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The monetary exception: Labour, distribution and money in capitalism

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The monetary exception: Labour, distribution and money in capitalism

Geoff MannSimon Fraser University, Canada

AbstractContemporary monetary institutions posit money as an ‘exceptional’ domain, outside of democratic sovereign authority in modern capitalist states, on the basis of the claim that without it, liberal democracy would fall apart. Labour’s distributional critique of capitalism and the state must wrestle with the possibility that money in modern capitalism is anti-democratic by definition, and that as such, any social-democratic project of radical redistribution, implicit in labour’s critique of capitalist distribution, will require not merely a different allocation of existing money, but a radically different monetary relation.

KeywordsLabour, distribution, money

IntroductionSamuel Gompers is well known for lots of reasons, but one of them is certainly his famous response to the question, ‘What does labour want?’– to which he replied, ‘More’. His answer leaves considerable room for interpretation, of course, but certainly one of the messages is, ‘We want more of what they have’. Whether Gompers thought it was a zero-sum game or not is unclear (he may very well have thought so), but it makes perfect sense either way: it is more than possible for ‘us’ to have more without depriving ‘them’ of anything more than the distance between us. The point was merely that the things capital enjoys – wealth, power, dignity, security, freedom – should also be enjoyed by labour. These ‘things’ have, ultimately, always been the stakes in the struggle between capital and labour. One of them, however, has usually been a priority, since it is generally considered the means to the others: money. While other ‘things’, such as the length of the

Corresponding author:Geoff Mann, Simon Fraser University, Canada. Email: [email protected]

481654 CNC37210.1177/0309816813481654Capital & ClassMann2013



198 Capital & Class 37(2)

working day, gender parity or shop-floor control, have often been at stake, the division of the surplus is the fundamental site of struggle. In modern capitalism, this boils down to where, and to whom, the money flows, and how it accumulates.

This struggle is premised on a tacit but absolutely essential assumption: that the stakes – income and wealth, and all the things that flow from them – can simply be redistributed without affecting the work they do; that the form wealth takes is not a function of its mode of distribution. It is to assume that the direction of the flow of monetary income and wealth (at present, increasingly toward capital) is itself not part of what makes it work as income and wealth. The idea seems to be that modern money can be governed so as to make anyone rich – worker or boss – and rich in basically the same way.

But this may not in fact be the case. In capitalism, money as it currently works takes particular forms and serves particular functions that make it capital-tropic at its core (Weber 1978: 79; Ingham 2004: 78-81). This paper concerns the implications of this possibility and is focused, necessarily at a rather abstract, institutional scale, on how money works in contemporary financialised neoliberal capitalism. (Below, I try to be as precise as possible with each of these over-used terms.) I argue that much of the critique that animates labour studies – a critique that animates labour politics broadly – has a tendency to imagine that the main problem with capitalism is that the capitalists are in charge. The corollary is that the distributional questions at the centre of a labour-based critique are mostly a question of restructuring the hierarchy via something like ‘democ-ratisation’. But significant elements of the modern capitalist political economy, regardless of who is in the driver’s seat, are constitutively non- or anti-democratic. It is not a matter of merely remaking them democratically, since if they were democratic, or ‘democrati-sable’, they literally would not be what they are. The institution on which I focus, mod-ern capitalist money, is a case in point: it is non-democratic by definition, and it constrains in its very being what redistribution can mean today. Money in capitalism cannot just be redistributed to labour according to an ethical rule of thumb, ceteris pari-bus. The institutional and political bases of money as a social relation in contemporary capitalism militate against this.

Money-in-capitalism thus cannot be approached as class-, geography-, or history-neutral. That may seem to state the obvious, so it bears emphasising that my point is not aimed at the quantitative maldistribution of purchasing power and monetary wealth across different classes, spaces and times. That is of course a crucial concern, but my argument is more fundamental. It is that there are aspects of money as a modern social relation that operate at a supra-distributional level, and indeed that determine how and to whom it can be distributed, and what it can and cannot be used to do. In other words, there are immensely powerful geographic and social forces that animate modern money that make it capitalist in its very being, but these forces operate at an almost ephemeral scale, and at an institutional temporality, that blur the lines between the general and the particular, between the macro and micro scales. And it does its work unevenly, unpre-dictably sometimes. But, at least in capitalism, it is never anything less than enormously important, and its very structure has seemed to put working people on the losing end (again, to say nothing of how little they have of it).

While workers as individuals can prosper by getting hold of pools of money, and certain groups of workers can perhaps benefit from labour-controlled stocks of money



Mann 199

and capital, workers as a class – and a fortiori workers as a transnational class – cannot become wealthy by way of capitalist monetary institutions. This to say that when Keynes argued that the class struggle was basically over, and that workers in modern capitalism are for the most part engaged in a tussle with each other over relative wages, he was on to something, if for the wrong reasons: like Marx, he understood that distri-butional struggles within modern capitalism are systematically constrained not by individual, mean-spirited capitalists (of which there may be many), but by the very institutional structure that defines it as modern capitalism. Labour cannot merely take the chair of the Federal Reserve or the Bank of Canada, for example, and continue on as if it were the decision-makers, and not the institutions themselves, that were the problem. In its modern institutional form, capitalist money is organised so as to con-strain radical redistribution.

What follows is an attempt to show how this is so. It is organised in four sections. The first gives a brief overview of what precisely money is; the second provides a general description of how money works in modern capitalism. The third discusses the organisa-tion and practice of monetary governance in the capitalist global north, emphasising the institutional structure of central banks, the principal seat of monetary authority. In sec-tion four, I consider the politics of these monetary functions and their control in modern capitalism, focusing on the implications of the idea, generally accepted by monetary theory and policy, that democracy has an ‘inflation bias’. I argue that the structures described in the previous sections are consequently intended to organise money as the decisive exception in capitalist liberal democracy. In other words, the monetary realm is posited as the domain of absolute, non-democratic sovereign authority in modern capi-talist states, and that this virtually unaccountable power is justified by the claim that without it, liberal democracy would fall apart.

