Tuesday, 26 February 2013
Friday, 22 February 2013
I am re-proposing here for the benefit of friends an earlier piece on Hannah Arendt's discussion of freedom and "the social question" or "social forces". These are notes on a much larger piece on some of the conceptual and practical matters involving "Revolution". It is a topic that is destined to become increasingly relevant in coming years as this miserable "system" implodes and we are called upon to erect a new one. It's the question of new beginnings... Apologies for the quotations in Italian from Arendt's "On Revolution" (please use Google Translate). This piece will be updated from time to time, so please keep checking. What I am trying to do here is to toss up some ideas about a new Constitution for our societies, and in the process find out what is going wrong not merely from the strictly "economic" angle, but also in terms of the more strictly "political" one - in terms of the inability of existing bourgeois social and political institutions to hide the enormously "repressive" role of capitalist production in posing a barrier to our own equally "enormous" productive potential! This notion of "capital as a barrier to production" is central to the theory that we are developing and to the critique of capitalism that we are carrying out. Cheers.
In this sense, affluence and wretchedness are only two sides of the same coin; the bonds of necessity need not be of iron, they can be made of silk. Freedom and luxury have always been thought to be incompatible, and the modern estimate that tends to blame the insistence of the Founding Fathers on frugality and 'simplicity of manners' (Jefferson) upon a Puritan contempt for the delights of the world much rather testifies to an inability to understand freedom than to a freedom from prejudice. (H. Arendt, On Revolution, ch.3, p.193)
[I]t is beyond doubt  that the young Marx became convinced that the reason why the French Revolution had failed to found freedom was that it had failed to solve the social question. From this he concluded that freedom and poverty were incompatible. His most explosive and indeed most original contribution to the cause of revolution was that he interpreted the compelling needs of mass poverty in political terms as an uprising, not for the sake of bread or wealth, but for the sake of freedom as well. What he learned from the French Revolution was that poverty can be a political force of the first order. (ch.2, pp.61-2)
The subject-matter of the Economics – its subjectum, its substratum, its nervus rerum – is the “system of needs and wants”, it is the sphere of “necessity”, of “pro-duction” that “gravitates” ultimately around the “reproduction” of a society. Whether “labor” is seen as the source of “value” or whether value is seen as arising from the “saving” of “labor”, the fundamental reality is that “labor” remains at the heart of “the social question”. That “freedom and poverty” may be incompatible is a problem or “social question” that may be resolved simply by eliminating poverty: but if “freedom and luxury” also are incompatible, as Arendt suggests, then humanity has an even greater problem – and freedom has found an insurmountable barrier!
What Arendt means here, if one subtracts the verbosity, is that “the pursuit of luxury” or “private happiness”, may tend to shrink the social, “public” space or universe of human beings so as to render them a-political – with the consequent neglect of the forms of political activity that “freedom” must stand for, in opposition to “passive” liberties. To be “free” is for Arendt to engage actively in the political life of one’s community. To be “at liberty” to do something, instead, is to be the passive beneficiary of a right or benefit “conceded” to oneself by the powers that be. In this sense, one may say that “freedom” and “the pursuit of luxury” – not “luxury” itself! - may well be at odds, but not be necessarily “incompatible”!
