h " w h e n i n fact their purpose is to keep
profits h i g h a n d g r o w i n g , w h y the tax system is n o m i n a l l y progressive
a n d t h e o r e t i c a l l y based o n " a b i l i t y to p a y " w h e n i n fact the system
is regressive. T h e state must i n v o l v e itself i n the a c c u m u l a t i o n process,
b u t it m u s t either mystify its p o l i c i e s by c a l l i n g t h e m s o m e t h i n g that
they are not, o r i t m u s t try to conceal t h e m (e.g., by m a k i n g t h e m i n t o
a d m i n i s t r a t i v e , not p o l i t i c a l , issues).
O u r second p r e m i s e is that the fiscal crisis can be u n d e r ­
stood o n l y i n terms o f the basic M a r x i s t e c o n o m i c categories (adapted
to the p r o b l e m s t a k e n u p here). State e x p e n d i t u r e s have a t w o f o l d
character c o r r e s p o n d i n g to the c a p i t a l i s t state's two basic f u n c t i o n s :
social c a p i t a l a n d social expenses. Social capital is e x p e n d i t u r e s re­
q u i r e d for profitable p r i v a t e a c c u m u l a t i o n ; it is i n d i r e c t l y p r o d u c t i v e
( i n M a r x i s t terms, social c a p i t a l i n d i r e c t l y expands surplus v a l u e ) .
T h e r e are t w o k i n d s of social c a p i t a l : social investment a n d social
c o n s u m p t i o n ( i n M a r x i s t terms, social constant c a p i t a l a n d social

6 INTRODUCTION
v a r i a b l e c a p i t a l ) . (See C h a p t e r s 4 a n d 5.) Social investment consists
of projects a n d services that increase the p r o d u c t i v i t y of a g i v e n
a m o u n t of l a b o r p o w e r a n d , other factors b e i n g e q u a l , increase the
rate of profit. A g o o d e x a m p l e is state-financed i n d u s t r i a l - d e v e l o p m e n t
parks. Social consumption consists of projects a n d services that l o w e r
the r e p r o d u c t i o n costs of l a b o r a n d , o t h e r factors b e i n g e q u a l , i n ­
crease the rate of profit. A n e x a m p l e of this is social insurance, w h i c h
expands the r e p r o d u c t i v e powers of the w o r k force w h i l e s i m u l t a n e ­
ously l o w e r i n g l a b o r costs. T h e second category, social expenses, con­
sists of projects a n d services w h i c h are r e q u i r e d to m a i n t a i n social
harmony—to f u l f i l l the state's " l e g i t i m i z a t i o n " f u n c t i o n . T h e y are not
even i n d i r e c t l y p r o d u c t i v e . (See C h a p t e r 6.) T h e best e x a m p l e is the
welfare system, w h i c h is designed chiefly to keep social peace a m o n g
u n e m p l o y e d workers. ( T h e costs of p o l i t i c a l l y repressed p o p u l a t i o n s
i n r e v o l t w o u l d also constitute a part of social expenses.)
Because of the d u a l a n d c o n t r a d i c t o r y character of the
capitalist state, nearly every state agency is i n v o l v e d i n the a c c u m u ­
l a t i o n a n d l e g i t i m i z a t i o n functions, a n d n e a r l y every state e x p e n d i t u r e
has this t w o f o l d character. F o r e x a m p l e , some e d u c a t i o n s p e n d i n g
constitutes social c a p i t a l (e.g., teachers a n d e q u i p m e n t needed to
r e p r o d u c e a n d e x p a n d work-force t e c h n i c a l a n d s k i l l levels), whereas
other outlays constitute social expenses (e.g., salaries of campus po­
l i c e m e n ) . T o take a n o t h e r e x a m p l e , the m a i n purpose of some trans­
fer payments (e.g., social insurance) is to r e p r o d u c e the w o r k force,
whereas the purpose o f others (e.g., i n c o m e subsidies to the poor) is to
pacify a n d c o n t r o l the s u r p l u s p o p u l a t i o n . T h e n a t i o n a l i n c o m e ac­
counts l u m p the v a r i o u s categories of state s p e n d i n g together. ( T h e
state does not analyze its budget i n class t e r m s ) C l e a r l y , the different
categories c a n n o t be separated i f each b u d g e t i t e m is not e x a m i n e d .
F u r t h e r m o r e , precisely because of the social character
of social c a p i t a l a n d social expenses, n e a r l y every state e x p e n d i t u r e
serves these t w o (or more) purposes s i m u l t a n e o u s l y , so that few state
outlays can be classified u n a m b i g u o u s l y . F o r e x a m p l e , freeways m o v e
workers to a n d f r o m w o r k a n d are therefore items of social c o n s u m p ­
t i o n , b u t they also t r a n s p o r t c o m m e r c i a l freight a n d are therefore a
f o r m of social i n v e s t m e n t . A n d , w h e n used for e i t h e r purpose, they
may be c o n s i d e r e d forms of social c a p i t a l . H o w e v e r , the P e n t a g o n
also needs freeways; therefore they i n p a r t constitute social expenses.
D e s p i t e this c o m p l e x social character of state outlays we c a n deter­
m i n e the p o l i t i c a l - e c o n o m i c forces served b y any b u d g e t a r y d e c i s i o n ,
a n d thus the m a i n p u r p o s e (or purposes) of each b u d g e t a r y i t e m . (See
C h a p t e r s 4 t h r o u g h 6.)
T h e first basic thesis presented here is that the g r o w t h of

