Money and Society: A Critical Companion (IIPPE) 9780745341958, 9780745341965, 9781786807113, 9781786807137, 0745341950

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Money and Society

Published in association with the International Initiative for Promoting Political Economy (IIPPE)

Edited by Ben Fine (SOAS, University of London) Dimitris Milonakis (University of Crete) Political economy and the theory of economic and social development have long been fellow travellers, sharing an interdisciplinary and multidimensional character. Over the last 50 years, mainstream economics has become totally formalistic, attaching itself to increasingly narrow methods and techniques at the expense of other approaches. Despite this narrowness, neoclassical economics has expanded its domain of application to other social sciences, but has shown itself incapable of addressing social phenomena and coming to terms with current developments in the world economy. With world financial crises no longer a distant memory, and neoliberal scholarship and postmodernism in retreat, prospects for political economy have strengthened. It allows constructive liaison between the dismal and other social sciences and rich potential in charting and explaining combined and uneven development. The objective of this series is to support the revival and renewal of political economy, both in itself and in dialogue with other social sciences. Drawing on rich traditions, we invite contributions that constructively engage with heterodox economics, critically assess mainstream economics, address contemporary developments, and offer alternative policy prescriptions. Also available The Political Economy of Development: The World Bank, Neoliberalism and Development Research Edited by Kate Bayliss, Ben Fine and Elisa Van Waeyenberge Theories of Social Capital: Researchers Behaving Badly Ben Fine Money and Society: A Critical Companion Axel T. Paul Microeconomics: A Critical Companion Ben Fine

Macroeconomics: A Critical Companion Ben Fine and Ourania Dimakou Beyond the Developmental State: Industrial Policy into the Twenty-First Century Edited by Ben Fine, Jyoti Saraswati and Daniela Tavasci Dot.compradors: Crisis and Corruption in the Indian Software Industry Jyoti Saraswati

Money and Society A Critical Companion Axel T. Paul Translated by Philip Mader

First published 2020 by Pluto Press 345 Archway Road, London N6 5AA www.plutobooks.com Copyright © Axel T. Paul 2020 The right of Axel T. Paul to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN ISBN ISBN ISBN ISBN

978 0 7453 4195 8 978 0 7453 4196 5 978 1 7868 0711 3 978 1 7868 0713 7 978 1 7868 0712 0

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Contents

Prefacevi 1.

Economic Theories of Money – and Their Critiques 1.1. Barter, Exchange and Money 1.2. Objective versus Subjective Theories of Value 1.3. The Improbability of Exchange

1 1 8 17

2.

Money’s Unlikely Origins 2.1. Gift-exchange and ceremonial monies 2.2. Money and (the End of) Violence 2.3. Economies of Sacrifice 2.4. Secrets of the Coin

25 25 33 40 47

3. Money and Finance 3.1. Time and Money 3.2. The Logic of Financial Markets

58 58 69

4. The Politics of Money 4.1. T  he Foundations and Fundamental Problems of Contemporary Money 4.2. Private Monies (or Bitcoin) 4.3. Sovereign Money 4.4. Central Bank Independence and the Inescapable Politicality of Money

85

108

5. Money and Society 5.1. Alienation and Freedom 5.2. Money and Functional Differentiation

122 122 132

85 89 98

References148 Index162

Preface

In this book I aim to offer a theory of money, not merely to discuss theories of money. I seek to paint the rich panoply of existing theories of money onto a sociological – or, more precisely, institutionalist – canvas. This requires us to be enlightened by, yet also disabused of, much of economic theory. Naturally, my efforts stand on the shoulders of others’ research, drawing upon a long line of theorists of money who have already written about many, perhaps even all, of the ideas I will discuss here, or at least similar ideas. Precisely for this reason, it would be impossible to pinpoint exactly which theorists in particular deserve the ‘credit’ for most of the ideas advanced in this book. Whoever wishes to trace their genealogy, however, will find references to the most important studies spread throughout the book. I therefore make no claim to any particular originality, but hope at least to attain a certain coherence in sorting, organising, appraising and re-evaluating the many theories of money that have informed contemporary thinking. Let me begin by sketching the ideas that will be developed in this book: money is an institution and, at the same time, a material symbol arising from a particular type of social relation, its regulation and codification. It is not, as many others have argued, a tool invented by individual actors merely to optimise exchange. This assertion will probably provoke disagreement from the authors whose analyses I contradict (or have perhaps simply overlooked), but that is precisely the spirit of academia. As it happens, the target audience for this book is not so much competitors in the field of monetary theory as laypeople: perhaps, in particular, those with some background in the social sciences or humanities, who might take a special interest in money and political economy. For them, I hope to make clearer than it already ought to be that to leave the issue of money to economists and the financial professionals would be an intellectual failure and a political problem. Money as a social institution affects all of us, and needs to be understood by everyone. The first chapter deals with the theory that money arose from exchange, which continues to enjoy much ‘currency’ in economics and beyond, but which turns out to be as empirically untenable as it is log-