With Classics and Neoclassics, the sphere of “happiness” or “utility” (for the Classics “labor” has utility because it “creates value” positively, whereas for Neoclassics it “consumes” the world so that “utility” or “value” consists in the “saving of labor” instead, which therefore has “dis-utility”) is always “private” because “labor” can be “divided” so the whole point of the “sociality” of social labor, its phylogenetic interdependence, is lost. The private sphere, civil society or the status civilis, is what must be protected from the State, which was constituted for this purpose by political convention as a way of prevention or escape from the state of nature or status naturae and its scientific hypothesis as the domain of necessity. But because in this status civilis, in this State, the individuals composing civil society have necessarily alienated the “freedom” they enjoyed in the state of nature, now this “freedom” is reduced to and even confused with “liberty”. Whether it be under Hobbes’s “Leviathan” or State-machine, or else under Locke’s consensual “common-wealth”, what the State protects are the “individual possessions” of the individual – life, liberty and estate – that these individuals possessed already in the state of nature but were under constant threat from aggression. There is no notion of “public happiness” in this political theory because “happiness” or “utility” or “pleasure” is limited to the oikos – the household (Alberti in Della Famiglia, to
Arendt rebukes Weber (implicitly) because the latter assumes that the “frugality” of the Founding Fathers was purely Puritanical – when in fact it could have been the “opposite” of retreat from the world, the opposite of “renunciation”: the “frugality” and “industry” of the Puritans could have been due to a greater concern for “public happiness” and therefore “freedom” than for “private happiness” and therefore “luxury”. This again would contrast with Weber’s interpretation of the spirit of capitalism. Here the “citizen” would prevail over the “bourgeois”. We note that in Weber this “antithesis” does not even begin to exist because the Political is identified immediately with the protection of the “needs and wants” of civil society – of what he calls “free labor”.
At the same time, Arendt is chastising Marx for equating “freedom from poverty” with “freedom” itself. So the mere fact that people are de-livered from poverty and lifted into luxury does not mean that “freedom” will be instored. Here Arendt is divorcing “wealth” or “value” – economic action – from political institutions: - which is something that neither Marx nor Weber are prepared to do because they tie “the most basic needs of social life”, including that for “freedom”, to the sphere of “social reproduction” in Marx and “the care for material or external goods” in Weber, thereby “reducing” the notion of “freedom”, the Political, to the sphere of the social relations of production, to Economics.
This helps explain why in Weber there is concern for parliamentary democracy only to the extent that it is “functional” to “the rational organisation of labor” and ultimately to “the iron cage”. Both the ascetic ideal and the iron cage are “irrational”. Weber sees the “freedom” of “labor” only as “autonomous market demand” and not in broader “political” terms. This is Arendt’s reproach to Weber. But she forgets, as Marx would pointedly remind her, that her own high-brow conception of “freedom” does not deal integrally, let alone fairly, with what is the most important aspect of human existence under capitalism: - wage labor, which Weber confuses with human living labor.
There can be precious little “freedom” if one is under the yoke of “the rational organisation of ‘free’ labor under the regular discipline of the factory”, as Weber defines “capitalism”. Arendt succeeds only in demonstrating her “poverty of philosophy” by mistaking Marx with Proudhon, the bathetic author of “The Philosophy of Poverty”! That poverty and freedom are two different concepts is blatantly evident. But that Marx ever made the mistake of confusing de-liverance (Latin, liber, freed slave) from poverty with freedom when in fact he was stating merely that any “freedom” that fails to abolish poverty offers very little solace to those who are poor, is an accusation unworthy of Arendt’s otherwise admirable intellect. Perhaps the fundamental flaw in her entire thesis in On Revolution is the fact that her ethereal notion of “freedom” is brought down to earth with a heavy thud when she comes to consider the leaden and corruptive role that “private interests” have played in any “Constitution” known to humanity. – Which once again only serves to show that no “Constitution” can preserve her notion of “freedom” unless “the social question” is resolved first – which is exactly what Marx was arguing! (Unfortunately, Arendt does not tackle this ineluctable problem, fatal to her entire argument, until the very end of her book! As Camus says in La Peste, “too late to turn it to account”!)
The crucial difference between Marx and Proudhon is that Marx did not waste time “philosophising” about poverty, preferring instead to find out the social “causes” behind its indisputable existence in capitalism. And the difference between Marx and Weber is that, having found out that capitalism reduces “living labor” to “labor power” – that is, in Weber’s own words, to “the rational organisation of (formally) ‘free’ labor under the regular discipline of the factory” -, Marx could see that the social power of the bourgeoisie consists precisely in this violent “reduction” of human living labor to mere “labor power”. Weber’s phrase “free labor” is not an oxymoron because his “labor” is an entity that can be either “free” or “not free” only in a “formal” sense, given that he wrongly identifies all human activity with “labor power”. For Marx, instead, it is impossible for “living labor” to be anything but (philosophically) “free”: it is only under the violent command of the capitalist that living labor is turned into unfree “labor power”.