INTRODUCTION 7
the state sector a n d state s p e n d i n g is f u n c t i o n i n g i n c r e a s i n g l y as the
basis for the g r o w t h of the m o n o p o l y sector a n d t o t a l p r o d u c t i o n .
Conversely, it is a r g u e d that the g r o w t h of state s p e n d i n g a n d state
programs is the result of the g r o w t h o f the m o n o p o l y i n d u s t r i e s . I n
o t h e r words, the g r o w t h of the state is b o t h a cause a n d effect of the
e x p a n s i o n of m o n o p o l y c a p i t a l . (See C h a p t e r 1.)
M o r e specifically, the s o c i a l i z a t i o n of the costs o f social
i n v e s t m e n t a n d social c o n s u m p t i o n c a p i t a l increases over t i m e a n d
i n c r e a s i n g l y is needed for profitable a c c u m u l a t i o n by m o n o p o l y
c a p i t a l . T h e general reason is that the increase i n the social char­
acter of p r o d u c t i o n (specialization, d i v i s i o n of l a b o r , i n t e r d e p e n d e n c y ,
the g r o w t h of new social forms of c a p i t a l such as e d u c a t i o n , etc.)
e i t h e r p r o h i b i t s or renders u n p r o f i t a b l e the p r i v a t e a c c u m u l a t i o n of
constant a n d v a r i a b l e c a p i t a l . T h e g r o w t h of the m o n o p o l y sector is
i r r a t i o n a l i n the sense that it is a c c o m p a n i e d by u n e m p l o y m e n t , pov­
erty, e c o n o m i c stagnation, a n d so o n . T o i n s u r e mass l o y a l t y a n d
m a i n t a i n its l e g i t i m a c y , the state must meet v a r i o u s d e m a n d s of those
w h o suffer the "costs" of e c o n o m i c g r o w t h . (See C h a p t e r 1.)
It m i g h t h e l p to c o m p a r e o u r a p p r o a c h w i t h t r a d i t i o n a l
e c o n o m i c theory. B o u r g e o i s economists have s h o w n that increases i n
p r i v a t e c o n s u m p t i o n beget increases i n p r i v a t e i n v e s t m e n t v i a the
accelerator effect. I n t u r n , increases i n p r i v a t e investment beget i n ­
creases i n p r i v a t e c o n s u m p t i o n v i a the m u l t i p l i e r effect. S i m i l a r l y ,
we argue that greater social i n v e s t m e n t a n d social c o n s u m p t i o n spend­
i n g generate greater p r i v a t e i n v e s t m e n t a n d p r i v a t e c o n s u m p t i o n
s p e n d i n g , w h i c h i n t u r n generate s u r p l u s c a p i t a l (surplus p r o d u c t i v e
capacity a n d a s u r p l u s p o p u l a t i o n ) a n d a larger v o l u m e of social ex­
penses. B r i e f l y , the s u p p l y of social c a p i t a l creates the d e m a n d for
social expenses. I n effect, we w o r k w i t h a m o d e l o f e x p a n d e d repro­
d u c t i o n (or a m o d e l of the e c o n o m y as a whole) w h i c h is g e n e r a l i z e d
to take i n t o a c c o u n t the s o c i a l i z a t i o n of constant a n d v a r i a b l e capi­
t a l costs a n d the costs of social expenses. T h e i m p a c t of the b u d g e t
12