I conclude with some cautionary thoughts regarding what these monetary features might mean for labour’s distributional critique of capitalism and the state, to suggest that it may not be possible to restructure, in social-democratic form, institutions like money and monetary authority, which are anti-democratic by definition. Many of the most important distributional outcomes are determined not by policy-makers’ decision-making, but systemically. Redistribution cannot mean merely the same structures, with different people behind the wheel.

What is money?Money is usually described as serving several functions in the economy: it is a) a medium of exchange (facilitates the exchange of qualitatively different commodities); b) a means of payment (i.e. transaction settlement; it is the thing with which you can settle a debt, and is usually legally defined as such); c) a store of value (you can hold it as an asset in the form of abstract or potential purchasing power); and d) a unit of account (the stan-dard unit by which all ‘economic’ values are calculated and compared). Classical and neoclassical economic analysis generally suggests that all of these functions flow from an ‘original’ function, that of medium of exchange. But, as Keynes was among the first to argue, this is based on a schematic history with no empirical basis. It assumes that capi-talism and capitalist money are not specifically capitalist in any meaningful way, but ‘natural’ outgrowths of less complex barter economies. Rather, the key function of money




in capitalism is in fact as unit of account: ‘Money is the stable measure of value which makes it possible to establish the relative prices of all commodities’ (Ingham 2008: 68; Keynes 1930).

Money can operate as such not because it is some ‘thing’ that circulates via exchange (currency or less material means of payment and settlement), but rather because it repre-sents an abstract claim on or in economic relations as a whole. In other words, money measures and stores abstract purchasing power, and in so doing transports it through space and time. You can use money (given state territorial and customary restrictions) ‘anywhere and anytime’, and, at least in a stable state system, it will be universally accepted. Money is an abstract claim in the sense that one can demand, or extract from, economic exchange when and where one chooses by exercising that claim via ‘spending’ one’s money. Money is the potential claim its holder may make upon the world of exchange, and, like all claims, it can only make sense in a social context. Claims are only effective if they are heard.

What political function does money serve that gives these claims force? In what does money’s political power consist? Marx’s (1973: 507) answer was that as the ‘general equivalent’, money is a ‘highly energetic solvent’. It dissolves what once were relational unities, the most important being the moment of exchange. Money makes possible what is impossible in non-monetary realms: i.e. buying and selling become distinct moments in the process of exchange. Once ‘separated in place and time, they by no means need to coincide’ (Marx 1973: 198). In capitalist social relations, then, money becomes a neces-sary ‘third party’ in all exchange, producing an unending circulation of payment and counter-payment across space and time. Indeed, as Keynes never tired of pointing out, ‘the importance of money essentially flows from its being a link between the present and future’ (1965: 293-4; emphasis in original).

Unsurprisingly, however, Keynes was blind to the coercion that forges this link. Every individual, family, group and institution in capitalist society is constantly implicated in a cycle of credit and debt denominated in money. I perhaps risk stating the obvious in pointing out the extraordinarily powerful influence this bind has on the forms contem-porary political agency can take. For any claim money can represent is necessarily propped up, and in fact can only make sense in light of, the absolute certainty that claim will be realisable at some other point in time and/or space. Money works only on the assumption that the future will be qualitatively like the present, and each moment will be like now.

Indeed, the political power of money resides in the fact that more than any other social relation, it appears to guarantee the continuity of most fundamental conditions of the existing order. This is the real meaning of the ‘neutrality’ of money in orthodox eco-nomic theory: it is not a technical but an ontological condition. If the neutral political economic continuity guaranteed and assumed by money were untenable, or even con-testable, money would not be a general equivalent. This has nothing to do with dynam-ics like price volatility or exchange-rate instability, which in no way suggest a challenge to money, which remains money no matter how extraordinarily and unexpectedly prices or exchange rates vary. They remain prices and exchange rates, denominated in money. If qualitative transformation is impossible, then money must have massive political influ-ence – not in the sense that those with money have influence (however true that is), but in the sense that money’s stability as a social relation delimits the bounds of the political.



Mann 201

Money goes a long way to explaining why existing social formations seem such a drag on political imagination. The uncertain future at the heart of modern capitalist markets that so obsesses Keynesians of all stripes is not really that uncertain. It is almost certainly a capitalist future. Generalised monetary exchange grants virtually everyone an ‘equity position’ in the maintenance of capitalist social relations, while at the same time ensur-ing, as far as possible, that it is impossible to liquidate that position.

All the four ‘standard’ functions of money described above – medium of exchange, means of payment, store of value, and unit of account – depend entirely on this political function of money. Moreover, in so far as they very clearly point to the operation of modern money as essentially a more or less complex economic ‘technology’, they simul-taneously disavow its political function. The technical conception of money assumes and asserts that the space of politics is, by definition, one that cannot include, and has no overlap with, that of money. A key question, then, is how it can work like this. What ‘actually existing’ social institutions and processes endow it with this power? The easy answer is that we have collectively decided that it has this power, which is of course true at the most general level, but really not all that helpful. Moreover, since we did not in fact all get together, talk it over, and decide that this is money and this is what it will do, the details must be more specific and complex. In fact, money is constituted by a ‘social rela-tion of credit-debt, denominated in the abstract money of account’ (Ingham 2008: 69). Money is transferable credit or transferable debt in so far as it is issued (publicly or pri-vately, by banks and states) as a claim upon the issuer. It is the result of one of a set of credit-debt contracts between two parties: a bank and a borrower, the state and its con-tractors, the state and a bank, the state and its citizens. In other words, modern capitalist money is predicated on the condition of indebtedness.

The steps in this continual process have been described with admirable clarity else-where (see in particular, Ingham 2004 and Ryan-Collins et al. 2011). For present pur-poses, the crucial moments can be captured as follows: when a state or bank issues money, it does so as the essential moment in the process of debt creation. When a borrower bor-rows money from a bank, the money produced via the loan is issued to the borrower, who is then indebted, and the money represents the means of settling that debt. The debt in this case is, of course, private, but the money produced by the establishment of the credit-debt relation circulates generally in the public realm: it is literally a product of the indebt-edness of the borrower, who can transfer it to whomever he or she pleases – ’transferable debt’. Similarly, when the state creates money, via spending, ‘printing’, borrowing etc., the money is issued as a form of state debt, a claim by the holder on the state. This state-issued money, and all the other privately issued debt-moneys produced by bank-borrower rela-tions, circulate throughout the community as perfectly substitutable forms of transfer-able debt. For instance, when you come to settle your account with the state (pay your taxes, say), the state must accept its own credit-issue as legitimate redemption. The co-circulation – and, more importantly, the indistinguishability – of privately and publicly issued debt-money in modern capitalism is evidence of the complex interdependence of the state and the banking system, finance capital, and indeed of capital in general.