The problem is then to understand what relationship there is between “freedom” and “labor” in Weber’s work. If Weber is concerned about “profit” or “capitalistic economic action”, it is because it is this that “provides” rationally and most efficiently for those “freely expressed” wants and needs of workers through “the rational organisation of labor (meaning, “labor power”) under the regular (capitalist) discipline of the factory”.
There is a sense in which the Neoclassical notion of “equilibrium” has to do with the “necessity” of “scarcity” of “provisions” in proportion to endless “wants”. Both Schopenhauer and Robbins understand the Will and “wants”, respectively, as “insatiable”. But whereas Schopenhauer sees this as a motive “to renounce” the world of wants (the Entsagung), Robbins takes it more realistically as the “budget constraint” of Neoclassical Theory that allows it to become “the science of choice” – what makes “choice” subject to “scientific and rational” treatment. It in order to escape from the “gravitational orbit” of “equilibrium” that the “freedom” of the entrepreneur is needed for Schumpeter. Indeed, the entire point to Neoclassical value theory is precisely the ability of the capitalist-entrepreneur “to free” himself from “immediate consumption” by “deferring” it and thereby “substituting” it with “labor-saving tools”. It is not the “renunciation” of Schopenhauer whose society is entirely “eristic” and the State can only keep individuals from descending back into the bellum civium. For Neoclassical theory the State can reward the productivity of labor by protecting the “deferral of consumption” of the capitalist entrepreneur. But Schumpeter sees this “deferral” or “renunciation”, this Askesis, as still limited to the “Statik” framework of general equilibrium analysis, insufficient to explain the “Dynamik” features of the capitalist economy, its “development”, its ability to defeat “stagnation”.
For Schumpeter the “deferral” or “saving” of the Neoclassics is inadequate to explain value and profits because these can arise only from the “creativity” of the entrepreneur who “elevates” and therefore “frees” himself from the gravitational pull of the “circular flow” (Kreislauf), reaching thereby the heights of “innovation” by distinguishing his “individuality-personality” (Unternehmer-personalitat) from that of the “mass”. The State must therefore do more than just protect property rights: it must also protect intellectual property from the “rentier” capitalists (finance). Not “labor” but “enterprise” is the gateway to “freedom” and “profit” as against “interest” and “rent”.
With Classical theory, instead, the capitalist appears “redundant” from the start, because “labor” is the source of value. Even Marx’s version preserves this “socially necessary labor time” and the “reproduction of society”. – Whence comes the “surplus value” that capitalists exploit from workers. For Schumpeter, “surplus” is the domain of entrepreneurial “creativity”, instead. But Marx introduces the “use value” of living labor. - So here the sphere of “necessity” is labor-power and that of potential “freedom” is “living labor” (Grundrisse) whereas surplus value is both exploitation and “potential” for freedom.
206 On Revolution
It is in the very nature of a beginning to carry with itself a
measure of complete arbitrariness. Not only i.s it not bound into
a reliable chain of cause and effect, a chain in which each effect
immediately turns into the cause for future developments, the
beginning has, as it were, nothing whatsoever to hold on to; it is
as though it came out of nowhere in either time or space. For a
moment, the moment of beginning, it is as though the beginner
had abolished the sequence of temporality itself, or as though the
actors were thrown out of the temporal order and its continuity.