depends o n the v o l u m e a n d i n d i r e c t p r o d u c t i v i t y of social c a p i t a l


a n d the v o l u m e of social expenses. O n the one h a n d , social c a p i t a l
outlays i n d i r e c t l y increase p r o d u c t i v e capacity a n d s i m u l t a n e o u s l y
increase aggregate d e m a n d . O n the o t h e r h a n d , social expense out­
lays do not increase p r o d u c t i v e capacity, a l t h o u g h they d o e x p a n d
aggregate d e m a n d . W h e t h e r the g r o w t h of p r o d u c t i v e capacity r u n s
ahead or b e h i n d the g r o w t h of d e m a n d thus depends o n the c o m ­
p o s i t i o n of the state budget. I n this way, we c a n see that the theory
of e c o n o m i c g r o w t h depends o n class a n d p o l i t i c a l analyses of the
d e t e r m i n a n t s o f the budget.
T h i s v i e w contrasts s h a r p l y w i t h m o d e r n conservative

8 INTRODUCTION
thought, w h i c h asserts that the state sector grows at the expense of
p r i v a t e i n d u s t r y . W e argue that the g r o w t h of the state sector is i n ­
dispensable to the e x p a n s i o n of p r i v a t e i n d u s t r y , p a r t i c u l a r l y mo­
n o p o l y i n d u s t r i e s . O u r thesis also contrasts s h a r p l y w i t h a basic
tenet of m o d e r n l i b e r a l thought—that the e x p a n s i o n of m o n o p o l y
industries i n h i b i t s the g r o w t h of the state sector. T h e fact of the 13

m a t t e r is that the g r o w t h of m o n o p o l y c a p i t a l generates increased


e x p a n s i o n of social expenses. I n s u m , the greater the g r o w t h of social
c a p i t a l , the greater the g r o w t h of the m o n o p o l y sector. A n d the
greater the g r o w t h of the m o n o p o l y sector, the greater the state's
e x p e n d i t u r e s o n social expenses of p r o d u c t i o n .
T h e second basic thesis i n this study is that the a c c u m u ­
l a t i o n of social c a p i t a l a n d social expenses is a c o n t r a d i c t o r y process
w h i c h creates tendencies t o w a r d e c o n o m i c , social, a n d p o l i t i c a l crises.
(See C h a p t e r 2.) T w o separate b u t r e l a t e d lines of analysis are ex­
plored.
F i r s t , we argue that a l t h o u g h the state has s o c i a l i z e d
m o r e a n d m o r e c a p i t a l costs, the social surplus ( i n c l u d i n g profits) con­
tinues to be a p p r o p r i a t e d p r i v a t e l y . (See C h a p t e r s 7 a n d 8.) T h e so­
c i a l i z a t i o n of costs a n d the p r i v a t e a p p r o p r i a t i o n of profits creates a
fiscal crisis, o r " s t r u c t u r a l g a p , " between state e x p e n d i t u r e s a n d state
revenues. T h e result is a tendency for state e x p e n d i t u r e s to increase
m o r e r a p i d l y t h a n the means of f i n a n c i n g t h e m . W h i l e the a c c u m u ­
1 4

