John Maynard Nothing

By Danny Hayward, 5 August 2012
Image: Anon. Keynes and Fractional Reserve

The name of Keynes and Keynesianism have been bandied about endlessly in the four years since the crisis of 2008. Danny Hayward examines the orthodoxies and imbecilities which these words continue to animate


We are presently in a period where a global crisis in capitalist accumulation is imperiously reordering the theories that propose to interpret it. Most of us are also in a period where the vast majority of those theories are manoeuvred into our purview under the single and uninformative cognomen of 'Keynesianism'. The coincidence of these two developments leads, in its turn, to a contradiction. While theoretical developments occur and are contested with unprecedented venom, this latest boom in what is by now more than a century of violently embittered intraclass debate over the role of the state in the management of capitalist expansion is flattened into the mould of one haute bourgeois bon vivant who was no more the 'inventor' of state deficit spending than he was of the British Eugenics Society, though he wrote some books about one and was a director of the other.1


What might be thought of as the history of 'Keynesianism' is in fact not only intellectually various and institutionally diverse; it is intellectually antagonistic and institutionally stratified. This may be a surprise to readers for whom 'Keynesianism' is principally to be identified with media personifications like Paul Krugman, the American economist whose enormous technical sagacity has generated such revelations as that there are six opponents to UK austerity (including himself) and that the best analogue for the global capitalist economy is a Babysitting Coop from the 1970s.2 Krugman is a 'neo-Keynesian'. Post-Keynesians, who count among their principal influences students of Keynes like Joan Robinson, and whose own babysitters have long since gone downstairs to watch television, are strongly critical of neo-Keynesianism, which they accuse of corrupting Keynes’s special insights and of capitulating to 'neoclassical' dogma, that is, to the in-house theory department of private capitalist 'enterprise'. For their refusal of this orthodoxy, post-Keynesians have typically been driven into poorly funded, marginal institutions if not out of 'the academy' altogether – an exodus which, unfortunately, has not led them into the wilderness of 'social movements' and 'grass roots' politics (and therefore into an encounter with the kind of social antagonisms that a theory of capital management could deal with but ineptly) but only into the basement of the ivory tower; which, while only estate agents would describe it as cosy, has remained for two decades a suitable enough hideout for self-described 'dissident' academics plotting to storm the peer review system and effect a palace revolution.


All images by Anon.


If a history of 'Keynesianism' were to be written it would not be the woeful legerdemain concoction of anything like a 'genealogy of influences': it would be a history of intractable theoretical conflict between the representatives of the interests of large capital (including the state), on the one hand, and small bourgeois rationalists, on the other. The following article will pick up that history only at its most recent dip, with a sequence of developments beginning in late-2011 and continuing through 2012, when what I am calling the small-bourgeois rationalist current of 'Keynesian' thinking exited its think-tanks and trade union offices and attempted to identify in the Occupy movement its active class base. That intellectual putsch, in which one margin of institutional economics essayed to extend the influence of its theory by repurposing it as the common sense of a mass politics, was, it seems to me, momentous, though only in the negative sense that it requires conditions of exceptional instability before bourgeois rationalists will identify their class base anywhere more radical than the Rowntree Foundation. (It might be added here that in a sense the Occupy brand invited the alliance, since although the movement was very obviously not composed entirely from small bourgeois rationalists, the core elements of its advertising mythology – that its participants were condemned to no future at just that moment that they were freed from ideology – could hardly have been more sympathetic to theorists operating under the impression that there was no time like the present for their ideology to resume its political career.)