The pace and extent of modern economic growth and development is not a cause but a product of this integration of private currency (issued by banks) and sovereign debt (issued by states), a fusion made possible by the emergence of a balance of power between capital and the state in the early modern era (what Weber called the ‘memorable alliance’).




The alliance made sense for both parties. The state recognised the importance of the fact that the banking system can create an elastic supply of credit-money, fuelling economic growth. Capital recognised that money could only do the work it was supposed to do across space and time if it was secured by a strong territorial state (Weber 1978: 353; Ingham 2004: 115-31). This partnership is essential to capitalism, however fraught it might sometimes seem to be these days.

Controlling the process of monetary circulation in this public-private complex is, not surprisingly, a complex and daunting task. But given the centrality of stable money to capitalism, it must be aggressively undertaken. There is, at least in theory, little room for error, and the ground-rules are not open for discussion. Put another way, monetary authority in capitalism can never be ‘democratic’. Indeed, the kind of unaccountable power necessary for this project is virtually unparalleled in modern ‘democracy’, an authoritarianism made possible by the persistence, over more than three decades, of a broad (if uncritical) political consensus that money is a realm of social relations exempt from public accountability. This state of affairs produces crucially important contradic-tions within political economic life in capitalist liberal democracy, contradictions that trouble any effort to ‘democratise’, or even expand the horizons of, economic gover-nance. A brief discussion of modern capitalist monetary governance, the principal insti-tutional sphere through which this exemption is elaborated and legitimised, shows how this operates.

One brief definitional note: in the course of this conversation, I lean at times on the overused and often underspecified concept of ‘neoliberalism’. Let me briefly say what I mean. While we can focus on it as a ‘policy package’ like those associated with the International Monetary Fund – privatisation, liberalisation, and stabilisation, as I teach it to undergraduates – at its core, neoliberalism is the ongoing effort, in an inevitably uneven global economic geography, to construct a regulatory and political regime in which the movement of capital and goods is determined as much as possible by firms’ short-term returns. Because that geography is dynamic, such a project is always incom-plete and uneven, sometimes taking the form of deregulation, sometimes of reregulation – what Jamie Peck and Adam Tickell call ‘roll-out’ and ‘roll-back’ (Peck and Tickell 2002; cf. Glyn 2006). Of particular import here, though, is the mode through which the state operates such regulatory endeavors, and the neoliberal state is characterised by its increasing use of the nominally ‘non-state’ realm of ‘the market’ as a principal means of governance (Krippner, 2007).

This is especially important because capitalist market function – and, therefore, the very possibility of the neoliberal state, not to mention of the power-saturated labour geog-raphies and histories that constitute it – are entirely dependent upon a stable measure of value and unit of account. Stable money, and the strong form of monetary authority through which it is maintained, is the invisible infrastructure of contemporary capitalism, the skeleton that keeps it upright when its muscles fail. The augmented role of money as a mode of disciplinary governance in the neoliberal era is both cause and consequence of this dynamic: monetary stability is both the central objective of economic governance, and allows money to do more regulatory work. The power to pursue this spatio-temporal harmony, through which money can fix values across time and space, is necessarily vested in institutions – central banks in particular – endowed with quasi-Hobbesian authority. Contemporary monetary governance is punctuated dictatorship.



Mann 203

This institutional autonomy certainly helps explain monetary authorities’ leading role in crisis management today – they do not have to wait for approval from MPs or Congress, but can just get on with the ‘rescue’. But it does not explain how and why they enjoy such extraordinary autonomy in the first place. Central banks took the lead in the face of current crisis only because they already exercised extraordinary – I am tempted to say ‘sovereign’ – power in the monetary realm.

If the state has not, as some predicted, withered in the face of global capital, neolib-eralism has nonetheless produced a conjuncture in which the state is not exactly what it was (however unclear what it ‘really’ was might be). If we understand neoliberalism not as the straightforward ‘retreat of the state’ but, rather, as involving the state’s increasing reliance on ‘the market’ as a realm and mode of governance, then it is no exaggeration to say that neoliberalism, at least in this dimension, is the principal means through which the modern state wrestles with what Chantal Mouffe calls the ‘democratic paradox’, i.e. the fact that what ‘cannot be contestable in a liberal democracy is the idea that it is legitimate to establish limits to popular sovereignty [and also, thus, to equality] in the name of liberty’ (Mouffe 2000: 4). In neoliberalism, the turn to the market is simultane-ously a surrender of state power to the market – the realm of ‘liberty’ – and an assertion of sovereign power by the capitalist state – it is the state that allocates power to the mar-ket, an arena in which, through money, it is always an essential player. The ‘market’ allows the state to assert its sovereignty by way of liberty.

Yet there is a structuring antagonism at the core of the ‘normal’ capitalist market, which revolves around money as a decisive exception (in the sense developed by Carl Schmitt [2005: 5-15] and, more recently, Giorgio Agamben [2005]). Just as the modern economic theory of money denies its political function, the modern state – a product of the complex and conflictual interdependence and interpenetration of the capitalist state, finance capital, and ‘the market’ – protects money and monetary governance as a space in which democracy has no place, the space of exception whereby both the state and finance capital realise their political power.

Since I cannot substantiate all of this here, I focus on one crucial aspect of these dynamics: how the institutional independence of liberal democracies’ central banks works, and the hegemonic economic theory that underwrites this resistance to popular democratic accountability. The theory and the practice of monetary authority are pre-mised upon money as a realm or relation in which neither democracy nor, somewhat ironically, the market has a place. Money is necessarily a realm of pure power, normally ‘constrained’, but the true prerogative of which is laid bare in contemporary crisis. Indeed, contemporary common sense holds that modern representative democracy is possible if and only if monetary authority is not subject to democratic norms; but it is not at all clear that money would ‘work’, as we understand it today, if such ‘democratisa-tion’ were realised.