l a t i o n of s o c i a l c a p i t a l i n d i r e c t l y increases t o t a l p r o d u c t i o n a n d so­
ciety's s u r p l u s a n d thus i n p r i n c i p l e appears to u n d e r w r i t e the ex­
p a n s i o n of social expenses, large monopoly-sector c o r p o r a t i o n s a n d
u n i o n s s t r o n g l y resist the a p p r o p r i a t i o n of this s u r p l u s for n e w social
c a p i t a l o r social expense outlays. (See C h a p t e r 1.)
Second, we argue that the fiscal crisis is exacerbated by
the p r i v a t e a p p r o p r i a t i o n o f state p o w e r for p a r t i c u l a r i s t i c ends. A host
of "special interests"—corporations, industries, r e g i o n a l a n d other
business interests—make c l a i m s o n the budget for v a r i o u s k i n d s of
social i n v e s t m e n t . (See C h a p t e r 3.) (These c l a i m s are p o l i t i c a l l y
processed i n ways that m u s t either be l e g i t i m a t e d o r o b s c u r e d f r o m
p u b l i c view.) O r g a n i z e d l a b o r a n d workers generally m a k e v a r i o u s
claims for different k i n d s o f social c o n s u m p t i o n , a n d the u n e m p l o y e d
a n d p o o r (together w i t h b u s i n e s s m e n i n financial trouble) stake t h e i r
c l a i m s for e x p a n d e d social expenses. F e w i f any c l a i m s are c o o r d i n a t e d
by the m a r k e t . M o s t are processed by the p o l i t i c a l system a n d are
w o n or lost as a result of p o l i t i c a l struggle. Precisely because the ac­
c u m u l a t i o n of social c a p i t a l a n d social expenses occurs w i t h i n a po­
l i t i c a l f r a m e w o r k , there is a great d e a l of waste, d u p l i c a t i o n , a n d
o v e r l a p p i n g o f state projects a n d services. Some claims conflict a n d

INTRODUCTION 9
cancel o n e a n o t h e r o u t . O t h e r s are m u t u a l l y c o n t r a d i c t o r y i n a v a r i e t y
of ways. T h e a c c u m u l a t i o n o f social c a p i t a l a n d s o c i a l expenses is a
h i g h l y i r r a t i o n a l process f r o m the s t a n d p o i n t of a d m i n i s t r a t i v e co­
herence, fiscal s t a b i l i t y , a n d p o t e n t i a l l y p r o f i t a b l e p r i v a t e c a p i t a l
a c c u m u l a t i o n . I n C h a p t e r 9, we discuss the ways i n w h i c h struggles
a r o u n d the c o n t r o l of the b u d g e t h a v e d e v e l o p e d i n recent years a n d
the ways i n w h i c h these struggles i m p a i r the fiscal capacity o f the
system a n d p o t e n t i a l l y t h r e a t e n the capacity of the system to p r o d u c e
surplus.