'Think-and-do-tanks' such as the New Economics Foundation (nef) and pressure groups like Positive Money were the chief administrators of this exercise in rabble rousing. Their attempt to orchestrate protesting human capital en masse has occurred principally by means of videos of which the most craven, though not the most stupid, is the recent feature length documentary 97% Owned.3 Such theory as these groups possess becomes interesting only where it is wielded to influence a popular movement, because it is at this point that the theory provides a kind of case study for a materialist anatomy of the categories of capitalist management, or, more familiarly, of economic reformism. What prevents us from reforming capitalist economies in the interest of ordinary people? This is the essential question, the political crux and the theoretical starting point of 'rational' small bourgeois capital management theory, and what I will argue below is that the answer it is meant to elicit – viz., nothing – is also the point de capiton of the melancholy economic science which radical post-Keynesians have used to authorise the Occupy movement and so also to hold it in place.4 There is no reason not to reform capitalism in the interests of ordinary people, say capitalist management theorists: capitalism is “malfunctioning” for no reason besides the fact that banks are permitted to make money out of nothing. In this proposition the first nothing derives its legitimacy from the second; and so too does the idea, common to all 'radical' Keynesians interested in the money system, that nothing is more to blame for our current social 'ills' than the mechanics of money creation. My argument, in brief, is that the desire of 'radical' Keynesians to demonstrate this “nothing” causes them immensely to exaggerate its significance until, like a conceptual black hole, it devours most of the experiences of the social relations that monetary reformists would urge us to transcend, leaving in place a vacuous critique whose intellectual motivelessness is difficult to explain, at least before we remember the class interests of the theorists responsible for its promulgation. Unmotivated critique of capitalist social relations is the prerogative of people with little motive to abolish them.


This may sound complex, but the 'radical' Keynesian account of money creation can be reconstructed quite quickly. Its mantra, as I said, is that the crisis is a result of the power of the banks to produce money out of nothing, without any limit other than the limit of their willingness to lend. The main concern of this contention is not currency, hard cash: it is the money that banks are alleged to 'create' by means of their lending activity, otherwise known as 'credit money'. (The title 97% Owned, for example, is an allusion to the percentage of money that exists in the form of electronic 'demand deposits' in bank accounts, a proportion opposed to the 3% of 'real money' created by the Bank of England.5) Monetary reformists attempt to get to the bottom of this originating power by means of a thought experiment. In their explanation of the process of money creation, they will typically urge you to 'imagine' a person, of the ordinary featureless kind used to illustrate transactions. The transaction that this person exists to illustrate is a £1000 loan from a bank. When (let us call it) she borrows this money, a deposit is created in her account. The customer now has a liability of £1000. The bank, however, has a new £1000 deposit, which it can lend again up to the limit determined by the reserve requirement (supposing that there is one).6 With no reserve limit, the money supply doubles. This is all that is meant by the idea that a bank 'creates deposits'. The idea that they 'create money' is a deduction from that first claim and amounts to the same thing.7 However, the absolute quantity of credit money that can circulate in the economy by this means is determined by the absolute quantity of 'base money' (i.e., commodity or fiat money supplied by central banks to the private banks) under the regulatory control of a reserve requirement (again, if there is one).8 It cannot be claimed on the basis of an analysis of fractional reserve banking that banks are limitlessly free to 'create money'. This is for the obvious reason that a fractional reserve requirement is itself a limit. Another argument is thus required; it is duly supplied, though often furtively, by the empirical contention that a refusal by the central bank to supply extra reserves to private banks would induce credit crunches in the interbank lending market – or, in other words, would cause some banks to recall their loans prematurely, thus disturbing chains of credit.9


The assertion made again and again by monetary reformers – that when banks lend money to you they 'make money out of nothing', and that they can do so up to a limit of their own choosing – is therefore a deliberate confusion of two arguments, one about the operation of the regulatory mechanism known as fractional reserve banking, and the other about the alleged freedom of action of a central bank within a national economy.10 The second argument is required to sustain the claim that the banks create money up to the limit imposed by their will; without it, the contention would be that banks 'make up' money up to a limit imposed by the state, a 'hidden truth' less likely to set aflame the underdeveloped imaginations of conspiracy theorists who want nothing more than to discover that their every twitch and spasm has been foreordained by a spectre stalking across the board of the L'Oréal Group.11 The difficulty, in other words, is that a sober explanation of the determination of the money supply by market demand, in conditions mediated by banks, is dramatically less 'sinister' than the account of the 'money multiplier' implied by bank credit creation under a fractional reserve system, where banks make money out of nothing without constraint.12