How does modern money work?Before we get into a little detail regarding modern monetary governance, it is perhaps worth noting, very briefly, what exactly it is supposed to accomplish. Presently, monetary authority in capitalist nations is almost entirely in the hands of central banks. Modern central bankers and monetary economists share what is often called a ‘new consensus’ on




the goals and operation of monetary policy. Central banks’ first, and in many cases only, priority today is to ‘protect’ the value of the domestic unit of account by keeping infla-tion low and stable – 2 per cent of core CPI is a standard target. They do this, basically, by using interest-rate operating procedures to influence the demand for money, pushing rates up when demand is deemed ‘too high’, lowering them when it is deemed sluggish. The reason all this is necessary, of course, is the implications for capitalism of a lack of stability in the unit of account (McNally 2009).

These efforts are always, and have always been, geographically and historically spe-cific. Interestingly, however, these specifics are partly a result of the effort to universalise capitalist monetary relations, an inevitably geographically and historically particular endeavour – any attempt to extend and homogenise the purview of capitalist money will have to confront, and struggle to overcome, ‘local’ difference, and will thus demand a ‘local’ strategy. One might argue that modern monetary policy is in some ways a per-formative effort to make a ‘national economy’ work like a macro-model, which would be to emphasise the ‘standardisation’ of economic governance via a set of widely accepted ‘best practices’ (trade liberalisation, removal of capital controls, floating currency exchange rates, etc.).

But in many ways, by emphasising an unfolding ‘sameness’, this focus on the socio-spatial homogenising power of capital gets the causal direction wrong, and consequently misses the particulars. Capital mobility, for example, is not a cause of capital’s ‘univer-salisation’, but an intended effect thereof. The same is true of the other staples of neolib-eral monetary governance, not least the ultimate objective itself: low and stable inflation. Indeed, one could argue that in its currently hegemonic, quasi-monetarist inflation-targeting form, monetary policy hopes to coax or coerce regions into fitting its model of national policy effectivity – an undertaking that cannot rely upon ‘out-of-the-box’ poli-tics and policies, but actually requires a sensitivity to regional specificity.

The fact that monetary policy almost always ignores this demand for geographical and historical specificity is arguably one of the main reasons that the project to univer-salise so often fails. In Canada, the UK and the USA, for example, monetary authority is confronted with radically different regional inflation and structural unemployment lev-els, and differential social impacts of monetary policy (Carpenter and Rogers 2005). In so far as policy-makers, faced with the fact of substantial regional disparity, stick their fingers in their ears and say ‘la-la-la’ – i.e. simply keep doing what orthodoxy says they must do until we reach the promised land of economy-wide factor price equilibrium – they risk further entrenching spatial differentiation. And indeed, the regionally specific work is left entirely to fiscal endeavours, like those undertaken by the Canadian govern-ment’s Western Economic Diversification programme, which try to produce, among other goals, homogenous rate-sensitivity across regions over time, which would make monetary policy-makers’ wishes come true.

Of course, monetary authorities are aware of, and sometimes acknowledge, subna-tional variation. Eddie George, the governor of the Bank of England in the 1990s, notoriously agreed that northern unemployment was ‘an acceptable price to pay for the control of inflation’. Confronted with regional disharmony that ‘trade-offs’ like this might elicit, many central banks have a formal institutional structure intended to ensure regional representation. The Fed’s board of governors is partly comprised of rotating memberships shared by eleven of the twelve regional reserve banks, and there is an



Mann 205

unwritten tradition at the Bank of Canada that the board of directors will be drawn from all the provinces. In both cases, core regions are still privileged – the New York Fed, with its tight links to Wall Street, is the only regional bank with a permanent place on the board of governors, and Ontario and Québec each have twice the membership of any other province on the board of directors – but regional representation is not entirely absent.

From a geographical and distributional perspective, however, significant unevenness persists because of the virtually complete capture of central bank control and monetary policy decision-making by one class fraction: finance capital. With very few exceptions, regardless of the region they ‘represent’, central bankers in the global North come to monetary policy work from the financial sector, or, in the exceptional case (like current Fed chair, Bernanke) from closely related fields like university economics departments or the IMF. The Bank of Canada’s directors represent a wider occupational background than do the Fed’s governors, but have essentially no influence on policy, which is deter-mined by the governor and his council.

The virtually homogeneous class and occupational background of monetary policy-makers is justified by claims regarding the knowledge and experience the task demands. I believe there is little basis for this claim – there is in fact a strong argument for the idea that an overdeveloped faith in technical expertise is precisely what sent the global finan-cial system into a tailspin – but in any event it does nothing to diminish perhaps the most important feature of monetary authorities in the capitalist global North: they are, with a few exceptions, wealthy white men who share a privileged and hegemonic per-spective. The literature on voting behavior in central bank governance demonstrates conclusively that where policy-makers come from, their gender, class background, poli-tics, education, and work experience matters in their policy stance (Greider 1987; Gildea 1990; Havrilesky and Schweitzer 1990; Bernhard, Broz and Clark 2002). The signifi-cance of these predictors must only grow with the degree of autonomy from popular accountability the central bank enjoys.

Indeed, one of the best-known economic models of monetary policy endorses the appointment of a ‘conservative central banker’ whose ‘inflation-aversion’ is greater than society’s in general (Rogoff 1985). In a community of debtors, the most likely place to find such inflation-aversion is among creditors and the rich, since one of inflation’s principal distributional impacts is to redistribute income from finance capital and the wealthy to debtors and relatively lower income groups. This class-biased attitude toward inflation holds across many otherwise very different parts of the world (Jayadev 2006). In other words, the ‘new consensus’ among monetary economists and policy-makers is that monetary authorities must be creditors, i.e. they must represent the banks and finance capital.