NOTES A N D REFERENCES

1. A r t h u r F B u r n s , statement to the J o i n t E c o n o m i c C o m m i t t e e ,
J u l y 26, 1972, Federal Reserve Bulletin, A u g u s t 1972, p. 699 B u r n s concludes that
"the f u n d a m e n t a l p r o b l e m . . is how to regain control over Federal e x p e n d i ­
tures " A s this study w i l l attempt to show, the lack of c o n t r o l of federal e x p e n d i ­
tures is merely a s y m p t o m of a m u c h m o r e deep-rooted p r o b l e m .
2. R i c h a r d M u s g r a v e a n d A . M i t c h e l l P o l i n s k y : cited by E d w a r d
C Banfield, " R e v e n u e S h a r i n g i n T h e o r y a n d Practice," The Public Interest, 33
(Spring 1971), 35.
3. T h e c o n v e n t i o n a l phrase " p u b l i c finance" reveals the ideological
content of o r t h o d o x economic t h o u g h t by p r e j u d g i n g the q u e s t i o n of the real p u r ­
poses of the budget. T h e phrase "state finance" is preferable to "public finance"
(and "state sector" to " p u b l i c sector," etc) precisely because it remains to be i n ­
vestigated how " p u b l i c " are the real a n d financial transcations that take place i n
the state sector. F o r example, m a n y so-called p u b l i c investments are merely special
forms of p r i v a t e investments
4. R u d o l f G o l d s c h e i d , " A Sociological A p p r o a c h to the P r o b l e m
of P u b l i c F i n a n c e , " r e p r i n t e d i n translation i n R i c h a r d M u s g r a v e a n d A l a n T
Peacock, eds., Classics in the Theory of Public Finance (New Y o r k : 1958); Staats-
socialismus oder Staatskapitalismus ( W i e n - L e i p z i g , 1917); Socialisierung der Wirt-
schaff oder Staatsbankeroff ( L e i p z i g - W i e n , 1919).
5. Joseph Schumpeter, " T h e Crisis of the T a x State," r e p r i n t e d
i n International Economic Papers, N o . 4 (1954), p . 7 S c h u m p e t e r was e x p e c t i n g
m u c h of the m a i n s t r e a m of economic t h o u g h t (the o r t h o d o x or bourgeois econ­
omists) Fiscal sociology has always been central to the M a r x i s t t r a d i t i o n . M a r x
h i m s e l f wrote extensively o n the subject F o r e x a m p l e , c o m p a r e Marx's conclusion
that "tax struggle is the oldest f o r m of class struggle" w i t h the c o n t e m p o r a r y
E n g l i s h M a r x i s t J o h n Eaton's statement that "state e x p e n d i t u r e is . . . unceasingly
the b a t t l e g r o u n d of class interests."
6. G l e n n W . Fisher, Taxes and Politics, A Study of Illinois Public
Finance ( U r b a n a , 111.: 1969), p. 3.
7. James M . B u c h a n a n , The Demand and Supply of Public Goods

10 INTRODUCTION
(Chicago: 1968), p. v. P o l i t i c a l scientists also have tended to take the state a n d
p o l i t i c a l order for granted i n their analyses of politics a n d a d m i n i s t r a t i o n as
n a t u r a l p h e n o m e n a . See T h e o d o r e L o w i , "Decision M a k i n g vs. P o l i c y M a k i n g :
T o w a r d a n A n t i d o t e for T e c h n o c r a c y , " Public Administration Review, 30:3
( M a y / J u n e 1970).
8. R a l p h T u r v e y , Public Enterprise (Baltimore: 1968)
9. R i c h a r d A . M u s g r a v e , The Theory of Public Finance (New
Y o r k : 1959), p 4 Musgrave's treatise is a perfect example of what P a u l B a r a n
was t a l k i n g about years ago when he wrote that " i n o u r time . . faith i n the
m a n i p u l a t i v e omnipotence of the State has a l l b u t displaced analysis of its social
structure a n d u n d e r s t a n d i n g of its p o l i t i c a l a n d economic f u n c t i o n s " P a u l A
B a r a n , The Longer View (New Y o r k : 1969), p. 262.
10. Evsey D o m a r , Essays in the Theory of Economic Growth (New
Y o r k : 1957), p. 6; A l a n T . Peacock a n d Jack W i s e m a n , The Growth of Public Ex­
penditures in the United Kingdom (Princeton, N . J : 1961), p 10
11. H e r b e r t Stein, The Fiscal Revolution in America (Chicago:
1969), p . 69 Stein is a n establishment economist who p a r t i c i p a t e d i n m a n y crucial
corporate a n d government decisions i n the 1950s a n d 1960s H e was associated for
a l o n g time with the corporate-dominated C o m m i t t e e for E c o n o m i c D e v e l o p m e n t
a n d was chief economic advisor to President N i x o n i n 1971-1972 "[A] very l i m i t e d
degree" means that Congress is more receptive to new s p e n d i n g bills d u r i n g periods
of recession T h r e e other exceptions to the general r u l e s h o u l d be noted: (1) I n
1958, the federal government began e x t e n d i n g u n e m p l o y m e n t insurance programs to
give workers a d d i t i o n a l p u r c h a s i n g power a n d thus offset expected declines i n
private spending (the policy has been a p p l i e d fitfully since 1958) (2) F e d e r a l h i g h ­
way expenditures have been adjusted to smooth out fluctuations i n the economy.
H o w e v e r , fiscal policy p r o b a b l y has affected the t i m i n g of government outlays
m u c h m o r e t h a n the total v o l u m e of highway s p e n d i n g (3) T h e President has
tried to regulate s p e n d i n g by i m p o u n d i n g funds ( i m p o u n d e d funds rose f r o m
about 3 5 percent of total a p p r o p r i a t i o n s i n 1964 to r o u g h l y 5 5 percent i n 1971).
12. W e have not presented a theory of the relationship between
private investment a n d private c o n s u m p t i o n i n either the short r u n o r l o n g r u n
N o r have we worked out i n detail the dialectical movements between the different
kinds of state expenditures C o n s i d e r , briefly, e d u c a t i o n expenditures E d u c a t i o n
s p e n d i n g does d o u b l e - d u t y as b o t h constant a n d variable capital. T h e e d u c a t i o n
system also temporarily takes surplus p o p u l a t i o n off the labor market. In other
words, the growth of education simultaneously absorbs surplus l a b o r a n d expands
p r o d u c t i v i t y (and thus creates more surplus labor). In short, e d u c a t i o n s p e n d i n g
creates a n d eliminates surplus capital simultaneously. A n y detailed study of the
e d u c a t i o n system w o u l d have to take this basic c o n t r a d i c t i o n into account. A
f u r t h e r c o m p l i c a t i o n arises to the degree that the growth of the education estab­
lishment a n d the growth of m i l i t a r i s m are inseparable processes (as they seem to
have been i n the U n i t e d States) It is p r o b a b l y true that one of the reasons that
state-financed higher education i n E u r o p e is relatively u n d e v e l o p e d is that m i l i t a r y
a n d related s p e n d i n g is comparatively small.
F i n a l l y , it m i g h t be added that b o t h M a r x ' s n o t i o n of realization
crises a n d Keynesian notions of crises of effective d e m a n d require e m e n d a t i o n .
T h e reason is that "supply creates its o w n d e m a n d " i n ways that neoclassical eco­
nomics never d r e a m e d of.
13. T h e standard conservative work is M i l t o n F r i e d m a n ' s Capi­
talism and Freedom (Chicago: 1962). T h e standard l i b e r a l work is J o h n K e n n e t h
G a l b r a i t h ' s The Affluent Society (Boston: 1958).

