The currency of politics – how Aristotle, Marx and Keynes made us think about money

2222 turns out to be the year that puts politics back into monetary policy.

For 30 years or more, inflation has stagnated, even despite the violent shocks of the tech crash and the global financial crisis. As a result, even the unprecedented monetary policies implemented after 2008 did not generate any real controversy.

But this year, things have changed. With inflation topping 9% in the UK and US, the questions of when and how much interest rates should rise – and who will be the winners and losers when they do – are back in the spotlight. top of the political agenda.

This is just the beginning. Public satisfaction with the Bank of England’s performance hit an all-time low in June. Liz Truss, the main candidate for Prime Minister of the United Kingdom, took note, and pledged to review the mandate of the central bank. The once sacrosanct idea of ​​monetary policy independence is now explicitly under threat.

How to evaluate these radical evolutions? Surprisingly, modern macroeconomics itself isn’t much help. The current consensus structure has been a victim of its own success. The fact that he had achieved his low and stable inflation target for so long meant that the higher-order issues of the targets and governance were seen as largely settled – and attention shifted elsewhere.

Fortunately, although economists have lost interest, political theorists have not. A new generation of scholars has been busy crossing the beams of economics, political philosophy and legal studies – and so are well placed to offer guidance through the approaching monetary maelstrom.

Professor at Georgetown University, Stefan Eich is a star of this school – and his new book is a perfect example. Structuring its narrative around five great theoreticians of the Western tradition, The currency of politics offers a fresh and beautifully clear guide to the intellectual history of monetary policy.

In the beginning was Aristotle. Eich commends him for the accuracy of his famously ambivalent characterization of money. Particular currencies are the creatures of particular political communities, Aristotle rightly observed, and as such are mere conventional fictions. Yet they are fictions that must retain coherence and consistency across time and space to be useful – and therefore must be managed to make them look like the real thing. Thus, the classical Greek philosopher identified the tensions between easy and sound money, and discretionary and fixed standards, which have dominated monetary history ever since.

Eich illustrates the extremes of these age-old debates with brilliant insights from two of the great monetary thinkers of the early western canon. The first is John Locke, whose successful intervention in favor of a fixed, unchanging metal standard in the great recasting debate of 1696-1697 set Britain – and thus much of the rest of the world – on the way to the gold standard. The other is Johann Gottlieb Fichte, the first rector of the University of Berlin, whose work from 1800 The commercial state closed underlined instead the advantages of an actively managed national currency capable of reacting flexibly to changing economic conditions.

Locke’s view was deliberately antipolitical: he taught that money had to be ruthlessly defended against democratic interference if it was to be made safe for trade and investment. Fichte, on the other hand, saw political oversight as the essence of business: monetary policy is one of the main tools of a sovereign national government. It fell to Marx and Keynes, Eich’s fourth and fifth monetary apostles, to identify ways out of this seemingly intractable disagreement.

Marx argued for cutting the Gordian knot. Relying on monetary policy to achieve social and economic reform is a waste of time, he wrote. The correct solution is to abolish money altogether and attack the underlying flaws of capitalist class relations at their source. It is a radical prescription, of course – and has therefore only found takers in revolutionary communist states, and even then only on a temporary basis.

Instead, it was Keynes who formulated what has become pretty much the modern consensus for liberal, democratic states. In one of its characteristic synthetic strokes, Keynesian Mandarin economic liberalism found a way to reconcile both Fichte’s conviction that monetary policy should serve political ends and Locke’s preference for insulating it from the democratic debate. The stage was set for technocratic central banks subject to the oversight of elected politicians.

Yet, like much of Keynes’ legacy, the question has always been how long he could survive the gradually fading aura of the great man. As Eich writes, “today’s central banks – and the private banks they oversee – exist in a particular constitutional blind spot in our politics.” As the real value of national currencies evaporates and digital competitors happily multiply behind the scenes, it is hardly surprising that this blind spot is now coming under increasing scrutiny.

We shouldn’t be shocked if the current model of monetary policy-making is therefore the next pillar of the Keynesian consensus to crumble. The currency of politics is an invaluable guide to why – and how to think about what comes next.

The currency of politics: The political theory of money from Aristotle to Keynes by Stefan Eich Princeton University Press, $35/£28, 344 pages

Felix Martin is the author of ‘Money: The Unauthorized Biography’

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