Who put them in charge?The expanding power and reach of finance capital is, therefore, axiomatic for modern monetary governance theory and practice (Posen 2005; Dickens 1997). The series of breakdowns in the wake of the ‘subprime’ crisis that began in 2007 has upset the com-fortable intimacy that global finance capital and the neoliberal state have enjoyed for much of the last three decades, particularly over the possibility of financial re-regulation




but even six years of recession have done little to dent a shared commitment to strong institutional independence for monetary authority. Both capital and the contemporary liberal capitalist state assume these procedures and priorities a priori; current wisdom asserts that anti-inflationary monetary policy’s effectiveness is a positive function of, first, monetary authority’s independence from ‘political’ influence or control, especially that of elected or fiscal authorities; and second, the predictability of central banks’ policy actions.

This ‘current’ wisdom is of course a product of both old and new ideas. The argument for relatively independent monetary policy first came together in an articulate form in the post-Second World War period, when some economists and financiers were con-cerned that without what is now called ‘central bank independence’ or CBI, elected politicians would manipulate monetary policy as part of an inflationary ‘political busi-ness cycle’, softening credit constraints to produce a ‘boom’ before elections or when some public confidence was otherwise warranted (Boddy and Crotty 1975). Today, how-ever, it is widely recognised among economists that an attempt to positively affect growth via the double-edged sword of low interest rates – i.e. pumping money into the economy may cause inflation, but it helps create jobs – is not just cynical self-interest on the part of elected representatives, but is ‘optimal’, at least in the short run. But, according to the new consensus macroeconomics, it is the very shortness of this short-run that is the real problem: buyers and sellers of commodities, labour and capital goods come to expect these price-driven stimuli, and start to calculate anticipated inflation into pricing deci-sions and contracts (Kydland and Prescott 1977; Calvo 1978; Barro and Gordon 1983; cf. Drazen 2000).

According to modern economic orthodoxy, in a context of expansionary economic policy these so-called ‘rational expectations’ of inflation generate ‘time-inconsistency’, an unintended but inevitable incongruence between short- and long-run optimality. The reasoning is as follows: since economic agents in such conditions are already anticipating inflation, monetary expansion can only have a stimulating effect on economic activity if it is a ‘surprise’, i.e. if inflationary pump-priming exceeds expectations. However, since monetary policy must therefore become more and more inflationary to produce the ‘surprise’, it cannot but lead to accelerating rates of inflation. The lesson of the theory of time-inconsistency, then, is that any positive impact of loose money policy, sincere or cynical, is restricted to a short period that is far less important than the ‘unavoidable’ negative long-term impacts of inflation, which accelerate as prices rise.

Consequently, since inflation is the content of a Pandora’s box it will be very difficult to close, current wisdom holds the relationship between monetary and ‘political’ author-ities to be constrained by the following ‘facts’:

(a) all state powers are susceptible to inflationary myopia;(b) all economic agents have dynamic ‘rational expectations’ of economic change;

and(c) time-inconsistency is a particular problem for democracy, because elected deci-

sion-makers are more beholden to a short-run-oriented electorate, and thus have a great tendency to try to push unemployment below its ‘natural rate’, or the ‘non-accelerating inflation rate of unemployment’ (NAIRU). This is known as democracy’s ‘inflation bias’.



Mann 207

If so, then a central bank must be ‘independent’ enough to resist, or at least actively sup-press, these temptations. Alan Blinder (1998: 58), a former member of the US Federal Reserve board of governors, puts it in plain language:

many governments wisely try to depoliticize monetary policy by, e.g., putting it in the hands of unelected technocrats with long terms of office and insulation from the hurly-burly of politics. The reasoning is the same as Ulysses’: He knew he would get better long-run results by tying himself to the mast, even though he wouldn’t always feel very good about it in the short run!

In saying so – and, as far as I can tell, entirely unwittingly – Blinder isolates the most glaring problem with the independent central banks of contemporary capitalist liberal democracy: the plainly anti-democratic nature of a handful of ‘unelected technocrats with long terms of office and insulation from the hurly-burly of politics’.

Proponents of strong independence for monetary authority argue that the non-democratic characteristics of this institutional structure can be redeemed by monetary policy that is ‘credible’, ‘transparent’ and ‘accountable’. These three features are supposed to allow citizens to understand the central bank’s policy goals, and to assess the extent to which it is reaching them. It is worth noting that even if it operates according to these criteria, however, the bank is in no way obligated, or even encouraged, to involve any particular group – including the public – in the determination of what those goals are, or in initiating any changes those groups might deem necessary. The problems, both institutional and political, to which credibility, transparency, and accountability offer ‘solutions’ – as Blinder puts it, by ‘depoliticizing’ monetary authority – are complicated further by radical transformations in monetary policy operations over the last three decades, in particular the adoption, across many of the most powerful capitalist econo-mies, of so-called policy rules. This process involves the formal renunciation, on the part of monetary authorities, of what central bankers call ‘discretion’ – i.e. flexibility with regard to policy tools and goals – in exchange for ‘pre-commitment’ to fixed policy goals – 2 per cent nominal annual inflation, for example – that the bank makes its first, sometimes only, priority.

Discretionary flexibility was standard monetary policy practice prior to the early 1990s. With the exception of the monetarist experiments of the late 1970s and early 1980s, central bankers have conventionally worked with a range of policy mandates, shifting priorities as macroeconomic conditions demanded – focusing on unemploy-ment when it appeared to be reaching unacceptable levels, for example, or realigning exchange rates when they moved outside of preferred values (Epstein 1992). Today, this kind flexibility is scarce, and where it does persist, it is usually only de jure; actual prac-tice tends to accord with ‘unwritten’ policy rules (De Long 1996: 49). The Fed’s long-standing ‘dual mandate’ of full employment and monetary stability, for example, persists not because US central bankers are opposed to inflation-targeting, but because of what Chair Bernanke (2003: 14) once called ‘delicate issues of communication’ (code for the inability of the public and members of Congress to understand why the Fed should drop its statutory commitment to employment). Nevertheless, the Fed tends to operate – at least in ‘normal’, non-meltdown times – if not with an inflation ‘target’, then at least with a de facto inflation control rule.




