The Mania for Fiscal Austerity, “Hard Money” Ideology, and Reification of the Money Signifier

By Michael Hoexter

The economic ideology of fiscal austerity, i.e. cutting government spending as a virtue in itself, which threatens to tear apart civilization as we know it, has been sweeping through elites and right-wing groups in America and Europe.  The nominal center and Left in a number of countries are also “infected” with the “mind virus” of fiscal austerity and budget deficit phobia.  Almost every pro-social initiative that is instituted by government or relies on government funding is endangered by the onward march of this false view of how modern, large-scale economies function.  The mental state and/or group hysteria associated with fiscal austerity has caused leaders to ignore 70 years of economic wisdom as well as the obvious empirical evidence surrounding us that their collective austerity mania is leading to economic and physical damage to the vast majority of people in numerous societies.  The recent electoral victory of the French Socialist, Francois Hollande, thought to be an opponent of austerity, may lead to a temporary break in the political and technocratic front in favor of austerity but the battle is not yet won.  Hollande’s support for “anti-austerity” does not seem to be principled and backed by a complete counter-theory to austerian madness.

The immediate cause of the mania for fiscal austerity among policy elites has been a consensus belief among these “Very Serious People” on both sides of the Atlantic that the social contract rests on “hard money”, the idea that the value of existing monetary units should be frozen in time and that the macroeconomic tools of government are designed only to prevent inflation and, semi-covertly, to support politically-connected industries, like the banking sector.  Furthermore “hard money” belief rests on the notion that money is ultimately the property of the private sector and that money or its value is lent to the government by private bankers and investors, i.e. the very rich and large corporations. Opportunistically tied to this hard money belief is the notion that existing private debt contracts for now overvalued goods (mostly real estate) and services, negotiated in superficially better times, must be enforced to the last cent, forgetting the wisdom of the ancient world which allowed for periodic debt jubilees.  In the now four-year-old Lesser Depression, government budgets, particularly those of governments that do not control their own currencies, have been put under strain leading to political leaders believing that governments are “running out of money”.  Belief in hard-money ideology separates the people and government agencies in need of funding and employment from the currency-issuing capacity of governments and their central banks to spend for the public good, who seem now to spend generously only to serve politically protected elites, most obviously the speculative financial interests that were the immediate causes of the crisis.

The fixation on “hard money” beliefs and fiscal austerity directly contradicts the intuitions and theory of John Maynard Keynes, the founder of macroeconomics and the most influential economic theorist of the 20th Century who pointed out that government actions have a decisive impact on overall economic welfare.  Viewed from the perspective of government monetary operations, Keynes founded modern macroeconomics in response to the damage done by the adherence to “hard money” beliefs by economic and political elites of his day.  Keynes was alarmed by both the disastrous imposition of First World War debts on Germany in the Treaty of Versailles and then the deflationary policies of various national Treasuries in the late 1920’s and 1930’s that exacerbated the Great Depression of those decades.  In both these episodes, Keynes rightly predicted catastrophic results of the imposition of war debts on defeated nations or the insistence upon full repayment of all kinds of debt for unproductive or destructive investments.  While “Keynesian” has come to mean in the popular vernacular, “someone who believes in government spending”, Keynes’s theory also outlines a relationship with money itself that responds to real world economic conditions.  Keynes came to believe that money should serve society and social development rather than society become an instrument of money and moneyed interests.

“Hard money” ideology is not entirely wrong but is simply limited in its applicability within some critically important contexts where money operates.  MMT theorists have provided a valuable rule of thumb to understanding where “hard money” belief is applicable and where it falls down.  Currency users, for the most part individuals, households and businesses, are forced to view money from moment to moment as “hard”, i.e. as containing a fixed portion of value at any given point in time.  All of these private entities are compelled, at regular intervals to balance, or attempt to balance their accounts.  The accounting process must assume that units of currency have at any moment in time a value that is “objective”, i.e. beyond the control of those doing the accounting, and for all intents and purposes fixed at that moment.  Of course expectations of future inflation or deflation also play a role in this accounting but these too are nominally outside the control of these private actors.

Governments, and in particular ones that issue a non-convertible, floating exchange-rate currency, have greater influence in determining the value and quantity of money when public spending is applied to maintaining and increasing overall social wealth.  MMT theorists point out that monetarily sovereign governments are not constrained in issuing currency and can, if necessary, afford any goods and services sold in their currency.  While currency-issuing governments cannot in their spending ignore international perceptions of the value of their currency, they can at any time spend money to support the national interest, though nations with economies in which many critical goods are produced abroad are most vulnerable to depreciation of the exchange rate of their currency in these situations and therefore to economically damaging inflation.

