John Maynard Nothing

The name of Keynes and Keynesianism have been bandied about endlessly in the four years since the crisis of 2008. Danny Hayward examines the orthodoxies and imbecilities which these words continue to animate

We are presently in a period where a global crisis in capitalist accumulation is imperiously reordering the theories that propose to interpret it. Most of us are also in a period where the vast majority of those theories are manoeuvred into our purview under the single and uninformative cognomen of 'Keynesianism'. The coincidence of these two developments leads, in its turn, to a contradiction. While theoretical developments occur and are contested with unprecedented venom, this latest boom in what is by now more than a century of violently embittered intraclass debate over the role of the state in the management of capitalist expansion is flattened into the mould of one haute bourgeois bon vivant who was no more the 'inventor' of state deficit spending than he was of the British Eugenics Society, though he wrote some books about one and was a director of the other.¹

What might be thought of as the history of 'Keynesianism' is in fact not only intellectually various and institutionally diverse; it is intellectually antagonistic and institutionally stratified. This may be a surprise to readers for whom 'Keynesianism' is principally to be identified with media personifications like Paul Krugman, the American economist whose enormous technical sagacity has generated such revelations as that there are six opponents to UK austerity (including himself) and that the best analogue for the global capitalist economy is a Babysitting Coop from the 1970s.² Krugman is a 'neo-Keynesian'. Post-Keynesians, who count among their principal influences students of Keynes like Joan Robinson, and whose own babysitters have long since gone downstairs to watch television, are strongly critical of neo-Keynesianism, which they accuse of corrupting Keynes’s special insights and of capitulating to 'neoclassical' dogma, that is, to the in-house theory department of private capitalist 'enterprise'. For their refusal of this orthodoxy, post-Keynesians have typically been driven into poorly funded, marginal institutions if not out of 'the academy' altogether – an exodus which, unfortunately, has not led them into the wilderness of 'social movements' and 'grass roots' politics (and therefore into an encounter with the kind of social antagonisms that a theory of capital management could deal with but ineptly) but only into the basement of the ivory tower; which, while only estate agents would describe it as cosy, has remained for two decades a suitable enough hideout for self-described 'dissident' academics plotting to storm the peer review system and effect a palace revolution.

All images by Anon.

If a history of 'Keynesianism' were to be written it would not be the woeful legerdemain concoction of anything like a 'genealogy of influences': it would be a history of intractable theoretical conflict between the representatives of the interests of large capital (including the state), on the one hand, and small bourgeois rationalists, on the other. The following article will pick up that history only at its most recent dip, with a sequence of developments beginning in late-2011 and continuing through 2012, when what I am calling the small-bourgeois rationalist current of 'Keynesian' thinking exited its think-tanks and trade union offices and attempted to identify in the Occupy movement its active class base. That intellectual putsch, in which one margin of institutional economics essayed to extend the influence of its theory by repurposing it as the common sense of a mass politics, was, it seems to me, momentous, though only in the negative sense that it requires conditions of exceptional instability before bourgeois rationalists will identify their class base anywhere more radical than the Rowntree Foundation. (It might be added here that in a sense the Occupy brand invited the alliance, since although the movement was very obviously not composed entirely from small bourgeois rationalists, the core elements of its advertising mythology – that its participants were condemned to no future at just that moment that they were freed from ideology – could hardly have been more sympathetic to theorists operating under the impression that there was no time like the present for their ideology to resume its political career.)