Milton Friedman is the best-known advocate of policy rules. In the mid- to late-1960s, he argued that to prevent inflation bias, central banks should be legislatively constrained to increase the money supply by a fixed annual percentage, equal to the growth rate of the economy as a whole (Friedman 1968). However, this intuition is the foundation of monetarism, and the failure of monetarism to meet its own limited policy goals exposed its limits; time-inconsistency and rational expectations form the basis for policy rules today. From the contemporary perspective, discretionary policy frameworks are especially prone to time-inconsistency, since they do not allow market participants to properly anticipate changes in the price level. In short, discretion is one of the two crite-ria by which the new consensus judges effective policy: it renders monetary authority ‘unpredictable’ (or, what is worse, ‘political’).

This is important for contemporary practice because the point of setting strict policy rules is not only just to limit excessive monetary expansion. It is also because, according to the same rational expectations logic, the expectational spiral of time-inconsistency is contained only when monetary policy involves a credible commitment to an explicit nominal inflation rate (of, for example, 2 per cent):

successful monetary policy is not so much a matter of effective control of overnight interest rates as it is of shaping market expectations of the way in which interest rates, inflation, and income are likely to evolve over the coming year and later. … Not only do expectations about policy matter, but, at least under current circumstances, very little else matters. (Woodford 2003: 15)

Credible commitment to a clear rule should consequently limit or even eliminate time-inconsistency, since it makes central banks’ behaviour eminently predictable. Rules to which monetary authorities have, over time, demonstrated a real commitment are said to ‘anchor’ market expectations: if a rule stipulates that the central bank must do every-thing in its power to maintain a target rate of inflation, and the central bank has in fact demonstrated that it will adhere to the rule, then if inflation does accelerate for a brief period, producers’, investors’, and wage-earners’ rational expectations will be that price increases will be minor and temporary, and they will thus refrain from pricing antici-pated inflation into their contracts. Optimal policy outcomes of this sort (i.e. the realisa-tion of the targeted inflation rate, or near to it) are expected to be general across the nation’s space-economy, because their effects are assumed to be temporally and spatially uniform within its territory. (This last is one of those ‘assumptions’ made by economists that none of them in fact believes. The problem is that if it is not assumed, the model cannot be ‘closed’, and policy is much more difficult to justify [Issing 2001].)

I want to emphasise the fact that the seemingly ‘technical’ rules vs. discretion debate in monetary policy takes on special weight when we remind ourselves that a policy rule is not a ‘law’ in the ‘law of motion’ sense. The rules vs. discretion debate matters immensely because a rule is not only something we must follow, but is also, and prior, something we get to determine. The former – follow the rule, it’s the same for everyone everywhere – suggests a technical proceduralism compatible with liberalism generally; the latter suggests a politics, a politics of decision and the decision-maker, or ‘sovereign’. And as Blinder puts it so clearly, politics is the last thing that is supposed to contaminate contemporary capitalist monetary policy.



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This is nothing more than willful, and futile, disavowal. In liberal capitalist democ-racy, the irreducibly political nature of monetary policy rules works itself out primarily through the capture of central bank control and monetary authority by one class frac-tion: finance capital. The current ‘first world debt crisis’ has rendered this dominance, and the associated complex and complete interdependence of the modern capitalist state and finance capital, visible in an unprecedented manner: what else could justify the ‘bailouts’?

Democracy’s (and workers’) ‘inflation bias’All models of monetary policy-making driving contemporary practice posit a democratic ‘inflation bias’. While the current obsession with inflation above all else has really only determined policy in the wake of the collapse of Keynesianism, anti-democratic mone-tary politics are not a neoliberal innovation. In no way was Keynesianism (nor Keynes’s theory, which is not necessarily the same thing) premised upon a wider participation in or oversight of monetary authority, and monetary policy was an effective tool of capital back in the Fordist hey-day too. In the late-1950s, for instance, the Fed tightened mon-etary policy to help disable union efforts in the industrial core (Dickens 1995). Equally, in the late-1960s, faced with unprecedented working-class power, Nixon’s crisis-management strategy took an explicitly ‘inflationary form’, in contrast to the deflationary form it took in the late-nineteenth century and during the Depression, when labour was less able to mount an effective political response (Arrighi 2007: 130; Dickens 1997). Indeed, the collapse of the Fordist labour–capital accord is usefully framed by ‘conflict’ theories of inflation (Taylor 1991; Rowthorn 1980), i.e. as a function of capital’s reaction to Nixon’s attempt to use monetary policy as a means to subdue distributional conflict, a reaction that ultimately realised itself in the authoritarian organisation of global financial hard-ship by Volcker’s Fed in 1979 (Marglin and Schor 1990).

It is worth emphasising that these are not only the musings of a critic of modern ‘new consensus’ monetary governance. Orthodox economists and policy-makers have often noted how helpful monetary policy is in containing labour–capital antagonism. As one Bank of Canada deputy governor and economist noted in an enthusiastic assessment of Canada’s inflation-targeting rule:

many of the other benefits anticipated from low inflation, such as low and less variable interest rates, longer terms of wage settlements, fewer cost-of-living adjustment (COLA) clauses, a reduction in the number of workdays lost to strikes, a lengthening in the terms of financial contracts, and well-anchored inflation expectations, have also been realized. (Freedman 2005: 186)

Given that during the period in question (the IT era), real wages in Canada have fallen and income and wealth inequality have accelerated, we can safely presume that labour’s relative ‘flexibility’ is not attributable to increasing satisfaction with monetary policy, labour relations or economic dynamics in general. Since the existence of fewer COLAs and strikes is obviously entwined with the broader decline of union power in the Canadian political economy, a pronouncement of this sort is clearly nothing less than an enthusiastic celebration of monetary policy’s role in managing the Canadian working




class. Similarly, monetary authority has occasionally acknowledged explicitly that ‘fiscal’ authority has sometimes helpfully repaid its assistance in the struggle against the working class. Writing of Volcker’s anti-inflationary work in the early years of the Reagan presi-dency (although it is important to note that the process began under Carter), Brenner (1998: 191) notes how much Volcker attributed to Reagan’s attack on PATCO:

The most important single action of the administration in helping the anti-inflation fight was defeating the air traffic controllers’ strike. He thought that this action had a rather profound, and from his standpoint, constructive effect on the climate of labour-management relations, even though it had not been a wage issue at the time.

