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June 14, 2010

A Critique of Cultural Keynesianism

Filed under: Contra Keynes,Economics,Literature — rmangum @ 9:07 pm

I’ve often wondered why most literary and cultural theory is Marxist. Conservative claims notwithstanding, most academic intellectuals, especially those in the humanities, are not Marxists. They are not radicals, mostly, but rather polite NPR-listening Democrats. So why isn’t there, for instance, a Keynesian critical theory? A post over at the blog Steamboats are Ruining Everything provides a good example of what this might look like.

The post is quite rambling, proceeding from a scene in Jane Austen that provides a metaphor for capitalist speculation to ruminations on economic metaphors in general, to the current Keynesian stance on whether “WWII solved the Great Depression”, and then on to a quasi-“Crusoe” analysis (islanders trading shells) of the role of money and representation. Obviously, since I think Keynesian economics is wrong, I find that Keynesian assumptions mar the post. But otherwise it is quite interesting, especially comparing it with Paul Cantor’s essay “Hyperinflation and Hyperreality,” on Thomas Mann’s Wiemar-era short story “Disorder and Early Sorrow,” which similarly explores, from an Austrian perspective, the parallels between representation and value in money and representation and value in culture.

A few points:

1) Not long ago, I had coffee with an undergraduate who reported that he had just read Derrida and Lacan on Poe and was excited by the idea that criticism might be the new literature. Twenty years ago, when I read Derrida and Lacan on Poe, my professors teased me the same exciting possibility. It occurs to me now that the idea is about as old as, and has certain structural parallels to, the notion that finance is the new manufacturing. Like criticism over literature, finance traditionally supervised manufacturing yet was thought to be parasitic upon it and less “creative” than it.

Finance is not necessarily parasitic upon production, but it tends to replace real economic activity in a central banking regime, which breaks the link between money and real wealth. Likewise criticism is not necessarily parasitic upon literature. Just as one can probably find money and finance as soon as soon as trade emerges, so too literary theory is almost as old as literature (there’s no reason to assume it began ex nihilo with Aristotle’s Poetics). But the period from the 1970’s to the 1990’s was a sort of “theory bubble.” The metaphor has already been deployed by Camille Paglia in her essay “Junk Bonds and Corporate Raiders: Academe in the Hour of the Wolf,” from 1991, which may well be the point when the bubble began to burst. (The equivalent of the economic “flight into real value” being the flight of intelligent students out of the humanities.)

2) I don’t see how Keynes’ theory of the “propensity to consume” necessarily entails equal distribution of wealth (or at any rate a more equal distribution of wealth).

But according to Keynes, there is a problem with concentrating wealth in the hands of the rich: they don’t spend as much of it. They aren’t, after all, in need. “Consumption — to repeat the obvious — is the sole end and object of all economic activity,” writes Keynes, in a sentence quoted by Swartz. That is, money in the bank is for the interim worthless; its value is suspended until it is put into use. Give a rich person ten dollars, and he is likely to put nine dollars in his savings account. Give a poor person ten dollars, and he will have spent all ten by lunchtime on food and services, and its beneficiaries will be people who have to work for a living and who are therefore more likely to spend it themselves. The original ten dollars, if spent by a person of modest means, will multiply their value as they work their way through the economic system.

If aggregate consumption is the goal, and if higher incomes mean lower consumption, then it wouldn’t matter if wealth was redistributed. Consumption by the rich would go up, but consumption by the poor would go down. In fact, we are led to the paradox that we would all be poor if we were all rich, and all rich if all poor.

3) The moral of the story seems to be that when the rich have most of the money and hoard it, the symbolic value of money becomes somewhat unreal—the conversion of money, which is imaginary, into value, which is real, breaks down.

Again, see the Cantor essay on how this is precisely what happens because of the government monopoly on the production of money. But these views are not necessarily mutually exclusive, since a left-libertarian analysis would find that inequality of wealth increases with government monopoly. One can see a bit of this in Cantor and Mann, who find that capitalists (speculators and war-profiteers specifically) are in fact the main beneficiaries of inflation. (There is also a conservative thrust to both, too, but I won’t go into that.)

4) The whole analysis of islanders using shells as a medium of exchange imports facets which characterize a modern central-banking economy into a primitive market situation. Shells would not emerge as money if they had no intrinsic value to the islanders in addition to being a medium of exchange. Therefore it does not matter that “The durability of the shells misrepresents the nature of fish and breadfruit” because the shells are not mere stand-ins for other goods but also goods in themselves. But even if they were just symbolic, it is in the nature of all symbols, all media, to distort what they represent. This is in a sense a defect, but we only use a symbolic medium if it has advantages over the “real thing” as well (usually simplification, but “durability” often applies as well, especially with words).  The point is that in a free market we are much less likely to confuse the map with the territory than we do in a fiat money economy.

5) The question has to be asked of every liberal follower of Keynes: how do you square the belief that in the economy consumption is king with the desire for a less consumerist society? I have my own thoughts on this subject.

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