As it denies this capacity of currency issuing governments, “hard money” ideology when dominant in the corridors of national governments with their own currency, is a severe limitation on the use of the instruments of the modern state to pursue the public good and reverse a downward spiral in troubled economies.  “Hard money” as a governing ideology means that pursuing the public purpose is made secondary to “balancing the books” of government.  In bad times, when the amount of taxes collected goes down, government spending is curtailed because it appears as though there is or ought to be a fixed amount of currency in circulation, determined by a historical norm biased towards recent good times, and that government cannot spend more of it because this means “taking it away” from the private sector or from existing public uses.  If they grudgingly acknowledge that government has the ability to spend in unlimited amounts of its own currency, “hard money” advocates assume that this spending is by definition profligate, wasteful and inflationary. Advocates of hard money to push for balanced budget mandates for government, without acknowledging the facility of that government to issue currency.

There are more moderate believers in “hard money”, sometimes called “deficit doves” who think that the seemingly virtuous condition of a balanced government budget should be postponed during a downturn to some future date.  In some situations, the feat of a government balancing its budget may be possible without significant damage to the society and economy but these times appear, from perspective of this point in history, to be exceptional conditions that do little to clarify what is the proper role of government spending in the economy.  From the points of view of a plutocratic or corporate oligarchy, the notion of limiting the independent power of the national state by holding forth the ideal of a balanced government budget, laming their public sector competitor/client/patron, is attractive for the important reason that they can continue to develop their, for the most part indirect, political power to its fullest.  That laming the national state might negatively effect their wealth in the middle or longer term seems not to trouble oligarchs or want-to-be oligarchs very much, as relative power over others rather than general prosperity seems to be their primary goal.  Oligarchs aspire to become indispensable patrons of every important political actor and gain control over what remains of public property.

As a guide to how to administer fiscal policy, “hard money” ideology is completely incorrect when it comes to understanding the operation of sovereign governments and the monetary system overall.  Many of the insights of macroeconomics over the past 80 years have been lost because of the recent re-insertion of hard money ideology into mainstream economics.  The methodological individualism of mainstream economic theory has done a great deal to water-down and weaken the insights of Keynes and the effectiveness of macroeconomic thinking overall.  This methodological individualism dovetails with the insistence of “hard money” ideologues that government act like an individual or a family.

Those who adhere to “hard money” ideology tend to deny or strategically “forget” at critical times that there exists a financial and economic system the operation of which is more than the sum of the aggregated actions of individuals and businesses within that economic system.  Among other dynamics, systems are prone to positive and negative feedback loops, which amplify or dampen waves of activity and which cannot be explained as the aggregate of isolated individual rational decision-making.  Hard-money ideologues insist that government is just one actor among many within the economic system with no differentiated role, just another profit-maximizing individual that must curtail it supposedly self-centered wants like everybody else.  Like the saying “not seeing the forest for the trees”, those who deny that there are system-level effects and phenomena, also deny that public policy and political debate should address system-level issues.  System-denial and the denial of emergent effects of systems then is a critical component of “hard money” ideology.

Beyond the simplified, often buffoonish prototype of a pure “hard-money” ideologue, represented by goldbugs, some more sophisticated monetary ideologues and “centrist” hard-money adherents are quite sophisticated and realize that currency-issuing modern government does have some independence relative to other social institutions.  They also acknowledge that there are some system-level effects not accounted for by the atomized model of society implied in “hard money” ideology.  These more sophisticated “hard money” advocates can be divided into roughly two camps:  those who wish to covertly monopolize the power of the currency-issuing government for the benefit of elites and those who, out of a sense of personal virtue or personal political preference, hope to “shoehorn in” some more benefit for the masses from the assumed hard-money system.  The former group disingenuously insist that “we have run out of money” while working to use the currency-issuing power of government to prop up, for instance, economic elites like the insolvent banks after the financial crash of 2007-2008.  In my recent review of Simon Johnson and James Kwak’s “White House Burning”, I made a case that this book is an example of the latter type of “hard-money” ideology, in which, via displays of hand-wringing about public deficits and debt, one “earns” the right to put in a good word for the unemployed, for seniors, for the environment, and for the poor.