The soft-bodied and lightly-bearded middle-class men who run together these arguments plainly derive from their 'difficulty' a boost to the effective demand in their psychological economies for that special masochistic pleasure which has no role in our class society and no purpose elsewhere but to simulate the experience of the hard work that most bourgeois men will never be required to perform. Central banks are the Viagra of the 'New Economics'. And yet, beyond that wretched Freudian Privattheater, the 'theory' offers its weak fillip to another social fantasy. The more that the interaction of various 'economic agents' is transformed into the will of the private banking sector, the less possible it becomes to imagine any kind of serious restraint on the activity of 'the banks', with the inevitable effect that the analysis of social relations that this presentation implies converges gently towards what the illustrious Ezra Pound named in 1935 a 'volitional economics'.13 From the perspective of this economics, the 'originating power' of the banks is their power to produce credit at will, without respect to the wishes of the state. The moral task of economics becomes to criticise this freedom. Banks, monetary reformists say, are responsible for crisis, because the creation of credit was at their discretion. This was also their 'power'. The solution to this problem is obvious. The 'unlimited power' to create credit needs only to be restored to the disinterested state.


Despite appearances, the 'contributions' of nef and Positive Money are not 'crude reductions' of a sophisticated theory. They are the destiny of that theory. They are the destiny of it for the simple reason that any attempt to deduce a language of logical priority from economic 'phenomena' must curtail the relationship it purports to describe into nothing but an ordered series in which the elements can never possess to one another any active relation. More simply, banks with limitless power to 'originate' loans are never required to struggle. Their power 'of origination' is so far from being crude that it begins to seem positively honorific, which means of course that, like the think-tank which defines that power and which feigns to contest it, the institution which it ennobles can never be seen to do anything. No economic model has ever yet included the bailiffs who kick down your front door. The limitation is no less unavoidable for being simple.



Money can be 'made out of nothing', but the power to do so is curtailed by other 'economic' factors that fall outside the power of the banks. The banishment of those other 'factors' (the term in this case can be used in its fullest historical sense) into a kind of theoretical halfway house requires its own historical exposition. The small bourgeois rationalism of nef and Positive Money has a lineage extending to the 1970s. It is a Marxist lineage – though of a particular kind. 'Money', nef write, 'is a social relation'.14 And doesn't the idea sound familiar, that social relations are material aspects of the world whose overthrow would do away with all tasteless 'idealist humbug', and with other things besides? Doesn't all this feel just a little 1845? And yet nef's idea of a 'social relation' is not derived from the work of Marx and Engels but from the work of the Italian Marxist economist Augusto Graziani; for it was Graziani, and not Marx, who was first responsible for the proposal that money is a 'means for realizing social relations', a complicated phrase which in this case means that money can be dissolved into its two distinct social functions: in mediating exchanges between capital and labour, on the one hand, and in facilitating commodity circulation, on the other.15 It is this 'insight' that helps to underwrite later and more 'empirical' work in economics on the significance of the different kinds of money involved in the process of social reproduction – such as, for example, the work by contemporary monetary reformists on the social significance of the distinction between fiat and credit money. And yet what does this concept of social relations teach us about the role of money in creating, recreating, and also in inhibiting, our collective social life? What aspects of our social life does it allow us to analyse or call into question?


Probably the main problem with this vision of a social relation is that its object is just that, a relation, pure and unadorned. It is not a relation of force, like one might find in physics; it is not an allusion to the classical Latin etymon relatio, in which something is laid before the senate with a view to inveigling its members into action; most of all it is not a bad relation, of the kind that, quintessentially, a person doesn't want to be in and of which she knows no way to get out. What it is instead is something much more like the OED's abstract second definition in its entry for relation: 'An attribute denoting or concept expressing a connection, correspondence, or contrast between different things.' For Graziani, money serves different functions in the creation of 'connection[s]... between different things.' Some of those 'things', for instance, classes and commodities, are social. Voila!, we have a social relation. All the old hoary reifications are swept into the wastepaper basket of history by the maidservant of academe. And yet in spite of these giant leaps for mankind, Graziani's conception of social relations breaks no ground in telling us why the social relation might cease to function. A temporarily broken social relation, what Graziani calls a 'break in the monetary circuit', can be named, but it cannot immediately be explained; and eventually the theorist declares, in a tone familiar from the buy-one-get-one-free mix n' match offer, that different explanations – whether they concern 'investor uncertainty', 'class struggle', or the contradictory nature of the commodity – are 'matters of personal choice rather than a substantial theoretical difference.'16


