Karl Marx and personal finance

Essential insights from Karl Marx on personal finance

Do you know what I’ve never done? And will likely never do? Do you know what almost everybody in my office occasionally pursues, but leaves me standing on the sidelines?

Playing the lottery.

I’ve never done it, never will, and never want to.

I know what you’re now expecting. A finger-wagging admonishment against the financial evils of playing the lottery. You’re expecting me to sit you down and have a stern actuarial discussion around the vanishingly small probability of winning, or the observation that along with your Starbucks habit the lottery is blowing up your frugal spending budget and killing your chances of early retirement. BORING! There’s nothing worse than an actuary lecturing you about probability. So here at Actuary Towers we like to do things differently, and we’re going to be looking at personal finance through the lens of Karl Marx and his dialectical materialism. Ooooh! Big words; so buckle up guys this is gonna be a riot!

Now let me now tell you something about my lottery views that you did not expect. If the prize were a lot smaller then I would play.

Huh? Wha..? What? Yes, you heard me, if the prize was a few hundred dollars, or a few thousand then I would play. But not when the prize is a life changing amount of money. I think I need to explain where this is heading…

I like gambling; I don’t particularly seek it out, but I’m happy to bet a modest amount, and enjoy the thrill as much as the next person. So I have no ethical or financial objection to gambling. However my objections really stem from a view of the world popularized by Karl Marx. These insights have helped to shape how I think about personal finance.

Gimmee the lowdown on Marx

Marx lived a large proportion of his life in London during the late 19th century. There he saw enormous social and economic injustice and that helped form his theory of a society always in tension between the workers (proletariat) and the bosses (bourgeoisie). The workers own nothing other than their ability to do a day’s work, and they have to sell their labor to the bosses to survive. The bosses own all the capital in the economy such as factory machinery and the subsequent profits earned from the workers. Marx observed that this was a repeating pattern throughout history; from a society built around slaves, to one built around feudalism to finally capitalist society that we live in now.

The history of all hitherto existing society is the history of class struggles. Karl Marx, The Communist Manifesto

Marx believed that this conflict between the bosses and workers would continue until the workers “awoke” and revolted. However, the bosses weren’t going to relinquish their power easily and Marx identified a number of cultural barriers that the bosses had set up. Wikipedia sums it up best:

the ruling class who manipulate the culture of that society—the beliefs, explanations, perceptions, values, and mores—so that their imposed, ruling-class worldview becomes the accepted cultural norm; the universally valid dominant ideology, which justifies the social, political, and economic status quo as natural and inevitable, perpetual and beneficial for everyone”

Using the media, government and churches as their prime weapons the ruling class would reinforce the status quo as the norm.

I’m not sure that lotteries were around in Marx’s time, but surely he would have identified them as a tool used by the ruling classes to subjugate the workers. A chance of untold riches? A promise of escape from the drudgery of everyday work? It’s a reinforcement of the idea that you are not in control of your life and can do nothing to plot your own escape, other than buy a lottery ticket. If you want to draw admiring looks from the cool kids in coffee shops then talk loudly about Marxist cultural hegemony. That’s what this is all about.

And… that’s why I don’t play the lottery. I feel like I am supporting the cultural narrative of enforced helplessness, and that change can only be granted to me by a very lucky chance. But if it was a harmless amount of money that wasn’t able to change lives, then I would consider it.

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What has this to do with personal finance?

The typical narrative in the financial independence community generally follows these lines:

  • We are wage slaves to the Man and have to work to support our family
  • The media, our peers and society in general all urge a compulsion to consume and pursue a social media-worthy lifestyle
  • Predatory institutions push credit on us to fuel that machine. This puts us in debt and we have to work more to pay it off
  • Eventually at age 65 or later we might have earned the right to a few years free from toil

Sound familiar? Yes! These are all classical Marxist views brought bang upto-date. The cultural hegemony of the capital owners conspires to keep us indebted and over-consuming. Don’t you see – Financial Independence enthusiasts have borrowed straight from the Marxist playbook!

Light bulbs
Has the light bulb gone off yet?


