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The Trouble with Money | Corey Robin

If eros, as Freud believed, is what binds us to the world, creating ever-larger units of society, economics could be seen as the child of eros. So it has been at least since the eighteenth century, when “commerce” and “intercourse” began to be used interchangeably and the modern idea of the economy was born in the writings of philosophers such as Adam Smith, whom I discussed in the first of these articles.1 Hume saw merchants and money as the instruments of an expansive and intimate contact among peoples from afar. Marx and Engels marveled at how the mass commodities of capitalism, along with its “immensely facilitated means of communication,” drew the nations of the world into a global civilization. Even the ancient Greeks, who sought to restrict the economy to the needs and activities of the household, felt the outward pull of trade. So powerful was its draw that Plato feared it might lead the city, like a lusty teen, to open its arms to “diverse and low habits” from abroad. The only reliable prophylactic was to site the city nine miles from the sea.

John Maynard Keynes was born into this inheritance, which he described in loving and gently ironic detail in the opening pages of The Economic Consequences of the Peace (1919), his scorching criticism of the Treaty of Versailles. Europe in the late nineteenth century was an “economic Eldorado” where the “internationalization” of “social and economic life” was “nearly complete.” Labor was on the move, emigrating to far-off lands, building transportation systems to carry goods and people more easily across the globe. Capital and consumption were cosmopolitan. “The inhabitant of London,” Keynes wrote, “could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep.” The man in London followed the world’s goings-on, whether near or far, and traveled everywhere he could. He was a lot like Keynes, Zachary Carter shows in The Price of Peace, his delightful and penetrating biography of the economist and his afterlives. Keynes toured the Continent, hoping that the “world of art, beauty, and cross-cultural understanding” that he and his wife, Lydia, a Russian ballerina, had created in London could be reproduced elsewhere—if only the right economic arrangements were made.

But, Keynes wondered, what if that man and that world were disappearing? In the twentieth century, it seemed that the most common act of Homo economicus was not intercourse but “abstinence,” a word that reverberates across Keynes’s writings. Most of the time the man in London hid at home, holding on to his money. This was not an entirely new development. As Keynes points out in his essay on Thomas Malthus, capital’s withdrawal from the economy was a problem in the early nineteenth century as well. But it had ceased to be a temporary malady of individuals only. Entire cities, states, and societies now associated the word “economy” with “the negative act of withholding expenditure.” Instead of creating wealth, acts of economy yielded waste—unused materials, unemployed labor, empty factories. No longer the child of eros, economics had become a shepherd of death. Keynes set out to discover why.

Joseph Schumpeter claimed that the work of the economist has two elements. There is the “vision,” what the economist sees as “the basic features of the state of society, about what is and what is not important in order to understand its life at a given time.” And there is the technique, “an apparatus by which he conceptualizes his vision and which turns the latter into concrete propositions or ‘theories.’” Every economic theory, in other words, is the condensation of a larger social vision. Though scholars in the humanities have long known this of Smith and Marx, they tread more carefully around Keynes. The warrens in his prose can be forbidding, the equations out of reach. With a few exceptions, he has been left to the economists and the economics-adjacent to interpret and make use of.

Carter shows how mistaken that avoidance is. His Keynes belongs alongside Aristotle, Machiavelli, and Burke. Providing supple analyses of Keynes’s economic claims, Carter restores the worlds—Cambridge philosophy and morals, Bloomsbury aesthetics, and Whitehall politics—that are embedded in them. While Robert Skidelsky’s three-volume biography remains the touchstone for a full account of Keynes’s life and thought, Carter’s brings the thought to life in a way that is truer to the man. The “master-economist,” wrote Keynes, “must be mathematician, historian, statesman, philosopher,” dealing in “the temporal and the eternal, at the same time.” That is the Keynes Carter gives us.

According to Carter, Keynes was to Adam Smith “as Copernicus was to Ptolemy—a thinker who replaced one paradigm with another.” Yet of all the economists who came after Smith, none was caught by his vision more than Keynes. Like Smith, Keynes imagined economic action not simply as a path to wealth and plenty but as a movement toward others. At the conclusion of his analysis of the Treaty of Versailles, which he opposed because it imposed a “Carthaginian Peace” on Germany at the expense of building a true union of Europe, he issued a plea: “Even if there is no moral solidarity between the nearly-related races of Europe, there is an economic solidarity which we cannot disregard.” That economic solidarity could pave the way to moral solidarity. Like Smith, however, Keynes was struck by how easy it is for people to disregard economic solidarity, how little empathy and outwardness there is in the economy.

The great set pieces of Keynesian economics are sketches of failed connection. Where Smith’s Wealth of Nations begins with stories of people finding one another through labor, Keynes’s The General Theory of Employment, Interest and Money (1936) opens in a fog of mass joblessness. Despite the forces of supply and demand being in balance, entire swaths of the population are unemployed, not contingently but structurally.

