Leaving Keynes for Engels

I used to be a fully signed-up Keynesian; all I mean is that I believed that the state should, in general, spend as much money as necessary to guarantee the basic rights of citizens. This means deficit spending in general, for reasons I’ll explain below.

When I read Engels, I realized the flaw in my Keynesian position. Engels argued that the state only arises from the exploitation of one class by another. It can serve no function besides enforcing such exploitation. A state that genuinely acted in the interests of the exploited class – the proletariat – would remove the need for itself as an instrument of exploitation. Devoid of any other function it would wither away. But surely among people’s basic rights is the right not to be exploited. So maybe Keynesianism as I’ve defined it isn’t really possible after all, requiring both the presence and the absence of the state.

Warren Mosler’s analogy is helpful for thinking about how the state functions as an instrument of exploitation (this isn’t, I should say, what he uses it for). Suppose I make a bunch of tokens and I offer to give them to you if you do work for me. You refuse, having no interest in my silly tokens. Now suppose that I have superior force and I threaten to take away your means of subsistence or your liberty unless you regularly pay me tokens. Now you’re ‘unemployed’: you need a job that pays in my tokens in order to protect yourself. Once I start paying you to work for me, you’re ’employed’. But if I’m sufficiently cunning I’ll make sure never to pay you enough to become independent. I can keep you working for me indefinitely as long as you keep having to earn tokens to make the payments I require of you.

I, of course, am the state. The tokens are money, issued by the state in exchange for goods and services and accepted by the state as payment of taxes. The threat of taking away subsistence or liberty is what Marx called ‘primitive accumulation’. Marx was clear that the mere threat of expropriation, which the threatened classes must sell labour to fend off, is an indirect form of primitive accumulation. The threat can come in many forms. The state can threaten to put you in a debtor’s prison for being in arrears on your taxes, as is currently happening in the US. Or it can threaten to make you beg for your family’s subsistence, fighting through cold bureaucracy while suffering humiliation and demonization by the press – the preferred method in the UK. At any rate, it results in the creation of a proletariat: a class of people who must sell labour just to maintain a basic standard of life with some dignity. For the proletariat, being ‘unemployed’ and being ’employed’ are just two sides of the same coin. In both cases they’re exploited by the monetary regime.

Some would dispute the story about the origins of money, but the archaeological evidence is all in its favour. The textbook idea that money is a mere ‘veil over barter’ – a temporary placeholder in the exchange of real goods for real goods – is historical nonsense. Money is just the embodiment of the right not to be bullied and humiliated by the state. What ‘backs’ it is a threat. (Back in the days of the gold standard, money was ‘backed’ by gold; gold jewelry is nice to wear, but why would anybody want to collect big lumps of poorly shaped gold and store them in a hole? Answer: because those lumps could be use to pay taxes, i.e. to stave off state bullying.)

Now, return to the story and imagine that a third and a fourth person enter. I pay them the tokens you turn over to me. They then pay you tokens in exchange for your labour, taking over my role as your employer. In effect, they hold ‘sovereign bonds’, on which I pay interest, financed out of your taxes. They are the exploiting classes, people who earn money, not from their labour, but by holding ‘financial assets’. How they end up in this favourable position is not relevant; what is important is that I, the state, facilitate their exploitation of the you – the proletariat. Without a state-imposed monetary regime, there are no net creditors or net debtors, and thus no exploiting and exploited classes.

If I want to make life difficult for you I can tax you more in tokens than I pay out to the ‘bondholders’ (the tax might take the form of a withdrawal of services you used to get for free, so that now you need to earn more to stay alive and healthy). No matter how much work you do for the exploiting classes they won’t be able to pay you enough to maintain your standard of living. That’s called ‘austerity’. Money flows out of the system faster than it flows in. On the other hand, if I want to give you a bit of a break, I can make more tokens and pay the bondholders more interest than you pay in taxes. They’ll then compete for your labour, bidding up your wages (more tokens for the same work). You can then build up some savings and stop working for a while, paying your taxes out of your reserves. Once you run out of tokens, you’ll have to start working again. But your life is easier. This is, in essence, Keynesianism: by running deficits the state creates surpluses in the economy (in fact the one is just the mirror image of the other), allowing people to meet the burden of their expenses with money to spare. Money flows in faster than it flows out: the state creates more opportunities for people to free themselves from state bullying than it takes away.

Many people say that Keynesian policies are specifically appropriate to economic downturns – times of shortage in aggregate demand. But since the state itself issues the money that renders demand effective, it is itself responsible for such shortages. They arise only when it allows them to arise, and Keynesianism is roughly the view that it should not allow them to arise.

Is it enough? I used to think so. I thought, implicitly against Engels, that in this way the state could somewhat quell the conflict between the exploiters and the exploited. This was naive for at least two reasons.

First, it’s all very well for the exploited to depend on the state to protect them, but what happens when the state changes its mind? Apparently such decisions are taken with whimsical abandon. In the 1970s there were a few energy price shocks, quite clearly engineered by cartels. Pundits started howling that Keynesian policies (which had nothing to do with the price shocks) were causing inflation. Every government in the Western world abandoned Keynesianism overnight. This is as sensible as being bitten by a dog and responding by putting a muzzle on your cat. It’s best not to rest your hopes on a policy whose pursuants will abandon it at first sight of base sophistry.