The fiscal austerity wave is so destructive, the financial and ecological crisis so grave, and the need for new economic and political thinking so urgent, that a revision of our self-understanding with regard to money is required.  Most efforts to face the real problems of society are now faced with political reaction backed by the insistence that there is no money left for these well-meaning initiatives, hard-money beliefs which lead inevitably to stalled or ineffective policy responses.  As Bill Black has recently again reminded us in these pages, the nominal “Left” who might take up the battle against fiscal austerity and to support the real concerns of those in society, seems to have been largely corrupted by the belief in “hard money”.

To arrive at this new understanding, we must first understand what has caused the “mind virus” of fiscal austerity and hard money to be so infectious and the infection so prolonged.  I will sketch below the cultural trends and likely mental mechanisms involved.

Money as a System of Signification

A revision of our self-understanding with regard to money and economics more generally that is to become also a more accurate, more functional social science must start with a clear recognition of the type of thing that money is.  Money is a signifier of value, part of the semiotic system of communicating value between people developed over the last several thousand years.  The discipline of semiotics, often classified as a subdivision of linguistics, has been sidelined after excessively pretentious, pointedly political, or abstract applications of semiotic theory in the period 1960-1990 temporarily exhausted interest in it.   Whatever one thinks of situationist, structuralist and post-structuralist discourse from this period, these writings of greater and lesser merit do not negate the discoveries of Charles Sanders Peirce and Ferdinand de Saussure about the nature of symbols and signs.  Money is clearly a human-created symbol, which, as it turns out, is a non-trivial observation meriting further discussion.

A quick review of the fundamentals of semiotics (the study of the mechanics of signs and symbols) is in order.   Sign systems are everywhere in society.  Semiotics is based on the idea that signs do not contain their meanings but create meaning by referencing objects and abstractions that are themselves not the signs being deployed.  Thus there is the fundamental distinction between the signifier (the visible, audible, and/or tactile sign) and the signified (what the sign refers to/ i.e. denotes or means), the two fundamental parts of any sign.

The 19th Century American philosopher Peirce, discovered that there were at least three categories of sign (icons, symbols, and indices) based on how the signifier and the signified are related to each other.  Icons, usually visual or auditory, gain their meaning via their similarity to the signified, i.e. a photo of ourselves represents us because it looks like us or the small battery-shaped indicator on a laptop screen is supposed to represent the battery inside the computer.  Symbols (used in this analytic sense and not in the popular sense that includes iconic representation) famously have an arbitrary relationship between the signifier and the signified: most systems of writing are purely symbolic with the exception of pictographic characters in some languages (e.g. Chinese).  That different languages come up with completely different words in sound and writing for similar objects (“dog” “chien” “Hund”) is a tribute to the arbitrary relationship of symbols to their signs.  Numbers are also a set of symbolic systems that represent amounts of things and various forms of mathematics represent logical transformations of those amounts.  Finally, indices (the plural of “index”) are signs in which the signifier derives its meaning by its relative position to the signified, for instance “line begins here” where the meaning of “here” is supplied in part by the location of the sign.  While icons, symbols and indices make up a large portion of human communication, the tones and rhythm that accompany language and constitute music may be additional semiotic elements that have not yet been well defined within the semiotic taxonomy.

Semiotics is important because, among other things, it enables an analytically rigorous approach to social communication and society more generally, as it recognizes and distinguishes the physical, objective elements of social communication from the subjective and intersubjective process of making and interpreting meaning.  The distinction between signifier and signified and their culturally manufactured relationship points to the role of semiosis, i.e. the process by which meaning is generated by forming relationships between signifiers and signifieds by individuals and groups of people over time.  Semiosis is a historical, psychological, political and economic process whereby people individually and collectively create and deploy meanings.  One flaw of previous treatments of semiotics has been the implication that the relationships between signifiers and signifieds occur in a frictionless  ahistorical world, almost at times as if by a form of social magic.

Semiotics distinguishes between “natural signs” which are given by unintentional natural processes (a rash from chickenpox infection) and artificial signs created by the intentions of humans or other sentient beings.  Semiosis inclusive of the intentions of the sender/user of a sign applies to artificial signs but not to natural signs which sometimes also fall into the category of non-sign “signals”.  The semioticians of the 1960’s and 70’s were attracted to or associated with radical politics in part because they pointed out how ideological processes in contemporary society tended to blur the distinctions between natural and artificial signs.  Those invested in the social status quo would more often than not like us to view the artificial signs already invented as immutable and univocal natural signs.

