This article is part of the b2o: an online journal Special Issue “The Gordian Knot of Finance”.
Democracy and the Political Limits of Monetary Politics
Stefan Eich
There are by now two deeply familiar stories about the nature and origin of money. One is the well-worn standard economic story that used to dominate economics textbooks, and still does to a surprising extent. In this Commercial Origin Story, money emerges out of commerce and becomes more efficient over time. Over the past decade this account has, rightly, been heavily criticized, in particular by anthropologists (Graeber 2011).
In its stead, a different narrative has emerged: the Chartalist Origin Story, which has by now in an important sense become the new orthodoxy. Here money emerges not from commerce but essentially from the force of taxation. It is essentially a token that states create and then force subjects to pay taxes with it. This second story helpfully brings the state into the picture, but to a surprising extent the two accounts nonetheless mirror each other more than they can themselves admit.
Both tend to be introduced as origin stories. Both are “just so” conjectural histories that make sweeping generalizations. Crucially, both lack an actual political theory of money. Politics and the state are of course marginal at best in the commercial account. But even in the chartalist account, which purports to overcome this impasse, politics appears as an undifferentiated mass of tax power. All too often, the modern state is simply presumed and not itself historicized or theorized. What is missing is an actual account of political struggle and with that a historically attuned theory of the modern state.
This matters all the more because how we describe the workings of the monetary system, and how we situate it in relation to the modern state has vast ramifications for debates about how to craft better monetary institutions and how to democratize money. Instead of ever more elaborate origin stories we need accounts of the actual political workings of money.
That includes better accounts of the ways in which money inevitably raises complex questions of power, that render it suspended between trust and violence (Aglietta and Orléan 2002). Translated into political theory, this means that money is an institution of collective belief with rich performative, communicative and temporal dimensions. Money appears in all these aspects as a fragile project of political language and trust, with the coercive powers of the state always on the horizon, creating unique promises and challenges for democratic politics. As such, money is a “constitutional project” (Desan 2017), albeit of a peculiar kind.
Acknowledging these wider social forces at the same time highlights the temporal nature of money as a form of collective belief—perhaps even faith—about the future. As Keynes (1936: 294) famously put it, money is first and foremost an institutional embodiment of temporality. As the unit of account in which credit claims are articulated and recorded, money embodies and refracts clashing collective beliefs about the future. Money is in this sense not only the battlefield of clashing expectations about the future, but also embodies clashing ideas of the very conception of “the future”.
This framing allows us to build on the most promising credit theories of money but to also appreciate that credit (or debt) is usually accepted because of a combination of trust and force. All this amply illustrates the ways in which money is not merely a neutral economic technology but always entangled in questions of power and clashing conceptions of the future. It is moreover a site of manifold political struggles in which certain expectations about the future can easily become self-fulfilling.
In the economic sociology literature this power has recently come to be denoted as an instance of “infrastructural power” (Mann 1984; Braun 2018; Braun and Gabor et al 2020; Wansleben 2023). But there is a crucial ambiguity in how the concept of monetary infrastructural power has been taken up, namely whether we are dealing here with the power of the state or of financial markets—whether infrastructural power is primarily public or private. As Krippner (2024) has recently perceptively remarked, shared invocations of the term easily obscure significant disagreements. Whereas many locate central banks as genuine agents at the heart of this infrastructural power, others (Braun and Gabor, for example, but also Krippner herself) stress instead the dependencies of central banks on financial market imperatives. In short, on their reading it is not the state that wields infrastructural power, but the first movers are instead financial market actors. Gabor (2021) has captured the underlying paradox by describing the ways in which central banks seem today more powerful than ever and are yet at the same time without genuine political agency.
Governing Hybridity
While money is thus deeply political, that politics cannot be reduced to a sovereign will or decision. Rather, modern money is a complex hybrid that is both private and public, always economic and political at once. Money and banking are never purely private but they are tethered to the state and its central bank—and banks are fundamentally unlike other companies. But this also means, inversely, that even the state’s capacity to steer money creation is embedded in a capitalist frame of value. Here, Keynes’s understanding of money of account meets Marx’s value theory. To adapt Marx’s quip about historical agency from the Eighteenth Brumaire (Marx 1978: 595): states make money but they do not always do so as they please.