'Think-and-do-tanks' such as the New Economics Foundation (nef) and pressure groups like Positive Money were the chief administrators of this exercise in rabble rousing. Their attempt to orchestrate protesting human capital en masse has occurred principally by means of videos – of which the most craven, though not the most stupid, is the recent feature length documentary 97% Owned.³ Such theory as these groups possess becomes interesting only where it is wielded to influence a popular movement, because it is at this point that the theory provides a kind of case study for a materialist anatomy of the categories of capitalist management, or, more familiarly, of economic reformism. What prevents us from reforming capitalist economies in the interest of ordinary people? This is the essential question, the political crux and the theoretical starting point of 'rational' small bourgeois capital management theory, and what I will argue below is that the answer it is meant to elicit – viz., nothing – is also the point de capiton of the melancholy economic science which radical post-Keynesians have used to authorise the Occupy movement and so also to hold it in place.⁴ There is no reason not to reform capitalism in the interests of ordinary people, say capitalist management theorists: capitalism is “malfunctioning” for no reason besides the fact that banks are permitted to make money out of nothing. In this proposition the first nothing derives its legitimacy from the second; and so too does the idea, common to all 'radical' Keynesians interested in the money system, that nothing is more to blame for our current social 'ills' than the mechanics of money creation. My argument, in brief, is that the desire of 'radical' Keynesians to demonstrate this “nothing” causes them immensely to exaggerate its significance until, like a conceptual black hole, it devours most of the experiences of the social relations that monetary reformists would urge us to transcend, leaving in place a vacuous critique whose intellectual motivelessness is difficult to explain, at least before we remember the class interests of the theorists responsible for its promulgation. Unmotivated critique of capitalist social relations is the prerogative of people with little motive to abolish them.

This may sound complex, but the 'radical' Keynesian account of money creation can be reconstructed quite quickly. Its mantra, as I said, is that the crisis is a result of the power of the banks to produce money out of nothing, without any limit other than the limit of their willingness to lend. The main concern of this contention is not currency, hard cash: it is the money that banks are alleged to 'create' by means of their lending activity, otherwise known as 'credit money'. (The title 97% Owned, for example, is an allusion to the percentage of money that exists in the form of electronic 'demand deposits' in bank accounts, a proportion opposed to the 3% of 'real money' created by the Bank of England.⁵) Monetary reformists attempt to get to the bottom of this originating power by means of a thought experiment. In their explanation of the process of money creation, they will typically urge you to 'imagine' a person, of the ordinary featureless kind used to illustrate transactions. The transaction that this person exists to illustrate is a £1000 loan from a bank. When (let us call it) she borrows this money, a deposit is created in her account. The customer now has a liability of £1000. The bank, however, has a new £1000 deposit, which it can lend again up to the limit determined by the reserve requirement (supposing that there is one).⁶ With no reserve limit, the money supply doubles. This is all that is meant by the idea that a bank 'creates deposits'. The idea that they 'create money' is a deduction from that first claim and amounts to the same thing.⁷ However, the absolute quantity of credit money that can circulate in the economy by this means is determined by the absolute quantity of 'base money' (i.e., commodity or fiat money supplied by central banks to the private banks) under the regulatory control of a reserve requirement (again, if there is one).⁸ It cannot be claimed on the basis of an analysis of fractional reserve banking that banks are limitlessly free to 'create money'. This is for the obvious reason that a fractional reserve requirement is itself a limit. Another argument is thus required; it is duly supplied, though often furtively, by the empirical contention that a refusal by the central bank to supply extra reserves to private banks would induce credit crunches in the interbank lending market – or, in other words, would cause some banks to recall their loans prematurely, thus disturbing chains of credit.⁹

The assertion made again and again by monetary reformers – that when banks lend money to you they 'make money out of nothing', and that they can do so up to a limit of their own choosing – is therefore a deliberate confusion of two arguments, one about the operation of the regulatory mechanism known as fractional reserve banking, and the other about the alleged freedom of action of a central bank within a national economy.¹⁰ The second argument is required to sustain the claim that the banks create money up to the limit imposed by their will; without it, the contention would be that banks 'make up' money up to a limit imposed by the state, a 'hidden truth' less likely to set aflame the underdeveloped imaginations of conspiracy theorists who want nothing more than to discover that their every twitch and spasm has been foreordained by a spectre stalking across the board of the L'Oréal Group.¹¹ The difficulty, in other words, is that a sober explanation of the determination of the money supply by market demand, in conditions mediated by banks, is dramatically less 'sinister' than the account of the 'money multiplier' implied by bank credit creation under a fractional reserve system, where banks make money out of nothing without constraint.¹²