In modern societies, money is a critically important sign system with unique characteristics and, upon any degree of sober reflection, it cannot be confused with a natural sign.  Though it is not essential for money, in recent historical memory “hard” money has had deployed a wide variety of iconic representations imposed upon metal tokens or paper bills convertible to gold.  In addition these physical money signifiers have had tactile and sometimes olfactory characteristics which have reinforced their iconic weight in the minds of currency users, tapping into the powerful visual systems of our brains.  The critical feature of both these “hard” monies and modern abstract money is that they represent a number, a unit of account, which is intended to represent (as a symbol) the abstract notion of a divisible economic value and the ability to be exchanged for a desirable good or service or as a means to represent and to repay a public or private debt.  In a recent Levy Institute paper, Randall Wray argues persuasively that the abstract representation of a unit of account or value predates “hard money” by a few thousand years.  Mustering significant historical evidence for what he calls a heterodox theory, Wray suggests that money represents the accounting of debts to others before it becomes itself an instrument of trade, which is the emphasis of orthodox economic treatments of money.

The transfer of the money signifier is a powerful communicative act (“money talks”) that leads to a variety of critically important non-verbal actions, which lead to the satisfaction of wants and needs.  Furthermore, the money signifier is supposed to store value “inside it” over time.  Thus money is not simply the expression of a meaning like many signs but also the trigger for an action as well as supposed to function as a “vault” of value.

Given these many sometimes conflicting functions of money, developing and mastering the relationship to money signifiers and their signified, subjective and intersubjective economic value, is a set of complex cultural and individual acts out of which a number of outcomes are possible.  Powerful social institutions produce and support the money system but in the end, this system is continually reproduced (or fails to be reproduced) by individual acts of estimation, valuation, negotiation, purchase, and debt payment.  There is a continual connection and re-connection of the money signifier with the signifieds of economic value, i.e. individual and social needs and wants, as well as an individual’s obligations to society in the form of tax payments and retirement of private debts.  Money connects needs and wants with the actions of purchase and acquisition, which in turn spur the production of goods and services.

As might be expected different people with different interests, subjective states and diverse economic positions will perform semiosis on the money signifier in ways that differ from each other but are relatively consistent with ideological pre-conceptions that they have.  Commitment to “hard-money” ideology, as one might expect, will produce a longing for representing economic value as a fixed quantity that hearkens back to the association of monetary value with amounts of scarce materials, most often gold, which represents a specific earlier epoch in the history of money.

Reification of the Money Signifier

A fancy but analytically precise way to describe hard-money belief is to state that believers in hard-money “reify” the money signifier by insisting that it be treated as an invariant, virtually physical entity.  Reification means that one treats in one’s mind, abstract relationships and ideas as if they were things.  There are two level of hard-money ideology:  the rarer goldbug like Ron Paul and “Goldbugism Lite” which is a common, widespread belief among supposed moderates about governments running out of (nonconvertible paper) money.

Advocates of the gold-standard think that all forms of money need to be or represent a hard thing, a representation of gold.   This belief is upon closer examination so foolish that few moderately intelligent people will persist in advocating for it:  why should the supply of money be tied to the availability of a not particularly useful metal in limited supply?  More complex and more insidious is the hard money belief found in the Center and on the Left who are convinced that somehow government cannot spend and control money, which is mysteriously made substantial only by rituals associated with private banks or in the space between a nominally “independent” central bank and private financial actors.  The latter group are not gold-bugs and recognize that there is demand for a growing money supply in a growing economy but make money a creature of the private sector, from which all money must be borrowed.  Public spending for them is not “authentic money” therefore the ritual observance of borrowing money to spend over tax receipts.  Johnson and Kwak’s position in White House Burning is exactly that money must originate in private sector transactions (with the blessing of the central bank in the fictional narrative of the money multiplier) but somehow cannot or ought not be minted by government to spend for the public purpose.

The concept of reification (Verdinglichung) was introduced into modern philosophy by the neo-Marxist philosopher Gyorgy Lukacs based on Marx’s theory of commodity fetishism.  Marx’s critique of the fetish of the commodity was a specific case or cases of Lukacs idea of reification, which Lukacs thought pervaded capitalism as a social system.  Both Lukacs and Marx believed or wrote as if they believed that socialism would make reification obsolete.  Marx saw commodity fetishism as the propensity in capitalist market relationships to fixate on things and money rather than on processes and relationships between different groups of people.  The commodity, the finished product, once it appears on the market, hides the conditions and relationships which create it and brought it there in the first place.   Lukacs saw reification as the critical component of how unequal capitalist relationships maintain themselves as people tend to see their lives and society as a collection of things rather than social relationships.  The concept of reification is very important for reasons other than this critique of capitalism but should be given a different evaluation than accorded it by Marxists.