It is possible to theorize that hybridity in a number of different ways, as perhaps the original act of privatization, as a public-private partnership, as a finance franchise, and so on. But in all these approaches, the underlying relationship of mutual dependence—financial, political, and strategic—needs to stand at the very heart of any account of the contemporary financial and monetary system. States, central banks and societies at large are dependent on the banking system as a payment system, as a tool of credit creation and provision, but also as a transmission channel for monetary policy. Today that interdependence can easily feel like a form of blackmail in which banks are able to leverage their own systemic significance. But it is worth remembering that banks also need the state—and the safe assets created by the state—at least as much as the state needs finance. This relationship of interdependence poses a set of undertheorized political questions, but also points to underexplored openings for strategic action.
In addition to the hybridity of the system there is another political dimension that can get lost in the infrastructural account. To speak of infrastructural power easily suggests a misleading impression of concrete solidity, an image of monetary systems as highways. But money is more peculiar than a simple road. It is, to use Adam Smith’s image of paper money, a “wagon-way through the air” (Smith 1981: 321). And its levitation is ultimately a product of our beliefs and expectations. Money has a profoundly reflexive dimension that operates at the level of the collective imagination. In the realm of money, beliefs matter irrespectively of whether they are true or false. Any political theory of money has to take into account this reflexive logic. The central political question that emerges thus is: how to govern the hybridity of modern money, with the interdependence between state and finance that it continuously recreates, but also with its peculiarly reflexive character?
Political Limits of Monetary Politics
The point of insisting that money is always already political is thus not to suggest that it is perfectly malleable. To be sure, we develop critiques of social constructions to escape the ways in which these constructions hold us captive. That does mean piercing the veil of naturalizations in order to demythologize. But just because something is constructed does not mean it can be reshaped at will. The point therefore cannot simply be to re-assert state control. Instead, we need to recognize that state control is already part of the hybrid system yet in ways that easily frustrate notions of democratic control. In some sense this was Marx’s profound point: even if a state were to take over the monetary system but would leave the underlying structures of production untouched, it would be unable to escape the capitalist value concept. Even its ideal money would become commodified.
My point is thus not simply to underwrite nominalist claims of monetary malleability but to locate more precisely the scope for and limits to monetary politics. To posit the political construction of an institution does not imply an effortless ability to cash out the democratic promise of said institution. Nowhere is this more evident than in the realm of money, and yet it is precisely this fundamental political problem that has gotten lost in the monetary standoff between the orthodoxy and chartalism. These limits, though very real, are neither external “economic” limits, nor are they static or fixed. Instead, they arise from the fact that the construction process is not transparent to itself. Foregrounding the constructedness of money does not do away with constraints but offers us a different way of understanding the problem by emphasizing that the limits and binds are internal to the politics of money.
Monetary Democratization
And yet I remain convinced that this critique leaves considerable space for articulating substantial political demands for the democratization (the gerund matters here) of money even under contemporary conditions. That does not mean that our chains are merely imaginary but rather that democratic politics requires struggling within a system whose horizon of realization we can never reach (Taylor 2019). Here it is easy to fall into two traps that mirror each other.
The first trap is that of misrepresenting and downplaying the scale and scope of the kinds of political interventions that are available in the realm of monetary power even under capitalism—a mistake that characterizes some parts of the Marxist tradition, though as I have argued elsewhere Marx’s own position is more interesting (Eich 2022: 105-138). The state is not simply restricted to setting the unit of account, but it can and does constantly, if largely invisibly, intervene in the process of credit creation and allocation. There are of course clear limits to a state’s ability to force citizens—let alone foreign investors—to accept its own tokens. But even within the confines of contemporary central banking there are nonetheless discretionary decisions of enormous scope with vast stakes that are all entirely compatible with the existing relations of value. The power of central banks extends to their ability to reject or accept pleas for convertibility of different forms of private monies from the bottom of the money pyramid into fiat monies at the top. Whose credit claims are converted, which assets central banks buy and hold on their balance sheets, and who can count on an emergency liquidity injection are all decisions that fall under the broad heading of monetary politics and the answers to these questions are fundamentally underdetermined by the forces of capital alone.
