The Irish bail out: lost money and the hidden social relation

A guest post by Jovy Leal

Considered from a broad context, the origin of the EU-led “bail out” of the Irish economy could be traced through its various metamorphoses to the global financial crisis of 2007-2008. Various estimates of the financial cost of the crisis have been forwarded, yet for all the humour needed to reassure an understanding of the disparities between them, one is left with the unavoidable question: where did all the money go, and who will bear the burden of this loss?    

Interpretations of the crisis vary and cannot be situated within a single viewpoint. Whatever the differences, each explanation shares some reference to money, the definition of which is essential to informing our understanding of the crisis’ nature. Common definitions include money as “medium of exchange”, or “store of value”.

Money then is not sought for its intrinsic material value, but by virtue of it being a means for attaining something else. Paper money could be burned to generate heat, or for even more vulgar ends that would be appropriate for those who were perhaps left loose throughout the crisis; but it is rarely if ever sought for these reasons, rather for the food, property, or security (the list being endless) to which it provides access.

All these goods share the quality of having a relation to human labour (even where some, such as security, may not be tangible) – fish have to be caught; wines cultivated; buildings constructed; and national security, secured, through a trained military and plethora of technical experts whose contribution is said to be worth its “weight in gold”. 

Unlike the pre-first world war political economy when the monetary system was organised upon the “gold standard”, and nations measured their wealth in terms of gold stocks, modern money takes on a multiplicity of forms that are not tangible. A distinguishing feature of modern money as credit, traded as bonds, swaps and various derivatives in the financial markets is that it can be fabricated as a type of “I owe you”, allowing institutions to raise capital upon the confidence that the market has of them paying this back (with accrued interest). It also enables debt to be passed on without the exchange of a good or service, separating it from human labour which produces real value.

Perceived in this way, the Irish bail out constitutes a transfer of private debt, accrued by Irish banks, via the Irish state to the EU (sovereign debt), which will culminate in its inevitable proliferation to parts of society which had no direct influence over how and to whom the money was irresponsibly lent in the first place. This exploitative redistribution of debt, understood as placing responsibility in the hands of those who are not responsible, manifests itself as a stimulus package provided upon the condition that specific austerity measures are simultaneously implemented by the Irish state to shore up its current account, and restore the markets confidence in its banks and bonds.  

Many “experts” claim that to actually clear the debt – which now rests with the European Central Bank – it will have to be “inflated away”. In simple terms this amounts to printing money, raising liquidity in markets to stimulate spending. This in turn causes inflation, devaluing money and the living standards of the general population, by restricting their access to genuine value (embedded in material goods like food and clothing, and services such as education and healthcare).

And so it follows that our ability to understand the Irish debt crisis and quantify the money lost cannot be achieved by considering it in isolation, nor without a definition of money. Given the capacity of the financial markets to separate the fabrication of credit from labour and the real economy, before their subsequent intertwinement in the form of bailouts and austerity measures that frustrate production and burden society with a private debt that must be paid back through productive activity, money cannot have gone missing during the financial crisis – rather qualitatively transformed and transferred.

Money then is a “social relation”, which is at present inherently exploitative. This social relation determines an individual or groups economic status, by delineating who is empowered to fabricate credit, the rate at which interest must be paid back, and who in fact does make repayment (which need have no relation whatsoever to whom it was lent to originally). This process can unfairly manipulate productive value, by using it to reduce the sovereign/EU wide debt, that burdens the tax payer with the cost of the mistakes made by others.

Critical thinking therefore makes no small difference to how we understand the Irish bail out, allowing us to locate the hidden and exploitative social relation inherent in money, specific types of debt, and the qualitative nature of the political economy itself.


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