In Praise of Debt? Expectational Power and the Causes of Financial Crisis in Argentina

Jack Votava, Northwestern University

Conventional accounts of economic crises and the state implicitly or explicitly center rational expectations. In this frame, high national debt levels are understood to be a source of great destabilization or, at best, a necessary evil, with profligate debtors vulnerable to severe economic and political consequences. In this study, an in-depth case analysis of Argentina’s infamous financial crisis of 2001 reveals the explanatory limits of this approach. Using archival materials, I carry out a close analysis of the domestic political economy of the Argentine debt crisis and focus in particular on the proliferation of local “complementary currency” circuits – ad-hoc, scrip-like fiat currencies backed by local units of government. Reviewing in particular Argentina’s unique legal and political frameworks for federalism, I show how these complementary currencies began life as peso-denominated bonds but quickly took on a life of their own – with the two largest instruments alone comprising nearly 25% of Argentina’s circulating M1 money supply at their height during 2002. Through the lens of these complementary currencies, I theorize the idea of ‘expectational power’ to refer to the capacity to set and maintain widespread “fictional expectations” (Beckert 2016) about the future. I argue that fictional expectations concern not only rational projections of the future, but also embodied habits as well as conceivable imaginations of the economic world itself. Using this framework, I show how the 2001 debt crisis was primarily attributable to a process of breakdown in domestic political legitimacy and destruction of trust in institutions – a loss of expectational power. These results have broad implications for understanding financial governance, and especially for understanding the impacts of austerity on state monetary capacities.

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 Presented in Session 176. Markets and Money in State-Society Relations