The soft-bodied and lightly-bearded middle-class men who run together these arguments plainly derive from their 'difficulty' a boost to the effective demand in their psychological economies for that special masochistic pleasure which has no role in our class society and no purpose elsewhere but to simulate the experience of the hard work that most bourgeois men will never be required to perform. Central banks are the Viagra of the 'New Economics'. And yet, beyond that wretched Freudian Privattheater, the 'theory' offers its weak fillip to another social fantasy. The more that the interaction of various 'economic agents' is transformed into the will of the private banking sector, the less possible it becomes to imagine any kind of serious restraint on the activity of 'the banks', with the inevitable effect that the analysis of social relations that this presentation implies converges gently towards what the illustrious Ezra Pound named in 1935 a 'volitional economics'.¹³ From the perspective of this economics, the 'originating power' of the banks is their power to produce credit at will, without respect to the wishes of the state. The moral task of economics becomes to criticise this freedom. Banks, monetary reformists say, are responsible for crisis, because the creation of credit was at their discretion. This was also their 'power'. The solution to this problem is obvious. The 'unlimited power' to create credit needs only to be restored to the disinterested state.

Despite appearances, the 'contributions' of nef and Positive Money are not 'crude reductions' of a sophisticated theory. They are the destiny of that theory. They are the destiny of it for the simple reason that any attempt to deduce a language of logical priority from economic 'phenomena' must curtail the relationship it purports to describe into nothing but an ordered series in which the elements can never possess to one another any active relation. More simply, banks with limitless power to 'originate' loans are never required to struggle. Their power 'of origination' is so far from being crude that it begins to seem positively honorific, which means of course that, like the think-tank which defines that power and which feigns to contest it, the institution which it ennobles can never be seen to do anything. No economic model has ever yet included the bailiffs who kick down your front door. The limitation is no less unavoidable for being simple.

Money can be 'made out of nothing', but the power to do so is curtailed by other 'economic' factors that fall outside the power of the banks. The banishment of those other 'factors' (the term in this case can be used in its fullest historical sense) into a kind of theoretical halfway house requires its own historical exposition. The small bourgeois rationalism of nef and Positive Money has a lineage extending to the 1970s. It is a Marxist lineage – though of a particular kind. 'Money', nef write, 'is a social relation'.¹⁴ And doesn't the idea sound familiar, that social relations are material aspects of the world whose overthrow would do away with all tasteless 'idealist humbug', and with other things besides? Doesn't all this feel just a little 1845? And yet nef's idea of a 'social relation' is not derived from the work of Marx and Engels but from the work of the Italian Marxist economist Augusto Graziani; for it was Graziani, and not Marx, who was first responsible for the proposal that money is a 'means for realizing social relations', a complicated phrase which in this case means that money can be dissolved into its two distinct social functions: in mediating exchanges between capital and labour, on the one hand, and in facilitating commodity circulation, on the other.¹⁵ It is this 'insight' that helps to underwrite later and more 'empirical' work in economics on the significance of the different kinds of money involved in the process of social reproduction – such as, for example, the work by contemporary monetary reformists on the social significance of the distinction between fiat and credit money. And yet what does this concept of social relations teach us about the role of money in creating, recreating, and also in inhibiting, our collective social life? What aspects of our social life does it allow us to analyse or call into question?

Probably the main problem with this vision of a social relation is that its object is just that, a relation, pure and unadorned. It is not a relation of force, like one might find in physics; it is not an allusion to the classical Latin etymon relatio, in which something is laid before the senate with a view to inveigling its members into action; most of all it is not a bad relation, of the kind that, quintessentially, a person doesn't want to be in and of which she knows no way to get out. What it is instead is something much more like the OED's abstract second definition in its entry for relation: 'An attribute denoting or concept expressing a connection, correspondence, or contrast between different things.' For Graziani, money serves different functions in the creation of 'connection[s]... between different things.' Some of those 'things', for instance, classes and commodities, are social. Voila!, we have a social relation. All the old hoary reifications are swept into the wastepaper basket of history by the maidservant of academe. And yet in spite of these giant leaps for mankind, Graziani's conception of social relations breaks no ground in telling us why the social relation might cease to function. A temporarily broken social relation, what Graziani calls a 'break in the monetary circuit', can be named, but it cannot immediately be explained; and eventually the theorist declares, in a tone familiar from the buy-one-get-one-free mix n' match offer, that different explanations – whether they concern 'investor uncertainty', 'class struggle', or the contradictory nature of the commodity – are 'matters of personal choice rather than a substantial theoretical difference.'¹⁶