The problem of beginning, of course, appears first in thought
and speculation about the origin of the universe, and we know
the Hebrew solution for its perplexities - the assumption of a
Creator God who is outside his own creation in the same way as
the fabricator is outside the fabricated object. In other words,
the problem of beginning is solved through the introduction of
a beginner whose own beginnings are no longer subject to
question because he is 'from eternity to eternity'.This eternity
is the absolute of temporality, and to the extent that the beginning
of the universe reaches back into this region of the absolute,
it is no longer arbitrary but rooted in something which, though
it may be beyond the reasoning capacities of man, possesses a
reason, a rationale of its own. The curious fact that the men of
the revolutions were prompted into their desperate search for an
absolute the very moment they had been forced to act might
well be, at least partly, influenced by the age-old thought-customs
of Western men, according to which each completely new
beginning needs an absolute from which it springs and by which
it is 'explained'.
In Hobbes the “absolute” is all Euclidean: the legitimacy and legality of the Sovereign is founded upon the “necessity” of the social contract – which is “philosophically” free, as in Montesquieu, but coerced “externally” ob metum mortis. The State is the ultima ratio in foro externo (the inter-national state of nature) whilst it preserves “the law” for its subjects in foro interno: similarly, the subjects are “free” in foro interno” (the psyche), but not free “in foro externo”, because subject to the law. It is exactly the same in Weber – that is why he is more the descendant of Hobbes than of Machiavelli (pace Aron). The leitender Geist is certainly no
The same can be said of Nietzsche. But here, as with Weber who copies him, the Sovereign is not “ab-solved” (Heidegger in Schelling) from the Political because the “scientific hypothesis”, the “truth” of the intuitus (Leibniz) in the identity of “laws” with “self-evidence” or “necessity” is impossible – because Nietzsche denies that anything – including logico-mathematics! – is “self-evident”! The meaning of the Rationalisierung is all here! (Marcuse sees right, but he simplifies the problematic by not tackling this “link-lex-nomos” between “labor” as “labor power” and as “living labor” and the “sociality” underlying both! Arendt, true to Jasperian-Heideggerian form, does the same! “On Revolution” is dedicated to Karl! Cf. Jaspers’s notion of “tutto-circonfondente” and Heidegger on “Ab-solute” in Schelling’s) The Hobbesian geometric (Spinoza’s more geometrico) “system” is “stagnant”, it is an “equilibrium”, a Schumpeterian Kreislauf that does not allow for “a remnant of ‘individual’ freedom” in the sense of Entwicklung – it is the impossible “re-solution” or “equilibration” or Ver-gleichung or “balance of forces” that “ab-solves” the Sovereign from all need to justify or found its legitimacy and legality: the “laws of the commonwealth” become “self-evident” like Euclid’s and can dispense with explanation or foundation – they are the Absolute, the Sovereign, the State-Machine is the Absolute.
As Arendt remarks, the “laws” of States and those of mathematics differ (p.221?) because the latter describe the constitution of the mind – they do not! (psychologism). Both “laws” are conventional (Nietzsche) but when juridical laws are made ab-solute they become mathematics, they become “fate”, which is the opposite of what “truth” is supposed to be! So, in fact, “self-evident truths” (
Jefferson) are not “truths” at all (whence the Jeffersonian “we hold”) – indeed, their “ab-soluteness” demonstrates that there can be no truth except “truth as a value”. (If “truth” existed we could not “think” it – it would be Leibniz’s intuitus originarius.) (See also her remarks on “the Absolute” and temporality on p.237 of Italian translation where Arendt posits the human “initium” as a pure act of will: and recall Schopenhauer’s insistence that “the causal chain” has no Kantian “unconditioned beginning” because this is “toto genere” different from “the chain of events” – and must be therefore the thing-in-itself! Marx distinguishes similarly between living labor and dead labor. Also, the thought of the “unity” of the Founder, at p.238 and 239, is neither Machiavelli’s nor Harrington’s but goes back to Descartes on the “Maker” of the world required to be One to be perfect. Russell [on Leibniz] shows that this “monism” belongs to Leibniz as well [cf. also Heidegger in “The End of Philosophy” and MfoL].)
