How money is created is always political

There is an informative review of a book published by the Yale University Press (which as far as I can detect is not yet available in the UK) by the British economist and biographer of John Maynard Keynes, Robert Skidelsky: Money and Government: The Past and Future of Economics.

Although Robert Sidelsky has been both a Conservative peer and a cross-bencher, he has also endorsed much of what Corbyn says, so when recently interviewed I’m sure he reflects what he has recently written: “Because money is used to represent resources, how it is created will always be political”. And, “By saying taxes fund spending, the government is obliged to kowtow to financial forces. It is in fact another branch of neoliberal deceit.” And he worries that people are not concentrating on what they have in common.

So I think this is already good – especially from somebody who is not generally amoung the usual suspects. This is an economist who knows, broadly how society works.

But the review here is even better – from

Skidelsky treats these great monetary battles primarily as struggles over ideas. Yet he is aware that behind ideas lie interests, and that the division of economic ideas into binary oppositions reflects the class opposition between creditors and debtors—one dominant and the other oppressed, but each always necessary to the existence of the other. The fact that ideas follow the interests that can pay for them accounts for much of the recurrence of spurious and indefensible ideas in economic thought.

The gold standard and the quantity theory of money have been succeeded in our day by rational expectations theory and dynamic stochastic general equilibrium modeling (don’t ask), and by their policy stepchild, inflation targeting. These are the doctrines of repute and respectability, the touchstones of academic and professional advancement in our time. They share an almost eschatological [end of the world – I had to look it up!] preoccupation with the condition of things in the long run—the economists’ version of the prophets’ paradise to come—and a willingness to absorb (or more accurately to inflict) pain and punishment in the present.  

This is austerity. And this is, quite remarkably also, with its pain for a better future, Protestantism.

The future is going to be worth the pain – except that the pain is unequally distributed. It probably always was. And the long run of the future may indeed never happen (for what it is worth, according to the Office for Budget Responsibility debt as a percentage of national income is reckoned to be in the current financial year at the highest level since 1966 so the promised land has still to arrive..). What Galbraith calls “intellectual sadism”, he could also have called in fact, political sadism. Or perhaps more accurately, a re-run of old story Protestantism.

Economists in this respect are unlike modern doctors. The arsenals of pain relief and fever reduction play little role in [economists’] toolkit—and where they do (“stimulus programs”) they are often treated as having long-term costs that offset the benefits in the short term. Our social doctors generally prefer to let events take their course, on the assumption that the patient always recovers.

I think he might have suggested that this is a wonderful paradigm for the idea that the market always works – much as viruses always of course fight it out to the complete benefit of the suffering patient….

Galbraith continues:

…the facts point to an intractable problem: those whose attention cannot be shifted by the collapse of their own worldview are simply beyond reach. This is a problem for the universities, who are stuck with entire departments of stranded intellects, enclosed upon themselves, well-funded by outside sponsors, and a danger to the sound instruction of students and to the future of the world. In the decade since the financial crisis, not one so-called top economics department has hired a single senior professor who had accurately foretold the calamity to come. It should be evident, by this point, that this is not accidental. 

If political economy is to have a future, it must therefore come from outside the presently walled fortresses of high-end academe. Salt water and fresh water—the “mainstream” shorthand for Harvard, MIT, Stanford, and Chicago—are sterile. The backwaters, on the other hand, are full of life. Post-Keynesians, New Pragmatists, Biophysical Economists, Institutionalists, and especially Modern Monetary Theorists are scattered throughout the diaspora of liberal arts colleges and second-tier state universities, as well as in universities abroad, from Australia to Poland to Brazil. They have been busy. Skidelsky is aware of these movements, and indeed he participates in them [My italics].

A deeper question also remains concerning the scope of political economy in the future. Financial instability isn’t merely about money and markets. It’s about the governance of banks, about supervision and countervailing power, about defining and enforcing public purpose, about achieving social balance between public and private needs. Political economy must cover the great questions of social stabilization—of preserving and reviving the welfare state—which touch deeply on inequality and on the future of nation-states and international unions, as in Europe. It must address the paramount issues of resource depletion and climate change, and the pressing requirements of achieving and preserving peace.  