Marx and Marxists believe(d), or talk and write as if they believe, that capitalism has introduced all manner of destructive propensities into human behavior, propensities that will vanish in a properly structured social system.  Critically important among these destructive or inhumane propensities is reification/commodity fetishism, as well as the closely associated characteristic/character flaw of greed.  The negative characteristics of human beings are, in the Marxist view, made a feature of the social system.   This social determinism is the exact opposite of the general right-wing or reactionary view that human frailty is “natural” especially when it comes to the actions and character of the non-property owning classes.

While it appears to me that all human frailties cannot be solely attributed to on the one hand biological nature or on the other hand society, the discovery of Marx and Lukacs, reification, is actually a feature of our language and may not be something of which we want to entirely rid ourselves in a better social system.  In their path-breaking work on metaphors in language, Metaphors We Live By, George Lakoff and Mark Johnson observe how our cognitive world seems to use the physical world and basic human experiences with that world as a bootstrapping mechanism to build complex abstract concepts.  Lakoff and Johnson make a compelling case that spatial and physical metaphors are used to communicate abstractions via related metaphors embedded in common turns of phrase.  For instance, the authors cite the “conduit metaphor” developed by Michael Reddy, which suggests that communication is like sending idea-objects in packages through a conduit to the other person (“It’s hard to get that idea across to him”).   They also observe how abstract ideas are discussed as if they have the qualities of objects, “My heart is full of love” (love is localized in the heart and is like a substance).  One general take-away from Lakoff and Johnson’s work is that people are constantly using the physical world and their experience with it to understand and communicate vividly about abstractions like thoughts and feelings.  In the terms of the current discussion, our minds are constantly reifying the world to understand it more vividly, though at the same time our reifications might also lead us astray if we believe that they are actually or behave like concrete entities in the world.

Taking off from Lakoff and Johnson’s observations about language and thought, I would argue that reification enables us to come to agreements about certain minimal features of the world.  If we remain in a world of pure abstractions, we run the risk of living in irreducible and isolated subjective experiences.  Through more or less vivid reification of abstractions we can communicate with each other via reference to objects in the world which we all can see, though from different perspectives.  In social transactions of all kinds and market transactions in particular, the need to arrive at agreement on features of the world takes on critical importance.

Evolving Beyond the Reification of Money

As mentioned earlier, using the money signifier is a particularly challenging task for many people, as it requires the balancing of subjective and intersubjective perceptions of value, as well as treating the money signifier as a store of value over time.  Reifying the money signifier, by attempting to find a direct physical correlate to the value that money is supposed to represent, is an understandable reaction to the challenge of dealing with money in everyday life.  It may be that currency users may need to reify money day to day in order to accord it value; reifications of value like gold or, more commonly now, money as a finite supply of physical objects that must be managed, are a “shorthand” for economic value, a nebulous concept that hangs in the balance suspended among the wishes of hundreds and millions of people.

Despite this understandable reification of money by currency users, currency issuers and national governments more generally are faced with the combined effects of many currency users operating together, some of whom additionally are extremely powerful and wealthy and many of whom are destitute or near destitute.  If policymakers also accept a reified view of the currency, as they do now, they will be unable to respond effectively to a collapse of the ability of the economy to work for the benefit of all.   Thus we see policymakers repeating the mistakes of the 1920’s and 1930’s during a time when currency technologies have developed far beyond the gold-standard of that time.  Reification then becomes “concrete thinking”, the inability to think in abstractions, a habit of mind which is typical of children and adults with some forms of dementia or severe mental disorders.

Ultimately reification of the money signifier and concrete thinking about money cannot be condemned as an across-the-board character flaw in everyone who uses this shortcut to represent “value” or units of account.  However the reification of money does represent in political and economic leaders a retreat from facing the political and economic tasks of the 20th and 21st Century head on.  Leaders must “see the forest” of a system of currency users with emergent properties not foreseen by retrograde factions within economics that reduce that system to the sum of its individual components.  An informed public must lead leaders to see that forest, by at least demonstrating the effects of “hard money” ideology in the halls of government upon them, if not advocating an alternative economic framework.

Without a dynamic conception of the currency, towards which MMT points, politicians and the polity more generally will not be able to face the challenges posed by debt deflation and increasing environmental degradation in a world which must work increasingly in a more coordinated manner.  Understanding currency as the tool as it is, in all probability requires more intellectual and moral effort than many would like to muster.  However without overcoming our tendencies to make inert things out of abstract concepts we will not be able to see how we can use the powerful sign system of money for greater public benefit.