Have you ever noticed that there is a niche for every personal finance (PF) blog? There are millennial PF blogs, feminist PF blogs, Asian PF blogs, LGBTQ PF blogs, Mom PF blogs, get-out-of-debt PF blogs. It mirrors the fragmentation of Marxist followers. Every  group that perceives itself as marginalized will create their own interpretation of Marx’s thinking and carry it forward. And so it’s the same with personal finance.

You’re calling us Marxists!

I have to be careful I don’t insult people here, but if you removed the context of financial independence there is no doubt that those that speak passionately and eloquently about the above would be indistinguishable from Marxist thinking.

But here is where it gets interesting.

Marx could not see any way for our culture to break this cycle other than for the workers to rise up and overthrow the State. Marx envisioned a new state that would have public ownership of capital and then essentially migrate to Communism.

Karl Marx and financial independence
The man himself – the original mustachian?

A new way

It seems that those pursuing financial independence have found a new way. Over many years they are stealthily migrating from the proletariat to the bourgeoisie. They are changing class.

By turning their back on the cultural messages from the capital owners they are under-consuming and so able to accumulate some precious capital over many years and decades. At some point they have enough capital to walk away from paid work, and are no longer part of the working classes. At this point they have to put their capital to use. A Marxist would have little choice but to keep their capital in cash, but early retirees are always looking for those investments that yield the greatest amount. They are looking for companies, factories and businesses that will reward them with dividends, coupons and capital gains for lending them capital.

So the early retirees have now become the rich bosses. They enjoy a life of leisure and put their capital to work. And it’s worth noting that their capital earns the most when the workers earn the least.

Marx was striving for a system where everybody wins; Financial Independence enthusiasts have found a way to game the capitalist system, but it is still a zero sum game. For every winner there is still a loser. For example:

  • All else equal, companies that pay their workers the least can reward their shareholders the most. Therefore pre-retirees suffer, and early retirees benefit.
  • High inflation generally rewards borrowers and earners but penalizes early retirees.
  • A market crash can benefit savers who are early on the ladder, but can be catastrophic for early retirees.

So Financial Independence has not solved the Marxist idea of class struggle, it still persists with inequality and conflict. But on our journey we have found a new twist on an old problem.

How can I put this to use?

There is the old saying that you can’t understand the present without first understanding the past, and the philosophy of history can tell us a lot about our place in the world and the wider forces at work. Without these insights you are a leaf that did not know it was part of a tree (Michael Crighton).

There is not much new in the world, new ideas are often old ideas recycled for a new generation, and that’s the case with Financial Independence. The mechanics of how to do it might be innovative, but the philosophical and economic ground that is covered is actually well-trodden. We don’t have to recreate a philosophical or ethical framework to understand Financial Independence since it exists in the structures that great thinkers of the past have shown us.

Whadya think? Too heavy? Stick to the actuarial calculations like last week’s post? Were you insulted at being compared to a Marxist? Do you want more stuff on finance and less on philosophy? Take a moment to put your thoughts down below. Thanks!

20 thoughts on “Essential insights from Karl Marx on personal finance”

  1. Interesting take. I wrote a post some time ago on Marx focused on his view on technology. The question it raised is will technological progress stall, which was the point when Marx suspected such a revolt to occur. That point might also be interesting for those on FIRE

    1. Thanks – happy for you to link to it here and spread the love! I’ll be sure to read it.

  2. Oh I like the ones that make you think. I wrote a post once taking the shortfalls of communism for granted and ‘telescoping’ into what the pitfalls of runaway FIRE mentality would lead too. After reading this, I find myself in need of a time machine so I can go to a coffeehouse 20 years ago! Thank You

  3. I’m not sure I totally agree with “the zero-sum game”. If there were no entrepreneurs or innovators creating their own products (which communism discourages), then perhaps. But of course capitalism has led to many self-employed individuals with great products – which perhaps would be the ruling class even though they don’t employ many. What if everybody transitioned to the rich bosses by becoming self-employed? Maybe it’s not possible? And now I feel like I’m rambling . . .
    Interesting post though. Thanks.

    1. Wow lots to think about here, and not sure I can help a whole lot. I don’t get to think about this stuff as much as I would like, so it was good fun to write about. But feels like we need to decamp to the pub to discuss!