It goes without saying that none of this would be especially interesting or relevant to our own conjuncture if it wasn't so consistent with the aims of late-twentieth century Italian Party Communism, the movement with which Graziani has always been affiliated, and which, by the time of his writing, had been thrown onto the baleful trajectory of a 'Historical Compromise' that, during the 1980s, would segue into a process of 'modernisation', before culminating in the dissolution of the party, the formation of the 'Democratic Party of the Left' (1991), and then later the 'Democratic Party' (1994), a sad residue last seen sticking supportively to the government of Mario Monti.17 Monetary reformism's diminished attentiveness to class under the banner of 'social relations', then, is old news in a specific sense: it borrows its insights from intellectual developments first refined during a moment of political capitulation; a moment in which social antagonism was expelled from politics in favour of a real historical move towards the so-called productive unity of workers and small capitalists. That unity was defined in Italy in the 1980s in antagonism to the 'corrupt bureaucracy'. In the 2010s it is defined in antagonism to 'finance capital'. The nomination of the particular opponent is ancillary to the decision to invest it with a special 'originating power'.


Nothing will come of nothing, speak again, says King Lear. Out of nothing, nothing comes, says Marx. Monetary reformism proves both wrong, because out of nothing it fashions a concept of social relations in which, admittedly, nothing is understood and in which no problems are solved. And where does this leave us? Like other kinds of unmarked packaging, relations are best discussed by analysing their contents. But in advance of that analysis we can at least say this, that they will be defined neither by financial omnipotence nor by anything so evidently beyond its social-historical sell-by-date as a metaphysics of resistance. Banks that originate loans, and that test the limits of what they can extract from their debtors, are not demiurges. They are themselves engaged in a struggle. That struggle is, in the first place, the cooperative struggle to subsist within these social relations. 'Cooperation' in the sense in which I use it here is not the 'unity' of workers and capitalists against financiers, and it is not a 'mutual association of producers', but it is the only cooperation we know; that is, the mutually disintegrating cooperation of exploiter and exploited in conditions where the most basic goods (interest just as much as housing) become harder and harder to obtain.18 And while our volitional economists might point out that their specific 'policy agendas' go unmentioned in these criticisms, nevertheless the theory on which those agendas allege themselves to be based does not as it would claim 'suspend', 'bracket', or otherwise 'preserve in the background' the unspoken fact of class relations, any more than it 'highlights' the power of finance capital; for in fact by attributing to the second of these a limitless power of origination it reduces both to nothing; much as the crisis, the best contradiction of a limitless 'power of origination' that anyone could hope to imagine, reduced so many thousands of exploited 'small proprietors' to the street.19


Post-Keynesian economics in general, and its margin of 'radical' monetary reformists especially, produces an account of social relations in which those relations are not clarified but are instead diminished to the image of an demiurgic banking sector whose violence can be assuaged merely by way of the sagacious redistribution of its power, according to the edicts of our better moral sense. This account conditions a political vision in which all of the damage and all of the incalculable suffering that capital accumulation throughout the last century has striven to 'deliver' is burlesqued into a series of errors that have no place in our thinking except as the brief prelude to that most hygienic of all social desires, the fresh start. And yet the fresh start is a desideratum that, in spite of all the attempts by monetary reformists, 'regulatory authorities' and state socialists to own it, has in bourgeois history still no better, more temperate or intelligible emblem than the guillotine. The theory that occupies itself with the relocation of a conceptual 'nothing' is just one way to keep this truth out of view.


Danny Hayward <dannyjhayward AT> thanks his critics



1 It might be replied that this designation works perfectly well for 'Marxism'; but in that case the best equivalent would be an attempt to analyse all Soviet 'domestic economic policy' as a hotch potch of variously conceived applications of Das Kapital.