But it would inversely also be a mistake to misrepresent and downplay the challenges that nonetheless remain for any state seeking to wield monetary power under capitalism. Modern Monetary Theory (MMT), which has done an enormous service in highlighting the actual workings of the monetary system, can sometimes be guilty of supposing that once the spell has been broken, states will somehow be liberated to wield fiscal power as they please. But not only is the state’s capacity to steer money creation still ensnared in the capitalist value form, there are also various internal political struggles over the public finances that pit defenders of fiscal and monetary orthodoxy against any attempt of reform. The underlying divergences in political and economic interests are real and they run right through any account of monetary power and the politics of credit creation. The real task in the face of these two traps must be to develop a more complex picture of monetary power that is aware of these internal limitations and that nonetheless asks what it would mean to insist on the democratization of these forces.
We can productively relate this framing back to debates on the constitutional dimension of monetary systems (Desan 2017). Constitutions are institutional expressions of the paradoxical attempt to channel and arrest political change. If they lack workable ways of amendment, constitutions can become suffocatingly conservative as dead hands of the past. And yet constitutions can also be designed in more democratic ways or can change in more democratic directions. So just as constructedness does not equate to malleability, so does constitutionalization not equate to democratization. The question for us is then whether the monetary constitution is so self-referentially shielded against external intervention as to frustrate any attempted amendments? Or are there ways in which one could at least begin to democratize the monetary constitution?
What would it mean to democratize a monetary system under contemporary capitalism and all the constraints internal to the peculiar kind of money that it produces and demands? How we spell out a vision of democratizing money varies according to how we conceptualize the constraints of the construction process but also what we take democracy to consist of. As an initial starting point, it helps to loosely distinguish between three strands of democratic theorizing: those that place emphasis on representative institutions, those that stress deliberation, and those that focus on contestation. The most persuasive theories of democracy tend to combine all three strands, not least because these seem to be interdependent in important ways. If approached through the first lens of representative (usually legislative) institutions, the politics of central banking largely appears as a problem of democratic delegation and how to make such delegated power more accountable. But greater democratic accountability of central banks would in turn arguably require more robust structures of both deliberation and contestation, namely institutionalized and non-institutionalized channels for demanding justifications and challenging power. Democratic deliberation requires a form of contestation, just as contestation often—though not necessarily—has a deliberative dimension.
What ties these three aspects of representation, deliberation, and contestation together for me is, however, not a fixed ideal of institutionalized rule but instead an acceptance and indeed embrace of indeterminacy and uncertainty as the true features of democratic life. As Claude Lefort (1988) insisted, democracy is necessarily open-ended and unfinished. The objective of my argument about democratizing money is thus emphatically not to offer an institutional blueprint but instead to make, in a Lefortian spirit, a meta-democratic point, one that is less interested in issuing policy recommendations or institutional fixes and rather insists that grappling with questions of monetary power requires bringing monetary politics back into public debate and opening it up to the indeterminacy of open-ended, democratic contestation and critique. At that point we would be touching on the element of greatest discomfort and anti-democratic suspicion among central bankers who are raised on the idea that uncertainty is poison for financial markets. The question of uncertainty might then be the most concentrated moment of real tension between financial capitalism and democratic politics.
We can no longer sidestep this question. Ever new kinds of uncertainty, from climate to geopolitical risks, intrude into monetary policymaking. Both feed the “uncomfortable knowledge” (Best 2022) of central bankers concerning the depth of their own ignorance which they can neither ignore nor ever fully acknowledge. Moreover, excluding questions of monetary governance and credit creation from democratic life and democratic debate will have pernicious consequences not just for monetary policy and our monetary systems but also threaten the health of democracy itself. Bracketing questions of monetary design from democratic decision making and leaving crucial policy decisions—who gets to create money, where credit flows, and who gets bailed out—in the hands of unaccountable private actors or unelected technocrats will inevitably hollow out the democratic self-understanding that we are ultimately engaged in an experiment of self-rule. Democracies would thus do well to develop better avenues for articulating the underlying political questions and the inevitable encounter with uncertainty they entail.