This, for me, is really good stuff. Texas is not usually my favourite state but clearly The University of Austin is considerably more reflective!



  1. Andrew Dickie -

    Really struck by your observation: “Or perhaps more accurately, a re-run of old story Protestantism.”

    One of my favourite authors, the great Thomas Mann (called “the ironic German) proposes through his character in “Dr Faustus” (one of the most frightening books I have ever read, given that one of its themes is an exploration if how “civilised” Germany descended into the abyss of Nazism) Leverkuhn, a composer, puts forward the theory of “objective polyphony” as a contrast to “subjective harmony”

    There is deep irony here (I said Mann was called “the ironic German”), in that polyphony was the sort of music that held sway until the end of the 16th century, the period of largely Catholic hegemony in the West, while harmony began to take over polyphony’s place in the 17th – an increasingly Protestant – century, and eclipsed it completely in the 18th.

    The irony is this: polyphony is “objective”, because each “voice” plays its own role in a general scheme. So, it is individualistic, in a sense. Yet Catholic Christendom was said to be a time of “the Party line”, and lack of individualism.

    By contrast, harmony was said to be “subjective”, because it requires each “voice” to be subordinate to the whole. Yet the dominant characteristic of the Reformation and Protestantism is meant to be a “protest” against central authority, and the elevation of individual conscience, something still captured in the idea of “the rugged individualism” of capitalist entrepreneurs.

    The link between the rise of capitalism and Protestantism is clear (and I haven’t read Tawney on this – one of the many books on my “to read” pile – but I expect he makes the same point), but the irony Mann is exploring is that the so called period of regimentation under Catholic Christendom MAY have been more “liberal” than the period of alleged “liberation” under Protestantism (and certainly under capitalism) given that capitalism’s “subjective harmony” actually demands the submersion of the individual in the collective, certainly musically, and Mann’s point is that that this happened socially and politically in post-WW1 Germany, offering fertile ground for the growth of Nazism. One only has to note how easily the German Protestant Churches first accommodated themselves to Nazism, and then wholeheartedly embraced it, with the exception of “the Confessing Church” to which Bonhoeffer belonged. By contrast, Pope Pius Xl was unfailing in his criticism of Nazism, even issuing a Papal Encyclical – in German, not Latin! – fiercely critical of Nazism.

    1. Andrew Dickie -

      Sorry if the above appears obscure and tangential, but the point to draw out is this: under “objective polyphony” each component has its own worth and identity, and deserves protection and defence – something in keeping with Catholic social teaching initiated by Leo Xlll in his Encyclical “Rerum Novarum” and picked up by Pius Xl. Money, therefore, was to be created social good, and for the good of all.

      Under “subjective harmony”, however, the individual voice was subordinated to the whole, allowing money to be created for ends not consistent with the common good, but instead in the service of some larger, allegedly superior, purpose, often tragically misguided, as in the Third Reich.

  2. Peter May -

    Andrew, thank you very much for that – looks tangential but is actually rather informative!
    I was aware that the Catholics were anti Nazi from the fact that in France the Resistance always said they could rely on noone unless either a Communist or a Catholic… but I didn’t realise that German Protestants were so obliging to the Nazis.
    But the better future being worth the present pain has always struck me as very much more Protestant than Catholic and I think it could be argued that that is why Britain has tolerated austerity much more than logic should ever allowed…
    Protestantism does go better with individual responsibility, whereas Catholicism is more likely to consider that the Lord will provide and is much more controlling – thank goodness for Leo XIII and Pius XI!
    Trouble with Protestantism is that if you are individually irresponsible it seems to me it is damnation in the next world but not this. Whereas Catholics are more used to a certain blind acceptance…
    Used to see this in the wine business, where you would have a supplier who would just say the vintage was bad – the Good Lord had sent poor weather. We used to suggest they could store under nitrogen or perhaps add more fining agent or Copper Sulphate to get rid of off flavours and it had never even occured to them…They vinified in standard fashion and the result was the Lord’s harvest!

    And musically perhaps I’m more harmony than polyphony – though usually I like both!

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