It goes without saying that none of this would be especially interesting or relevant to our own conjuncture if it wasn't so consistent with the aims of late-twentieth century Italian Party Communism, the movement with which Graziani has always been affiliated, and which, by the time of his writing, had been thrown onto the baleful trajectory of a 'Historical Compromise' that, during the 1980s, would segue into a process of 'modernisation', before culminating in the dissolution of the party, the formation of the 'Democratic Party of the Left' (1991), and then later the 'Democratic Party' (1994), a sad residue last seen sticking supportively to the government of Mario Monti.¹⁷ Monetary reformism's diminished attentiveness to class under the banner of 'social relations', then, is old news in a specific sense: it borrows its insights from intellectual developments first refined during a moment of political capitulation; a moment in which social antagonism was expelled from politics in favour of a real historical move towards the so-called productive unity of workers and small capitalists. That unity was defined in Italy in the 1980s in antagonism to the 'corrupt bureaucracy'. In the 2010s it is defined in antagonism to 'finance capital'. The nomination of the particular opponent is ancillary to the decision to invest it with a special 'originating power'.

Nothing will come of nothing, speak again, says King Lear. Out of nothing, nothing comes, says Marx. Monetary reformism proves both wrong, because out of nothing it fashions a concept of social relations in which, admittedly, nothing is understood and in which no problems are solved. And where does this leave us? Like other kinds of unmarked packaging, relations are best discussed by analysing their contents. But in advance of that analysis we can at least say this, that they will be defined neither by financial omnipotence nor by anything so evidently beyond its social-historical sell-by-date as a metaphysics of resistance. Banks that originate loans, and that test the limits of what they can extract from their debtors, are not demiurges. They are themselves engaged in a struggle. That struggle is, in the first place, the cooperative struggle to subsist within these social relations. 'Cooperation' in the sense in which I use it here is not the 'unity' of workers and capitalists against financiers, and it is not a 'mutual association of producers', but it is the only cooperation we know; that is, the mutually disintegrating cooperation of exploiter and exploited in conditions where the most basic goods (interest just as much as housing) become harder and harder to obtain.¹⁸ And while our volitional economists might point out that their specific 'policy agendas' go unmentioned in these criticisms, nevertheless the theory on which those agendas allege themselves to be based does not as it would claim 'suspend', 'bracket', or otherwise 'preserve in the background' the unspoken fact of class relations, any more than it 'highlights' the power of finance capital; for in fact by attributing to the second of these a limitless power of origination it reduces both to nothing; much as the crisis, the best contradiction of a limitless 'power of origination' that anyone could hope to imagine, reduced so many thousands of exploited 'small proprietors' to the street.¹⁹

Post-Keynesian economics in general, and its margin of 'radical' monetary reformists especially, produces an account of social relations in which those relations are not clarified but are instead diminished to the image of an demiurgic banking sector whose violence can be assuaged merely by way of the sagacious redistribution of its power, according to the edicts of our better moral sense. This account conditions a political vision in which all of the damage and all of the incalculable suffering that capital accumulation throughout the last century has striven to 'deliver' is burlesqued into a series of errors that have no place in our thinking except as the brief prelude to that most hygienic of all social desires, the fresh start. And yet the fresh start is a desideratum that, in spite of all the attempts by monetary reformists, 'regulatory authorities' and state socialists to own it, has in bourgeois history still no better, more temperate or intelligible emblem than the guillotine. The theory that occupies itself with the relocation of a conceptual 'nothing' is just one way to keep this truth out of view.

Danny Hayward <dannyjhayward AT yahoo.co.uk> thanks his critics

Footnotes