  4. Karl Marx was against present day corporate thievery disguised in economic smokes and mirrors…Maynard Keynes work and co, But we can’t hold hands and sing kumbaya, some are born smart as the rest play catch up.

  5. thefinancialjourneyman

    Nice post. I had to read it twice. I have not studied the writings of Karl Marx since i was an undergraduate student. Based on Marx, I would have to say that those of us who are FI just become new members of bourgeoisie class. We are the holders of the stocks and owners of the companies. I don’t know if we are breaking the cycle or just breaking the glass ceiling. What are your thoughts?

    1. Right! Those who have achieved FI are the owners of the capital, and those yet to get to FI are the workers. I don’t think anything has changed in the dynamic, but it’s interesting to look at it from this point of view, since I would guess that many who have achieved FI might say that they have beaten the capitalist system, where Marx might say they are part of the problem!

      Thanks for stopping by.

  6. Ok, so I did have to read this twice. (That’s a good thing.)

    – “Actuary Towers”. Ha.
    – The parallels you drew between
    — FI enthusiasts and Marxism
    — “For every winner there is a loser”

    Brilliant insights!

  7. Ok, so I did have to read this twice. (That’s a good thing.)

    – “Actuary Towers”
    – The parallels you drew between
    — FI enthusiasts and Marxism
    — “For every winner there is a loser”

    Brilliant insights!

    1. Urgh so sorry you got caught in my spam filter.
      So a belated thanks for coming back (twice!). That shows true dedication – many thanks again.

  8. I would say your assumptions are wrong. Work is what you do with your time, and you have a choice of whether to work, not work, and how much to work. Going into debt is also choice. I graduated college debt free but I had 2 jobs in addition to college. I started work at age 11 and filed my first 1040 at age 15. I graduated medical school debt free. 19th century England was a strongly casted society and so the “victimhood” was woven into the social psyche, but the antidote to this that Marx failed to see is that the game most definitely is NOT zero sum.

    Consider medieval times where there were just peasants and princes, and you turned your time into a meager share of the crops. Then as technology advanced there were guilds of artisans, workers who were handsomely paid for a specific expertise. You didn’t pay you didn’t get the expertise. Expertise and unionization leveraged work (a kind of creative destruction). This is capitalism. This is economic and social evolution. It also happened several hundred years before Marx lived. A version of the Marxian dialectic however does drive economic evolution. It is called creative destruction. Creative destruction is a situation where old systems are destroyed by more efficient and profitable systems like the proles raising up!, and the driver of creative destruction is risk. It is actually the Marxist dialectic applied to a system of feudal capitalism. The evolutionary result of creative destruction is higher profit spread more widely. So Marx gave us something very special, but it did not lead to communism, which is inherently regressive, it lead to creative destruction something extremely progressive.

    FI for the proletariat amounts to a sequence of risk returns whereby you invest your time, to improve your profitability, and then invest your improved profitability into corporate ownership. I started as a paper boy, worked in a stone mill, worked in a gas station, worked as a janitor, delivered pizza, worked as a chemistry researcher, taught physics at the collegiate level, worked as an electrical engineer, and became a anesthesiologist, and medical practice owner and employer, each at a value added salary. In the meantime I stayed out of debt (except for a mortgage), started a portfolio and invested the proceeds of my time aggressively until I reached FI. I presently have reclaimed my time, no longer needing to trade it for money. I traded commodities for a few years and that truly is a zero sum game, by design. (not recommended). That was my sequence and I bet anyone else who has FI has a similar series or risks.

    Anybody can develop a profitable sequence, but if you spend your time getting drunk and playing video games… those are unprofitable choices. I do however play the lotto, 2 bucks a week. I agree with your idea of small sum winings. I play a game that caps at 2 million payout, but the odds are 3M:1 instead of 350M:1, so my 2 bucks equals buying $232 of the higher payout tix. Also if I win I won’t have to hire a security firm to keep from getting kidnapped. My chances of winning? Zero, except here’s the thing someone always wins, so I rationalize it as an extreme form of diversification and I can write off my losses.

    Good stuff!

    1. Lots there to think about! I enjoyed the point about creative destruction driving economic evolution. I had never thought about it like that.
      BTW you can write off lottery losses? I did not know that!

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