Conclusion
Capital rules supreme, and yet—as Walter Bagehot (1873: 20) already put it—“[m]oney will not manage itself.” All monetary systems need governance. That inevitably raises political questions of who gets to decide who governs and based on what values. The hybridity of the system constrains the political responses that are possible, but it nonetheless also affords political openings. Money is always already political, even where it appears in the guise of a privatized anti-politics; but at the same time, to say that something is political cannot be reduced to the possibility of shaping things at will. This allows us to move beyond the misleading choice between the “depoliticization” versus the “re-politicization” of money and central banking. Monetary depoliticization is itself necessarily a mirage that obscures the ways in which what might appear as depoliticization is much better understood as itself a political project of de-democratization. This does not necessarily disqualify calls for the “depoliticization” of money, but the underlying values and goals have to be articulated and defended in the language of democratic politics. Inversely, calls to “politicize” money are empty—even potentially reckless, given the current popularity of this idea on the extreme right—if they fail to articulate what kind of politics is meant to be injected. Is the objective to bundle money power in one hand or instead to open it up to democratic decision-making?
Just as we need to escape the misleading binary between the politicization and depoliticization of money, so we must transcend artificially narrow debates that reduce questions of democratizing monetary power to the nominal status of central banks. Central banks can only ever be as democratic as the monetary system through which they govern and on which they depend. Overcoming our current impasse thus requires that we ask a more fundamental question than simply whether we are for or against central bank independence. We ought to ask instead: independence from what? While “independent” central banks are shielded against democratic politics, they are entirely dependent on commercial banks for credit creation and for the transmission of interest rates. Any such central bank, even if it were to be directly elected or guided by a democratic deliberative body, will necessarily find itself in a reactive position of subservience. A genuinely independent central bank is entirely compatible with greater democratic accountability precisely by shielding it both against the executive and by making it more independent from financial markets.
The central task must thus be to create the democratic spaces in which open debate about these questions can actually take place. That means on one level to better understand the hybrid interdependence of finance and the state in the realm of capitalist money, including any strategic openings afforded by that interdependence. But it also means to look beyond the current, deeply flawed system in order to develop alternative demands for what a more egalitarian financial and monetary system could look like that actually serves as a peculiarly reflexive piece of public infrastructure.
Stefan Eich is Assistant Professor of Government at Georgetown University. He is the author of The Currency of Politics: The Political Theory of Money from Aristotle to Keynes (Princeton University Press, 2022), which was awarded the 2023 APSA Foundations of Political Theory Best First Book Prize.
References
Aglietta, Michel and Orléan, André. 2002. La monnaie entre violence et confiance. Paris: Odile Jacob.
Bagehot, Walter. 1873. Lombard Street: A Description of the Money Market. London: Henry S. King.
Braun, Benjamin. 2018. “Central banking and the infrastructural power of finance.” Socio-Economic Review, 18, no. 2: 395–418.
Braun, Benjamin and Gabor, Daniela. 2020. “Central banking, shadow banking, and infrastructural power.” In: Mader, P., Mertens, D., and van der Zwan, N. (eds.), The Routledge International Handbook of Financialization. London: Routledge: 241–52.
Desan, Christine. 2017. “The Constitutional Approach to Money,” in Nina Bandelj, Frederick F. Wherry, and Viviana A. Zelizer, eds., Money Talks: Explaining How Money Really Works. Princeton: Princeton University Press: 109–30.
Eich, Stefan. 2022. The Currency of Politics. The Political Theory of Money from Aristotle to Keynes. Princeton: Princeton University Press.
Gabor, Daniela. 2021. Revolution without Revolutionaries. Berlin: Finanzwende and Heinrich-Böll Foundation.
Graeber, David. 2011. Debt. The First 5,000 Years. New York: Melville House.
Keynes, John Maynard. 1936. The General Theory of Employment, Interest and Money. London: Macmillan.
Krippner, Greta. 2024. “Leviathan financialized?,” Finance & Society 10, Issue 1: 59–64.
Lefort, Claude. 1988. Democracy and Political Theory. Translated by David Macey. Cambridge: Polity.
Mann, Michael. 1984. “The autonomous power of the state: Its origins, mechanisms, and results” European Journal of Sociology, 25, no. 2: 185–213.
Marx, Karl. 1978. “The Eighteenth Brumaire of Louis Bonaparte [1852].” Robert C. Tucker (ed.), The Marx-Engels Reader. New York: W.W. Norton: 594-617.
Smith, Adam. 1981. An Inquiry into the Nature and Causes of the Wealth of Nations [1776]. Indianapolis: Liberty Classics.
Taylor, Astra. 2019. Democracy May Not Exist But We’ll Miss it When It’s Gone. London and New York: Verso.
Wansleben, Leon. 2023. The Rise of Central Banks: State Power in Financial Capitalism. Cambridge MA: Harvard University Press.