Frank evaluations of this sort perform the welcome task of highlighting the class politics central to money and monetary policy. Regardless of democracy’s purported ‘inflationary bias’, finance capital’s effort to constrain the liberal-democratic state from following a path it deems too inflationary relies, crucially, on silencing workers’ opposi-tion. Indeed, because inflation is frequently attributed to wage structures like COLAs – so-called ‘wage-push’ inflation – eliminating it is understood to be predicated upon precisely that form of working-class silence that victories in confrontations like the PATCO strike helped capital achieve. These political effects are only exacerbated by subnational regional disparities, which determine the distributional outcomes of mone-tary policy, most notably in the form of negative impacts on wages and employment levels. Studies of several nations’ monetary regimes show that the effects of independent central banks prioritising inflation control are to reduce wage and employment levels over time (Fortin 2003; Iversen, 1998; Cornwall and Cornwall 1998; Jackson 1998; Palley 2006).

In other words, if the sovereign capitalist state persists despite its anticipated disap-pearance in the age of capital, it does so at least partly, and in not insignificant ways, through its monetary authority. The current ‘subprime’ crisis and the preeminence of monetary policy in the macroeconomic mix mark the degree to which the wealthy capitalist states – and, recently, other powerful nations like China – identify their polit-ical economic priorities as irreducibly monetary – and not necessarily in the ‘make as much of it as possible’ way. Money is a primary means of governance in itself, via its political function – which is, as we have seen, to help ring-fence and separate the mon-etary realm from democratic politics – and more instrumentally, in so far as the produc-tion, supply and pricing of money, not to mention the determination of the forms it can legitimately take, are central tools of contemporary capitalist governance. The influence these means have on social life today are hardly exaggerated by the business pages’ obsessive worrying. ‘Quantitative easing’, international ‘liquidity swaps’, ‘reverse repur-chase agreements’: these are not tools used merely to address minor fraying at the fringes of the social order (Financial Times, 12 May 2010, 6 April 2012; Guardian, 30 November 2011; Joyce et al. 2010; Obstfeld et al. 2009; Markets Group of the Federal Reserve Bank of New York 2012).

Monetary regulation is thus crucial to the production and reproduction of the mod-ern state. This involves both the performative writing of economic geographies via mon-etary discipline – which, in the case of powerhouses like the Fed, can extend far beyond the state’s territorial boundaries – and the ideological production of a nationalist citizenship



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which, however strictly class-differentiated, remains sufficiently beholden to a shared macroeconomic ‘national’ welfare to accept the associated class-specific discipline as nec-essary.

These problems bring us back to the fact that political economic regulation in con-temporary capitalist liberal democracies is founded upon money as exception. In modern capitalist democracy, money is a realm from which both capitalism and democracy are actively excluded. The monetary regime is not in any way shaped by competitive market forces – it is, on the contrary, structured entirely by state authority; the competitive moneys Hayek (1976) advocated remain a libertarian pipe-dream. Neither is money open to democratic popular critique or engagement; the same state authority that keeps the monetary sphere free of market forces is, even in ‘democracies’, non-democratic. Money is a space of almost ‘pure’ decision or sovereignty, and a class-specific power at that. This gives the very structure of modern monetary governance a distinctively author-itarian quality.

Indeed, Hobbes’s original formulation of the Leviathan is a remarkably fitting descrip-tor: the premise behind the entire modern capitalist state is that for capitalism and its attendant liberties to thrive, money is the one social relation in which we must contract with the sovereign, subject ourselves to total authority, and welcome a permanent state of exception (Mann 2010). It is not by chance that in Agamben’s State of Exception (2005), an engagement with Hobbes and his sometime champion, the Nazi jurist Carl Schmitt – and a text that has quickly become very influential across the social sciences – many of the historical examples of ‘states of exception’ are a product of the sovereign’s explicit effort to protect the domestic currency. Democracy’s ‘inflationary bias’ is the monetary analogue of Hobbes’s justification for the Leviathan: in the ‘state of Nature’, all we end up with is the ‘Warre of all against all’. Indeed, Hobbes (1968: 300) himself named the monetary space as exceptional: money, he writes, is the ‘Bloud’ of the state, the ‘sanguification of the Common-wealth’, ‘nourishing (as it passeth) every part thereof ’.

More than 350 years later, this is widely considered just plain common sense. Money is the blood of the economic body. It must not be diluted (via inflation), and its circula-tion must not be interrupted. Central banks and the financial system in which they are enmeshed are, on this account, the heart of modern life: pumping credit money through the body, regulating systole and diastole in response to the level of (capitalist) economic activity.

Now, however tempting it is to extend the metaphor, let’s return to the concept of money as a non-democratic space before concluding, since it is worth confronting a couple of finer points that further establish the ways in which the exception operates. To take one possible wrinkle: the shift from discretionary to rule-based monetary policy I described earlier would seem to trouble my argument. Indeed, it might seem that mon-etary policy conducted according to the discretion of central bankers is closer to a condi-tion of ‘pure’ decision, and that the present commitment to policy rules fits reasonably well with a depoliticised liberal proceduralism.

There are at least two problems with such an account, however. First, the rationales for policy rules and central bank independence are interdependent, and evolved together. As I hopefully made somewhat clear earlier, the expectational consistency that justifies policy rules is understood as unobtainable if monetary authority must respond to elected authority. Independence and policy rules are two sides of the same coin, since




one cannot make a credible commitment to a rule, a ‘decision’, if that commitment is constantly open to popular question. In other words, the age of discretionary monetary policy was also the age in which central banks were much more accountable to parlia-ments and congresses, an age in which public outrage at unemployment levels, for example, directly shaped monetary policy. In spite of what central banks claim, rules do not establish a juridical ‘proceduralism’ at the heart of monetary authority, since they hold in a context in which that kind of accountability is no longer attendant to the exercise of authority.

