The Currency of Politics

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Articles by Alex

Alex Lennard

Fund Manager

29 February 2024

My third contribution to book corner completes an unintended trilogy.

In 2019, I reviewed Dan Lyons’ Disrupted, which detailed the exploitation of labour by capital; in 2020, Chris Arnade’s Dignity, which laid bare the societal effects of that exploitation. This year, I review a history of the political and monetary regimes which led to the world we operate in today.

Stefan Eich is a political theorist and philosopher, and it is through these prisms that he seeks to define money as more than simply a medium of exchange. Eich’s central thesis is that money is not just a tool in politics; it is also the currency through which political power is ultimately acquired and wielded. This reflexivity informs policy and the reactions to it.

The Currency of Politics evaluates five key figures in monetary history – Aristotle, John Locke, Johann Gottlieb Fichte, Karl Marx and John Maynard Keynes – placing their theories in the context of the regimes which spawned them before arriving at the seemingly apolitical monetary world post Bretton Woods. His analysis of each figure reveals the underlying tensions between democracy and capitalism – and the inevitable shift in policies when breaking points are reached.

Central to early political theories of money is Aristotle’s dictum: “Currency can be just, but not when it fuels accumulation for its own sake. As a tool of reciprocity, however, currency serves political justice.” This quote perhaps reveals just how far removed those theories are from today’s system.

Locke’s policies sought to re-establish monetary order and trust in the value of money after one of the first modern instances of currency debasement. He argued it was necessary to make money anti-political; but, as Eich notes, this was itself a political act.

This ‘silent revolution’ has allowed central banks to distance themselves from any political responsibility for money.

Exposing a silent revolution

Having reviewed these five monetary regimes, Eich discusses the apparent depoliticisation of money since the late 1970s. This ‘silent revolution’ has allowed central banks to distance themselves from any political responsibility for money. If tight monetary policy meant putting people out of work and causing economic harm, it was better not to be seen doing so intentionally. Following prescribed monetarist rules to control money supply and prices allowed central bankers to avoid blame for any resulting pain. Monetary policy (or money itself) had become ‘market led’ and free from political scrutiny.

Eich describes this as a period of neglect. The politics of inflation dominated the immediate post-Bretton Woods years. Since the 1970s, money has been subject to technocratic rule.

Eich, a left-leaning protégé of Adam Tooze (who saw the post 2008 policies as anti-democratic), focuses on the need for money to be re-politicised. “Inflation targeting was perfectly compatible with enormous asset-price inflation and a build up of financial bubbles,” he says. “In calm times it had been possible to reduce money to a seemingly neutral means of economic exchange. During financial crisis it became harder to disguise the formative nature of fiat money and the political choices inherent to it… As the veil fell money emerged once more as a construct of our collective imagination.”

Adjusting to a new regime

Whether or not you agree with his politics, he is perhaps right that we are now operating in a new world. At the Grant’s conference in 2021, Henry Maxey gave a speech titled ‘Preparing for a world central bankers can’t imagine’. We should expect a very different model moving forward, and this is reflected in our portfolios.

How do I think this new model might look? Money can find its way to four places in an economy: the shareholders; the managers of companies; governments; and workers. During the era of inflation targeting and deep disinflation, most of the money accrued to the first two. That was amplified by the policy decisions after the collapse of Lehman Brothers.

But the response to the pandemic started a new wave of fiscal dominance, with money being re-politicised. One clear example: last September, Joe Biden stood on picket lines alongside the United Auto Workers, the first sitting US president to join labour in demanding higher wages. The pendulum does not need to swing far towards workers and governments to do considerable damage to asset owners.

Economists are taught that inflation and prices can be plotted on spreadsheets, based on rational and homogeneous choices. However, if the politics of money is going to become more explicitly recognised, we should prepare for a less predictable world.

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The Currency of Politics