2 Krugman finds this example 'inspiring', which must be very nice. His main slogan in favour of large scale deficit spending has been your spending is my income​, a call-to-arms on a merry-go-round that unfortunately has absolutely nothing to tell us about capitalism, which, for so long as it is organised at every level around the competition between people, nations, and blocs, requires that at least some spending produces profit. Decca Aitkenhead, 'Paul Krugman: “I'm sick of being Cassandra. I'd like to win for once”',

4 The French term point de capiton is variously translated in English editions of Lacan's work as 'quilting point' or 'anchoring' point. It is the interaction of the signifier and the signified as they are knotted together, fixed and stabilised.

5 Positive Money and nef have recently released several videos purporting themselves to be (in the sales maximising vocabulary of the one-size-fits-all marketing device) a 'simple solution to the debt crisis'. 'The authorities', the script of Ever Wondered Why There’s So Much Debt? relays to us, are 'just trying to repair the existing banking system'. Not only that: 'The money that you [borrow] is created out of nothing', and 'the banking system guarantees that the vast majority of people wind up in debt'. The narrator of the longer 97% Owned, an unmissable bid on the affections of the Occupy Movement, declares that 'they [the banks] are restricted solely by their willingness to lend.' These are all now familiar complaints, extracted from prominent economic theories and circulated to a large and 'popular' audience in a language that suggests that the 'debt crisis' is not so dissimilar to a migraine or a wine stain on your cream sofa. Like the advertising materials which it incompetently apes, the film is intended to induce in its addressee a kind of vertiginous anxiety. Unlike most of those materials, however, the specific anxiety which the film ought to inspire is not the anxiety of imperfection (the anxiety of the bathroom) but rather the anxiety of ignorance (the anxiety of the masonic lodge). But what exactly is it, this 'simple solution'? It is, simply, that banks should no longer be permitted to create credit using deposits. The simple solution to the debt-crisis is the abolition of credit money. Such simplicity could hardly be a secret; nor is it. On his website Ben Dyson, 'economics expert' at Positive Money, remembers the 'random encounter' [sic] in which he 'discovered the book that would [sic] explain why most economic theories failed, and why governments were usually unsuccessful in manipulating the economy'. This 'discovery' was Michael Rowbotham's The Grip of Death, a book which takes for its topic the 'destructive economics' of 'debt-based' money, and which, according to one of the defenders of Rowbotham in a discussion taking place on his Wikipedia page ('currently under consideration for deletion according to Wikipedia’s notability policy'), was also an influence on the 'movement' Prosperity UK, founded in 2001 by Alistair McConnachie, a man previously expelled from the UK Independence Party for arguing in emails to party members that the extent of the holocaust was 'exaggerated'. This short detour through a list of common influences might seem supererogatory (certainly it proves nothing), but it does make us ask again how easy it is to say with perfect bureaucratic equanimity that the solution is simple. To argue that 'our social ills' are generated by a special kind of 'funny money' created out of 'nothing' by the banks does not logically entail McConnachie’s special insight, but it emphatically does conduce to it, because the thesis that money is made out of 'nothing' opens in the analysis of the economy a hole or gap, at the bottom of which may indifferently be found a set of conservative policy tweaks ('quite a simple piece of legislation') or the Jews. That gap is historically significant even if the parade of idiots who fall down it are not.

6 There may of course be no such thing.

7 Some illustrations of transactions presently reading this article may wonder what is at stake in assuming that banks only ever lend to customers with accounts at that same bank. This 'simplification' for the purposes of demonstration is of course deeply political, because without the 'illustrative' short-cut it is impossible to convey the impression that an individual bank is capable of originating capital to the limit of its heart’s desire.

8 The reserve requirement is a limit imposed on private banks by the state or by a central bank. It stipulates that for any quantity of deposits that a bank receives, a fixed proportion must be kept in reserve. This system if it functions ought to determine a limit to the amount of 'credit money' that can be produced out of a given sum of 'fiat money' issued by the central bank. See: for a formal overview.