For Weber the Rationalisierung “overcomes” the opposition of freedom and necessity. The “freedom” of labor is a by-product of conflict over the provision for wants. And the “quantification” of this conflict, together with its specification in terms of how much is produced and what, depends for its “maximisation” on the “rational organisation of labor” upon condition that it be “free” to formulate its “choices” through autonomous demand, not just in terms of “goods”, but also in terms of the “exchange value” of itself, of “labor”. It is the market mechanism that allows this “osmosis” or “synthesis” of the “necessity” of the provision for wants” given the “insatiability” of the latter and the “scarcity” of the former, and therefore it is possible for a Hobbesian common-wealth to be established in which the provision for wants becomes “rational” through capitalistic economic action.
The question that Arendt poses by way of implicit criticism of Weber (so does Marcuse in terms of “industrialisation” and “science”, or Heidegger with his ‘Technik’) is that “the iron cage” is taken by him to be naturaliter the entirety of the Political, as it was for Hobbes, in that “civil society” now is identical with the State because the entire “task”, legality and legitimacy, of the State is precisely this “guarantee” of the market mechanism as the ultima ratio, the scientific hypothesis of the self-interests of atomised individuals whose only aim in social life, in exiting the state of nature, is the pursuit of “private happiness” or “utility”. The Political becomes absorbed into the Economic – except that the “freedom” of labor involves the “specification” of its wants and needs not merely through the market mechanism but also through “compromise” in Parliament of the necessarily conflicting self-interests that are filtered by the market.
Therefore Weber does not think that the market is capable of being a “mechanism” that “develops” through entrepreneurial “creativity”. Rather, the “crisis” represented by conflict can be “negotiated” in a peaceful battleground, in sparring matches in parliament whereby “the will to power” of individual leaders can be accommodated and integrated in the overall “system of production” and indeed become its “motor”, its guide and “government”. This is what political parties as “mass parties” are supposed to do. But the “socialisation” of production is simply inescapable precisely because of the “system of wants and needs”, the iron cage, that has formed in “the Occident”.
Arendt says that “the social question” is separate from “freedom” – hence her effort to distinguish “power” from “authority”, potentia from potestas. Weber thinks that this is “romanticism” pure and simple because the Political assumes an increasingly technical character. Marx instead insists that the Political is the tool that poses a barrier to the development of the forces of production, to the “freedom” of living labor, until these break loose from its strictures, or rather, the social relations of production come into contra-diction with the Political, and force the “abolition” the State. Marx does not explain the process of this “liberation” of living labor from wage labor: but Arendt assumes naively that a revolution and a constitution can be “freed” from the “social question”! But at the very end of her reflections, she has to capitulate and admit that “private interests” will always interfere with “public” ones (ch.6, sec.3, p.291).
As such, the principle
inspires the deeds that are to follow and remains apparent
as long as the action lasts. And it is not only our own language
which still derives 'principle' from the Latin principium and
therefore suggests this solution for the otherwise unsolvable
problem of an absolute in the realm of human affairs which is
relative by definition; the Greek language, in striking agreement,
tells the same story. For the Greek word for beginning is dpx'li,
and apx'li means both beginning and principle. No later poet or
philosopher has expressed the innermost meaning of this coincidence
more beautifully and more succinctly than Plato when,
at the end of his life, he remarked almost casually...