Second, and related, to suggest that rules are more egalitarian or ‘democratic’ is to forget the point I made above regarding rules: they are not just followed, but also made. And monetary policy rules like Canada’s inflation-targeting programme are made by a tiny, but enormously powerful, cadre of society. Moreover, those who set the policy rules in this case have no intention of debating them; the rules have not only been made by a small group enjoying vast privilege, but, if at all possible, they will stand as the rules for all time. Unquestionable power over the monetary regime is nothing less than the opti-mal institutional structure against which the ‘new consensus’ indexes policy ‘efficiency’. Robert Lucas (1986: 128), the Nobel-winning ‘new classical’ macroeconomist (and per-haps the most influential economist of the post-Second World War era, surpassing even his teacher Friedman), makes the case plainly: for ‘efficient’ monetary policy, ‘one must either permit an initial government to make decisions binding for all time … or restrict available strategies [of future governments] still further’.

To put this somewhat differently, then, ‘efficient’ (i.e. transparent and credible) mon-etary policy can be determined in one of two ways: set policy now for all time, or make it impossible to change policy in the future. The authoritarian presumption is in either case identical. Modern implementations of neoliberal monetary governance thus substi-tute ‘credible’, ‘transparent’, and ‘accountable’ for ‘democratic’, knowing full well that the first two have nothing to do with democracy, and the third merely describes the central bank’s relationship to the class that holds it accountable: capital, especially its financial fraction.

A second potential problem for my account of money as non-democratic exception may be highlighted through a consideration of the Euro, a ‘Bloud’ that would appear to demand the end of state sovereignty. When the Euro came into circulation, eleven nations agreed to surrender domestic control of their money. The status and success of the Euro are, of course, controversial subjects. The very concept of the Euro is both politically and analytically unstable, especially now that the Greek and Irish collapses, and the others that appear imminent, seem to have made some wonder (i.e. Germany and France) why they ever signed on in the first place. Nevertheless, the Euro emerged from the European conundrum not despite or contrary to money-as-necessarily- anti-democratic, but because of it (Ingham 2004: ch. 9). This is because the common market that preceded the Euro established an economic interdependence threatened by the instability of diverse moneys and modes of monetary governance across member nations. The contradictory combination of commercial integration and monetary autonomy motivated the Euro and, as such, it arose as an international solution to the problem of time-inconsistency writ large: space-inconsistency.

Basically, the Euro and the establishment of the European Central Bank (ECB) – which, by no accident, is also the most independent central bank on the planet – does



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not so much challenge the notion of money as exception as it demonstrates that the accession to the sovereign decision in the monetary realm is so essential to the health of modern capitalist states that a not insignificant number of them were willing to make the extraordinary commitment to acquiesce to a supra-national monetary Leviathan. Indeed, if there is a more Leviathan-like institution than the ECB at work in the West, I am not familiar with it.

Money is not neutralTo conclude, let’s return to the problems with which the discussion opened. If labour or working-class studies are at least partly driven by a labour theory of value that is, in effect, a theory of exploitation, then much of its normative political content boils down to an immanent critique of distribution in capitalism. In other words, for the most part labour history and geography are not primarily anti-capitalist endeavours but, rather, aimed at the construction of a kinder, gentler capitalism. If so, then the challenge I am trying to name is not how to become more radically anti-capitalist. Instead, my concern is that the vision of a kinder, gentler capitalist is perhaps too often developed in the shadow of a misunderstanding of the extent to which class-privileged, capitalist institutions are in fact the basis for the stability of social relations – like money – that we imagine will simply continue to operate in the same fashion, after radical redistribution. In other words, it is possible that the very wealth we imagine might be redistributed is in fact only the kind of wealth it is because of the neoliberal capitalism in which it circulates.

Much of the monetary stability we currently enjoy in the global North – which, although it may seem not all that stable, is in fact almost unprecedented historically – is a result of the institutionalisation of a class-biased, elite neoliberalism that is entirely incompatible with the basically social-democratic vision behind much of the labour cri-tique. Space- and time-inconsistency may or may not be illusory ‘new consensus’ scare tactics, but the expected monetary security that is the very basis of distributional schemes like guaranteed minimum incomes is arguably a product of power relations that mitigate against any such arrangements. ‘Democratic’ monetary governance will produce a mon-etary regime very different from that currently in operation, a monetary regime that, unless things work very differently than they do today, might very well be a good argu-ment against itself.

Stepping back from the specifics detailed above, what all this suggests is that modern capitalist institutions may be marked by what we might call threshold values on the democracy index. Put another way, there is a very good chance that, if we ever realise the kind of social change that animates the social-democratic proposals with which labour critique is often associated, the institutions we imagine ‘retaking’ or ‘transforming’ will not actually work for our purposes. While this is more easily believed of capitalist finance, or the prison system, it is also potentially true of those seemingly ‘neutral’ instruments of power, like money, that we take for granted in our gut-level theories of exploitation and distribution.

I do not want to make any of this seem simple or straightforward. It is not. If finance capital enjoys extraordinary power and privilege at both the national and global scale, then what exactly is the nature of that power and privilege? I am still struggling with




these questions. Moreover, in the face of this, what are our alternatives? If money is not to be the non-democratic, non-capitalist exception that somehow ensures the persistence of the democratic capitalist norm – then what other possibilities might withstand scru-tiny? Whatever our questions, the answers must almost certainly be more ‘radical’ than the past might lead us to expect.

AcknowledgementsThis paper has benefited from discussion following talks at the University of Washington and the University of Victoria. I am grateful to the editors and reviewers at Capital & Class, and also to Brad Bryan and Geoffrey Ingham, whose sharp minds greatly improved the argument. The research was supported by the Social Sciences and Humanities Research Council of Canada (grant number 410-2009-2812).

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Author biographyGeoff Mann is the director of the Centre for Global Political Economy at Simon Fraser University, and teaches in the Department of Geography. His book, Our Daily Bread: Wages, Workers, and the Political Economy of the American West (Chapel Hill) appeared in 2007, and Disassembly Required: A Field Guide to Actually Existing Capitalism (AK Press) in early 2013. He is presently completing a book on the many lives of Keynesian political economy.



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