9 This argument has most recently been repeated by Steve Keen (who supports it) and Paul Krugman (in denial). See: Steve Foxman, 'Paul Krugman And Steve Keen Got Into A Massive Fight On One Of The Biggest Issues In All Of Economics', It should be noted here, briefly, that 'fractional reserve' requirements are distinct from 'capital requirements' imposed by international systems of regulation such as Basel II. One describes a proportion of deposits that must be held and not loaned; the other describes regulations pertaining to the 'shape' of a bank’s asset sheets. Further analysis of controversies on this issue are of no purpose in this article. For a general overview, not without its odious predilections, see: Douglas J. Elliott, 'A Primer on Bank Capital',

10 'Mainstream' economics argues that the central bank is free to determine the supply of 'base' money and the rate of interest. The post-Keynesian response to this is that private banks determine the supply of base money by increasing their loans beyond the maximum level determined by the supply of base money. Private banks then request that the central bank lend additional reserves. The central bank cannot refuse this request, because otherwise private banks would be forced to recall loans, inducing credit crunches. The outcome is that the 'freedom' of the central bank to fix the base money supply is essentially fictitious.

11 Again, if you can bear the hateful synthetic 'ominous' panpipes on the soundtrack, please see Positive Money and nef’s 97% Owned.

12 Nef and Positive Money, along with the economist Richard Werner, have produced a submission to the Bank of England’s 'Independent Banking Commission' calling for the introduction of a 'full reserve' money system.

13 More specifically, Pound was writing about jobs policy in Italy in the sunny 1930s. Ezra Pound, Jefferson and/or Mussolini: LIdea Statale: Fascism as I Have Seen It, New York: Liveright, 1970.

14 As another marginalised economist, Steve Keen, writes, '[i]n reality' – that nursing home for every sufferer of chronic ressentiment – 'there are (at least) three players in the social class game, and it’s possible for capitalists and workers to be on the same side in it.' Steve Keen, Debunking Economics: The Naked Emperor Dethroned?, London: Zed Books, 2011, p.133.

15 Augusto Graziani, ‘The Marxist Theory of Money’, International Journal of Political Economy, 27.2, 26-50, p. 27. The text was first published in Italian in 1986.

16 Augusto Graziani, op.cit., pp.46-47. None of these critical remarks should be taken to imply that the question of the circulation of money and capital is of no interest to materialists. What is at issue is not the study of these phenomena but the historical purpose of their theoretical promotion.

17 Graziani was a member of the Italian Senate between 1992-1994, representing the Social Democratic post-formation of the PCI, the Democratic Party of the Left. See Carl Bogg’s article ‘The Historic Compromise: The Communist Party and Working Class Politics’ in Radical America, 10.6, pp. 28-44.

18 Antonio Negri writes that in Keynes’s work ''[economic] Demand" wasrecognised as an effective subject - the working class'. Negri’s conception of the derivation of Keynes’s writings from the historical fact of the class struggle in the first decades of the twentieth century is only superficially appealing, because it relies on a conjecture concerning motive – Keynes was motivated to include effective demand at the centre of his theory after observing the 1926 general strike &c. – whereas the argument I am presenting here is that money insofar as it relates to demand is infinitely distorted unless we recognize 'demand' to be a category defined through various and contradictory material struggles, carried out with a view to survival at any given plateau of the social hierarchy. [

19 The argument that monetary reformists set out, that their preferred policies will do more than simply change relations of circulation, for the reason that those policies will have immediate and 'beneficial' consequences for investments, dissembles the more essential fact that their conception of reform in social relations relies on the intention to redistribute an originating power that has, in fact, never existed. See also Yannis Veroufakis’s cleverly titled ‘Modest Proposal’ for a fresh start for the Eurozone. For Veroufakis, 'in this environment of heightened fear and uncertainty, the greatest victim is investment'. ‘A Modest Proposal’, pp. 2-3. [ Varoufakis’s efforts to sell his own children as food on Ebay may have caused him to miss the more impolitic connotations of this statement. In any case the formulation is not included in the subsequent editions of the text.