'For the beginning, because it contains its own principle,
is also a god who, as long as he dwells among men, as long as he
inspires their deeds, saves everything.' It was the same experience
which centuries later made Polybius say, 'The beginning is not
merely half of the whole but reaches out towards the end.'58And
it was still the same insight into the identity of principium and
principle which eventually persuaded the American community
to look 'to its origins for an explanation of its distinctive
qualities and thus for an indication of what its future should
hold',59 as it had earlier led Harrington- certainly without any
knowledge of Augustine and probably without any conscious
notion of Plato's sentence- to the conviction: 'As no man shall
show me a Commonwealth born straight that ever became
crooked, so no man shall show me a Commonwealth born
crooked that ever became straight.'60
Great and significant as these insights are, their political
relevance comes to light only when it has been recognized that
they stand in flagrant opposition to the age-old and still current
notions of the dictating violence, necessary for all foundations
and hence supposedly unavoidable in all revolutions. In this
respect, the course of the American Revolution tells an unforgettable
story and is apt to teach a unique lesson; for this
revolution did not break out but was made by men in common
deliberation and on the strength of mutual pledges. The prin-
214 On Revolution
ciple which came to light during those fateful years when the
foundations were laid - not by the strength of one architect but
by the combined power of the many - was the interconnected
principle of mutual promise and common deliberation; and the
event itself decided indeed, as Hamilton had insisted, that men
'are really capable •.. of establishing good government from
reflection and choice', that they are not 'forever destined to
depend for their political constitutions on accident and force' .61
Here Weber is called directly into question for his definition of a “State” (in PaB). But once again Arendt misses the point that “the social question” intruded on the making of the US Constitution just as much as it did on the dis-solution of the French! Instead, she dwells on
Jefferson’s insistence for “constituencies” that remind Arendt of Luxemburg’s exaltation of “soviets” (ch.6, p306).
So for Weber (PaB) the State is “necessarily” the dispenser of violence, which is its “power” (meaning potestas), and the “mechanism” is kept “alive” (the living machine) by the leitender Geist which is NOT “free”, just as “labor” is not “free” except “formally” so long as its “market demand” remains “framed” within the parliamentary rules, the con-ventum (convention), that “select” the Politiker but pre-vent (prevention) the bellum civium. Unlike the Hobbesian “Sovereign”, the State-machine, Weber envisages a “parliamentary system” that can “select” and “assign” responsibility so that “politics” does not become a game of “conviction”. Here “the machine” is able “to select” its “leadership” not “mechanically” but within “rules” that maintain any “promises” within the realm of “possibility” – no “false prophets” (like Trotzki). No “beautiful souls” like Arendt or Rosa Luxemburg (exalted in the final chapter of On Revolution) either. Freedom and necessity are much more “specific” or “rational” in Weber, down to the “constitutional design or Frage”.
This “compromise”, this “dis-cutio” or “dia-lectic” that Weber envisages almost socratically, is what Schmitt denies is possible (remember accusations of “dithering” and “filibuster”): the State cannot have both legitimacy and legality at the same time – either the laws are “arbitrary” or else the legislator is illegitimate. Only potestas can give legitimacy to law provided we accept the “legitimacy” of the “power to decide over the exception”.
For Weber and Schumpeter as for Locke, the “scientific” inevitability of capitalism – identified absolutely with the market economy – is what makes the “potestas” and the potentia of the State indisputable or “common-sensical”. Thus Weber sides a little more with Hobbes and Nietzsche on the “pessimistic” side, whereas Schumpeter is more Lockean in his optimism – but then is as elitarian as Weber or Pareto and Mosca: for Hobbes the State prevents the state of nature, for Locke it simply protects it (especially the “estate”). There is no “initium” in the Treatises, as Arendt observes. But there is in Hobbes. So Weber “needs” a constitution whereas Schumpeter (his entrepreneur) does not. Weber does not have to explain conflict, but then has difficulty explaining how “parliamentary democracy” is able to function, whereas Schumpeter needs only to presume that it “may not” function to come up with elitarian democracy or with an authoritarian state. We know that Weber eventually concedes defeat.
Monday, 18 February 2013
My apologies to our friends for not posting more material. I was intending to post a brief resume of what is going on with central banks - but the clever Lorenzo Bini Smaghi has beaten me to it and so I can only invite friends to read carefully (and between the lines of) what he has to say. Cheers.
Currency war denial is wishful thinking
Lorenzo Bini Smaghi, Financial Times
Published 7:17 AM, 19 Feb 2013
The leaders of the Group of Seven and Group of 20 largest economies have recently tried to talk down the risk of a currency war. This will not necessarily be sufficient to avoid one. The reason is that there is no longer a shared view across leading industrial countries about the role monetary policy should play in the current environment.