INTRODUCTION 11
14. T h e socialization of profits consists of the r e d i s t r i b u t i o n of
productive wealth from capital to labor, or the confiscation of the o w n i n g classes
by the w o r k i n g class. A l t h o u g h wealth a n d profits as a w h o l e have not been
socialized, a p o r t i o n of surplus value is a p p r o p r i a t e d by the state a n d used to
finance e x p a n d e d social capital a n d social expense outlays. Instead of private
capital " p l o w i n g back" a p o r t i o n of surplus value into e x p a n d e d r e p r o d u c t i o n
(net capital formation) i n a p a r t i c u l a r c o r p o r a t i o n or i n d u s t r y , the state "plows
back" that part of the p o o l of surplus value that it a p p r o p r i a t e d i n t o e x p a n d e d
social r e p r o d u c t i o n (new social capital formation) i n i n d u s t r y as a whole H o w ­
ever, the state also appropriates part of constant a n d v a r i a b l e capital. Because
capital's a n d labor's claims o n budgetary resources are processed by the p o l i t i c a l
m e c h a n i s m , there is rarely a one-to-one correspondence between sources of financ­
ing a n d the uses of tax monies O n the one h a n d , taxes must appear to c o n f o r m to
bourgeois democratic n o r m s of "equity" a n d "ability to pay." O n the other h a n d ,
the m i x e d character of social capital a n d social expense outlays makes it difficult
to develop clearly defined criteria for i d e n t i f y i n g state expenditures e m p i r i c a l l y .
Perhaps the closest correspondence between private a n d social forms of capital is
the tax o n payrolls (levied o n private variable capital or wages) w h i c h is used to
finance social insurance (a f o r m of social variable capital).

12 INTRODUCTION
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