Keynes’s prolegomenon points to a problem that is both empirical—Britain and other countries have just come through one of the worst unemployment crises in decades—and theoretical. The pairing of systemic unemployment and equilibrium would have been inconceivable to Smith, who believed that the laborer “supports the whole frame of society” and “bears on his shoulders the whole of mankind.”2 It wasn’t possible to have a properly functioning economy without everyone’s having (or being on their way to having) the means to support themselves and their families. That is why Smith could declare with such confidence that the well-being of the lowest laborer is the moral measure of an economy’s worth. Yet in Keynes’s world, the economy was in equilibrium while a large stratum of workers was idle, not because they had been displaced by machines or refused to work but because equilibrium could be achieved without them. This was “the most shocking view in The General Theory,” the Nobel laureate Paul Samuelson later wrote.

Previous economists had assumed the truth of Say’s Law, which Keynes glossed as “supply creates its own demand.” Whenever goods are produced or services are furnished, payments are made to the workers, landlords, creditors, and entrepreneurs who supply the requisite labor, land, credit, materials, and so on. These incomes, earned from individuals’ contributions to the production of goods and services, generate sufficient demand to ensure that those goods and services find buyers. The higher the output or supply, the greater the income or demand. As a result, the economy always tends toward full employment.

What if it doesn’t? Instead of spending their entire earnings on goods and services, workers might hold some back. Instead of pouring their profits into expanded production and investment in new technologies, entrepreneurs and creditors might keep those profits for themselves. Abstinence on a mass scale would leave the economy at levels of output so low that society couldn’t provide jobs for everyone; the loss and the waste would be catastrophic and cruel. Understanding this problem of “effective demand”—the fact that demand can match supply at dangerously low levels of activity—is for Keynes “the beginning of systematic economic thinking.”

Much of Keynes’s economics, like Smith’s, is a sustained exercise in empathy-building, attempting to create on paper the solidarity that has failed to materialize in practice. But where Smith thought there were forms of self-interested, profit-driven action that would gradually orient the self to the other, Keynes could not take that orientation for granted. In “modern conditions,” he wrote, the individualism of the Smithian economy was at best no longer applicable and at worst a “mortal disease.” A path that works for me when I take it alone may work against me if everyone takes it, too. The modern economy is littered with examples of this, yet knowledge of the social dimension of economic action—that we do not choose alone, that our actions have effects on others—has not yet penetrated our decisions in the market. The task of the economist is to create the social knowledge of the other that Smith hoped would arise from the act of seeking profit for oneself.

In his first such foray, The Economic Consequences of the Peace, Keynes used economics to show how debt sows division and conflict while forgiveness of debt nurtures connection and amity. At Versailles, the Allies levied heavy reparations on Germany as punishment for its actions in World War I. Decimated by the war, Germany lacked the cash reserves to pay the reparations. The only way it could build those reserves was through trade—by exporting more than it imported.

But Germany was a net importer, relying on imports to feed itself and for the raw materials it needed for industry. To become a net exporter, it would have to scale back its consumption to the bare minimum and limit imports of the very materials it needed to manufacture goods for export. Even if it could be forced to hand over its entire surplus while subsisting on a starvation diet—a regime of servitude and extraction, Keynes notes without irony, that the “white race” was unaccustomed to—Britain would be compromised by such a regime, since its economy depended on the export of manufactured goods, including to Germany. What would happen to British trade if Germany were transformed into a net exporter of the same goods?

Keynes thought that the Allies’ approach to reparations reflected an inability to appreciate the social dimension of debt, which only the economist could remedy. They viewed reparations “as a problem of theology, of politics…from every point of view except that of the economic future of the States whose destiny they were handling.” Looking at debt through a prism of guilt and responsibility, politicians and theologians isolate the debtor in a cell of judgment and punishment, rendering her incapable of acting upon the society that is acting upon her.

The economist helps us see that debtors cannot be sequestered from the rest of society. Debt is the sibling of credit, a lubricant of trade and commerce, “the ultimate foundation of capitalism.” Whatever is done to debtors will come back to haunt everyone else. “We shall never be able to move again, unless we can free our limbs from these paper shackles,” Keynes writes. The only way to start the economy, to make it move, is to light “a general bonfire” of those shackles and forgive all debts.

In politics, Walter Benjamin wrote, “it is not private thinking but…the art of thinking in other people’s heads that is decisive.” The power of Keynes’s economics is that it assigns that art of public thinking not to the statesman or citizen but to the economist and to ordinary economic actors. This was increasingly true of Keynes’s work throughout the 1920s and 1930s, culminating in the climactic passages in The General Theory where he addresses the relationship between saving and spending, investment and enterprise.

Traditionally, economists had seen the individual’s decision to save as the condition of capital accumulation and economic expansion. “Parsimony, by increasing the fund which is destined for the maintenance of productive hands, tends to increase the number of those hands,” wrote Smith. “It puts into motion an additional quantity of industry, which gives an additional value to the annual produce” of a country’s economy. Saving is a form of investment, not just for the individual but for society.