The traditional view is that monetary policy should be aimed at stimulating growth and employment as long as price stability is ensured. On the proviso that inflation expectations are well anchored and the central bank’s inflation projections are within target, interest rates can be kept as low as possible to foster consumption and investment. The exchange rate is determined by financial markets as a result of the different monetary policy stances across countries, which are in turn determined by different cyclical positions.In such an environment, currency wars do not exist because the weakness of some countries’ exchange rates reflects the weakness of their fundamentals. There would be no point in complaining about the low level of the exchange rates of countries with a relatively depressed economy. It is the task of monetary policy to try redress the situation; the exchange depreciation is only the consequence.The real world has become a bit more complicated.First, exchange rates do overshoot compared with the levels that are consistent with underlying fundamentals. This is not only because financial markets adjust faster than goods markets, as the German-born economist Rüdiger Dornbusch explained more than 35 years ago, but also because of the self-fulfilling nature of investors’ expectations, and the herd behaviour that influences aggregate market developments. Overshooting is the rule rather than the exception, and is very difficult to mitigate. Indeed, exchange rate interventions are ineffective unless they are co-ordinated between the monetary authorities of both the appreciating and depreciating countries. Such a co-ordination is very hard to achieve, however, because of the asymmetric benefits that exchange rate movements produce.Second, and more important, is the fact that monetary policy has become less effective in the current crisis at supporting growth. Despite interest rates at record lows in all advanced countries, economic activity has been disappointing. The reason is that economic agents are burdened by an accumulation of too much debt. Even with low interest rates, they have no incentive, or no possibility, to borrow more. They first need to deleverage and return to more sustainable levels of debt.In order to restart rapid growth, the amount of debt in the economy should be reduced. This requires a redistribution of wealth from lenders to borrowers. This is not easy to achieve, especially in a democracy. A restructuring of all debts would hurt savers and institutional investors, with potentially destabilising effects on financial stability. It would also fuel moral hazard. An increase in public debt to compensate for the losses of savers and investors, and to avoid market instability, would be as unpopular, even if it were feasible for countries that struggle to issue new debt in the markets. It would be hard for any government to find a parliamentary majority in favour of bailing out those who borrowed excessively at the expense of creditors or of future generations.A smart idea, which does not require parliamentary approval, is for the central bank to do the job. By intervening directly in the markets, the central bank can reduce the amount of risky assets in the system in exchange for cash, and decrease interest rates with a view to encouraging economic agents to start borrowing again.If such an intervention is temporary, to counter portfolio shifts generated by liquidity shortages or fears of major market disruptions, it has no lasting impact on the supply of money nor on the distribution of wealth between borrowers and lenders. If instead the intervention is permanent, accompanied by a commitment to maintain low interest rates for a prolonged period, the policy is very close to what Carmen Reinhart and Kenneth Rogoff have called “financial repression”. By holding risky assets and keeping interest rates very low, even lower than the rate of inflation, potential losses are absorbed by the central bank and spread out to future generations, in the expectation that they will be in better shape to absorb the losses. This decision is not the result of an explicit democratic choice but of the central bank being given the task, and accepting, of doing whatever it takes to stimulate growth, even if it entails wealth redistribution. By implementing financial repression, the central bank conducts covert fiscal policy.The reaction of investors is to try to escape from being financially repressed, including by purchasing foreign assets, especially in countries where such repression is opposed by the political system or prohibited by the central bank statutes. The outflow of capital leads to an excessive depreciation of the currency in the former countries and an appreciation in the latter, compared with underlying fundamentals.At that point, a currency war can only be avoided if the latter start acting like the former, and also repress holders of financial assets. The most likely outcome of the currency peace which would result from a global attempt by central banks to repress holders of financial assets would be a new bout of risk taking all over the world. And, sooner or later, a new financial crisis.