Second, even if the state can reduce the level of exploitation, it’s still the ultimate cause of exploitation. It, after all, imposes the monetary regime. Being exploited is like having a stranger grab your genitals; it’s only marginally consoling that it’s done somewhat gently. Someone who encouraged both the action and its gentleness of execution wouldn’t generally be regarded as a friend. In this sense, the state doesn’t really do all that much to quell the conflict between the classes.

What of Keynes’ argument, that growth, fostered by the de-impoverishment of the poor, is in every class’s interest? Note that I haven’t defined the exploiting classes as capitalists. Capitalists – ordinary business owners – can suffer and even be pushed into poverty by slow growth. The exploiting classes are the rentiers – those who live on interest from government bonds and other financial assets. Downturns never hurt them, for the simple reason that they’re always at the end where state-issued money comes in, while the exploited classes are always at the end where it comes out (supply your own imagery). ‘Times get tough’ when the state (which – make no mistake – has complete power to decide on this: ‘business cycle’ my foot) engineers a toughening of times (again, by failing to issue enough money for aggregate demand to meet aggregate supply). Then things are even better for the exploiting classes. Adam Smith agreed with ‘Mr. Hobbes’ that wealth is power. When the state uses its monetary regime to impose hardship, the rich may become nominally poorer, but the poor, in desperation, become slaves. Thus the rich gain in real wealth. Their power over the poor becomes total. Growth doesn’t serve the interests of all classes. Contraction does very nicely for the squeezers rather than the squeezed.

One thing that Lenin got right about Engels (he got a lot wrong) was that the ‘bourgeois socialists’ like Kautsky completely misunderstood Engels’ point in supposing that the emergence of the welfare state amounted to the seizure of the state by the exploited classes. The welfare state is not the state working in the interests of the proletariat; it is the state facilitating a slightly gentler form of exploitation. That’s why the welfare state doesn’t wither away, as, according to Engels, a genuinely proletarian state inevitably must. What Lenin said about Kautskyism applies just as well to Keynesianism – at least the Keynesianism that actually existed.

As for my Keynesianism – the idea that the state should guarantee basic rights – maybe it’s incoherent. If we count freedom from exploitation as a basic right, perhaps this can only be realized by the seizure and destruction of the state by the exploited classes. I’m not a natural radical, so this isn’t a conclusion I’d be happy to arrive at. I also don’t think I’d last all that long in a proletarian revolution. The problem is I can’t find a point where Engels’ argument goes wrong.


4 thoughts on “Leaving Keynes for Engels

  1. Pingback: Job-Creation for Dummies | Origin of Specious

  2. Pingback: How the Labour Party Hates Jobs, and Why the Wealthy Hate Deficits | Origin of Specious

  3. Gary Goodman

    re Mosler
    In past history, Govt consumed scarce resources. After early industrial age, Govt was called on by business (big capitalists) to consume surplus resources. Two reasons, (a) save capitalists risks and losses of over-production, more market stability, sensible investment planning, and (b) create more jobs (you *know* that was one argument, as jobless agitation was rampant during declines and instability).

    Govt enforcement of tax collection do not unemploy a particular person, but net tax revenues (at a certain level, considering factors of trade [current account] deficits or surpluses, savings choices and desires), act to reduce Demand, creating unsold output, which generally increases unemployment. Warren says spending and institutions like JG and other welfare should be sufficient to hire everyone unemployed by taxation — tho he prefers minimal taxation.

    The most efficient or only pragmatic way of having commerce (with accounting) is with a common currency, and that means a standard currency, and that pragmatically means a state-issued common floating nominal currency. Govt enforcement of tax collection makes a nominal value currency ‘work’ — so tax advances (reserves) are accepted for commerce.

    It’s like how movies do not NEED to collect tickets cuz a paper shortage – they issue tickets first, then collect tickets to enforce usage for attendance or participation. Movie tickets are not “backed” by $10 of gold leaf ink.

    Relying solely on barter of shiny rocks doesn’t work and isn’t proper commerce, which involves accounting and record keeping. Movie theaters and every business does not want to maintain heavy vaults for gold or rely on checking spot prices every 10 min. Card swipes and cash works better.

    Relying solely on issuance of private bank notes as loans into circulation didn’t work. Banks cheated, banks didn’t trust other banks, charged HUGE discounts, needed strong enforcement.

    Banks usually expand and curtail the credit-money supply at the same time, in same situations, leading to more extreme Bubbles and Crashes. Banks do NOT increase the money supply (lend) freely into Recessions – govt’s can with fiat currency. Banks do NOT restrict lending into a Boom or credit-driven financial speculative Bubble – govt regulations can, and can curtail govt spending or increase taxes, some automatically based on entitlement regulations.

    Govts, being non-profit, can afford to be counter-cyclical. For-profit banks can’t be socialist.

    Banks don’t fund long term wars or R&D without strong guarantees, low risk — which Govt typically provides. (Constellation refused to invest in a nuclear plant even with 85% govt backing.)

    The last option is a hypothetical money-less gift economy (ideal communism) where nobody keeps records of who owns assets and who has liabilities.

  4. reallyniceguy2014

    A crude solution is rather than Living Wage Job Education Training Income Guaranteed Full Employment, or in addition, level up the playing field with a chunky endowment, like Paine argued.


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