This claim, Keynes counseled, reflects a one-sided view of the matter, the view of the saver in solitude. It’s true that the individual who limits her consumption for five years to save money for a home renovation is making an investment in her future. It’s also true that her restriction of consumption will have a negative impact on other people’s incomes in the intervening years. Think of the restaurants she won’t frequent, the books she won’t buy, and so on. That diminution in the incomes of the restaurants and bookstore owners will have a negative impact on their spending and savings and still others’ spending and savings. One person’s savings, if aggregated, can lead to a decline in social wealth:

Suppose we were to stop spending our incomes altogether, and were to save the lot. Why, every one would be out of work. And before long we should have no incomes to spend. No one would be a penny the richer, and the end would be that we should all starve to death.

The view from both sides is not reserved to the economist or the policymaker. Keynes wanted it to shape the mind of the individual as well. Go shopping, he told the “patriotic housewives” of Britain in 1931, “and have the added joy that you are increasing employment, adding to the wealth of the country,” and “bringing a chance and a hope to Lancashire, Yorkshire, and Belfast.”

As much as Keynes worried about the withdrawal of the self and its failure to connect with the other, so was he plagued by the Smithian problem of lookism: how we overconnect with others, outsourcing our judgments to them. Nowhere was this clearer than in the stock market, which Keynes believed had become one of the main drivers of investment and the economy. Before there were stock markets, a businessman and his family or friends pooled their money and invested it in an enterprise for the long term. Uncertain when precisely their investment would pay off, they simply expected a yield at some point in the future. With the rise of stock markets in the late nineteenth and early twentieth centuries, owners are separated from managers, and investors are freed from the ball and chain of a personal enterprise or family firm. Their decisions are increasingly determined by their “fetish of liquidity”: their preference for assets that can be gotten into and out of quickly. They don’t care whether a stock certificate is tied to an enterprise that will turn a profit in the decades to come; they want to know how the market will value the stock a few months or days hence. They absorb themselves in looking at others for clues as to whether they should buy or sell.

The result is a perverse sort of beauty contest in which none of us chooses our favorite contestant but the one we think others are likely to choose. Instead of the equilibrium of self and other that is Smith’s communion of needs, Keynes writes,

we have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.

With each calculation, with each degree, we drift further and further from ourselves.

It’s no accident that Keynes landed on this image of a beauty pageant to illustrate the fate of the self in the market. This was the world that Smith, under the influence of Rousseau, feared the market would reproduce. Rousseau believed that a fateful turn in human development occurred when we gathered in front of huts and under trees to perform for one another. Before that, each of us was confined to the little society of the family, tending to our needs (not unlike Keynes’s idea of the investor tied to a family firm, before the advent of the stock market). But when we began to perform for one another, “everyone began to look at everyone else.” A new self was born, the self who lives “outside himself.” Increasingly concerned with our opinions of others and others’ opinions of us—what Rousseau called the price of esteem—this new self could be found wandering around the courts of the old regime or among the stalls of the new markets that were coming into being. If one pathology of the market was the failure to connect, the other was the failure to disconnect.

The question for Keynes was: How and why does the economy spur these twin pathologies? The answer, he came to believe, lies in two elements of economic activity that previous economists had ignored or assumed to be benign: money and time.3

Economic theorists often begin with barter as the archetypal economic activity and scale up their visions of the economy from there. That beginning, Keynes thought, colors all their endings. What distinguishes barter is its physical and temporal immediacy: two individuals, present to each other, trade material objects for direct use. Even if money is introduced into the exchange, the immediacy remains. Money is only a “transitory and neutral” medium in these cases, a “mere link between cloth and wheat.” The “essential nature of the transaction” is “between real things.” Such an economy is a “real-exchange economy.” In a modern or “monetary economy,” by contrast, money ceases to be “transitory and neutral in its effect.” It becomes “one of the operative factors” in the transaction, shaping our motives and influencing our decisions. According to Keynes, this is what previous economists have not realized.

What turns money from a neutral instrument into an active force is time. “In a world in which economic goods [are] necessarily consumed within a short interval of their being produced,” money has little effect. Even if its value fluctuates—a feature of economic life that economists before Keynes were certainly aware of—the distance in time between the moment of purchase and the moment of use is not large enough to affect our decision to act now as opposed to later. But “the whole object of the accumulation of Wealth,” which drives the modern economy, “is to produce results, or potential results, at a comparatively distant, and sometimes at an indefinitely distant, date.”

With that increase in temporal distance and the introduction of the far-off future as a factor in our calculations, money becomes a more potent concern. A monetary economy is not simply an economy in which money is a factor of exchange. It is an economy “in which changing views about the future are capable of influencing,” via money, the overall output of the economy. Because we have little certainty about what the future will bring, we fall back on a convention, a socially approved way of thinking about the future that “saves our faces as rational, economic men.” One of those conventions is that our opinions of the present are a useful guide to the future. Another convention is that prices in the present contain reliable information about the future or at least how people are thinking about the future. We have no rational basis for either of these beliefs. The future can never be gleaned with certainty from…

Read More: The Trouble with Money | Corey Robin

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