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 19^th 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!

Multiculturalism

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.

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!