preface  .  vii

ically implausible. This theory, which presupposes an already existing, rationally calculating homo economicus, not only flies in the face of the sheer improbability and implausibility of the type of economic exchange from which it sees money to have arisen, but also ignores the problems of coordination that stand in the way of anything like markets emerging in the first place. The second chapter recapitulates those origin stories that enact and reveal the categories (or simply dimensions) of money that have actually mattered in history. First comes money as a measure of value – as a way of thinking, which allows economic value to become imaginable and quantifiable in the first place – and only then physical, ‘intrinsically’ valuable money. As we shall see, money has non-economic, rather than economic, origins. It served first as a means of debt redemption, and only later as a means of exchange. The third chapter fast forwards from the early origins of money to the world of contemporary finance. The main point is: money alters temporality, leading to a particular structural problem, namely that money holders appreciate it for its ever present usefulness, yet the benefits of its ‘liquidity’ can never be enjoyed by all money holders at once, or even to the same extent. We will see how the existence of modern financial markets – in particular, banks and securities exchanges – stems from the attempt to resolve this problem (the liquidity paradox), an attempt that only aggravates the situation, however, by making financial crises a permanent and immanent risk. The fourth chapter examines the fundamental features and problems of our monetary order. It highlights how the contemporary money creation process is largely a private one, and therefore only partially controllable by policy, and shows why this means we need a creditbased rather than an exchange-based understanding of money. The chapter reveals the dual nature of money, as both public good and private property, respectively that any monetary order must always balance the interests of debtors against those of creditors, by looking at current proposals for alternative monetary systems, specifically: private electronic currencies such as Bitcoin, and ‘sovereign money’ reforms to re-establish the state’s control over money creation. Because money is inevitably ‘political’, and can never be neutral, we need to ask about whether it is possible to democratise our monetary order, but where the limits to this lie.

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The fifth, and most distinctly sociological of the five chapters, discusses the ambivalence of money for individuals as well as societies. As we shall see, the detriments of money for morality and for the lifeworld of individuals are matched by gains in freedom that scarcely anybody would be willing to forego. But as the chapter’s second part shows, individuals scarcely have a choice about whether to use money or not. Rather, the functional differentiation of modern societies – their separation into autonomous areas such as science, law, personal companionship and so on – practically necessitates the existence and usage of money as an all-encompassing means for governing society. At the same time, the towering position that money has acquired in modern society, and even more so the structural dominance of the economic sphere over everything else, ends up posing a severe threat to the autonomy of society. The different chapters and their subsections are written in such a way as to be comprehensible on their own. However, taken together they tell a story that is more coherent and complete. My thanks go out to Franca Fellmann, Malte Flachmeyer, Steffen Herrmann, Magdalena Küng, Matthias Leanza, Philip Mader and Cornelius Moriz for their attentive reading of the manuscript and many helpful comments. Moreover, Philip Mader has done a fabulous job of translating the German original into English. Thanks also to Chad Jorgenson for his proofreading and editing. Finally, thanks to Muriel Thalmann for compiling the index. Except for a few updated numbers and references in Section 4.2 and a handful of minor elisions throughout the book the text remains faithful to the original publication which appeared in 2017. Of course, there are ongoing debates in monetary theory, as money ‘itself ’ is inevitably evolving. However, the fundamental issues tackled in this volume, including ‘where did money come from?’, ‘what is it good for and what makes it so attractive?’, ‘what has shaped money’s evolution over time?’, ‘what is a monetary society’ and ‘can and shall we change our monetary order?’ would not have to be answered any differently, even if I had included the most recent literature in my discussion. We live in ‘fast times’ and must deal with ‘social acceleration’, but good social or, in this case, monetary theory does not need to be rewritten at the same pace as competitive academic publishing is sometimes forced to pretend. I dedicate this book to my academic mentor Wolfgang Eßbach, who taught me that good sociology consists in always connecting abstraction to lived experience. Whether or not I have always succeeded in

preface  .  ix

maintaining a balance between the two, and whether or not Philip and I have succeeded in making the text readable despite the often difficult (not to say obscure) terminology around money, will be up to the reader to decide. I hope, in any case, to have extended a helping hand to those seeking clarity about the bewildering questions, both current and timeless, surrounding money. Basel, December 2019

1 Economic Theories of Money – and Their Critiques

1.1. BARTER, EXCHANGE AND MONEY Whether one asks people in the street, consults academic textbooks, examines educational materials in economics or simply Googles it, the question ‘what is money?’ almost always yields the same answer: money is a means of exchange, which facilitates trade. Looking a little further afield, one might identify other functions: its capacity to express prices, and thus make the values of different goods commensurable, or again its ability to store purchasing power and preserve value over time. These three functions – acting as means of exchange, a standard of value and a storehouse of purchasing power – appear to exhaust the essence of money for most theorists. ‘Money is what money does’ (Hicks 1967: 1) is a popular catchphrase among economists. In this way, they define money functionally, rather than substantially – at least at first sight. A substantial definition would be, for instance: ‘money is gold’. But although – at certain times and in certain places – gold, usually weighed out or in the form of coinage, has served as money, this does not mean that gold is money. A glance at your wallet will probably reveal, apart from copperor brass-coated coins, paper banknotes and various debit and credit cards. Throughout history, the most diverse objects, including salt, shells and cattle have all served as money. And yet, particularly when considering the answers given by economists to the question of what money actually is, primacy is almost always given to its function as a means of exchange. Very often, its other (two) functions are derived from this initial function, the story being that, precisely because a particular ‘thing’ was used as a general means of exchange, prices were able to be expressed in terms of exchange relationships between this one thing and all other things and thus became commensurable. Furthermore, the story continues, it is thanks to this phenomenon that the generalised means of exchange (no matter what

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it consists in) is, or rather becomes, intrinsically valuable. Because there is no need to use it immediately, one can hold on to it until the next opportunity to exchange it for something arises. The attributes of money (at least money as we know it) – namely, being able to measure and store value – are thus mere by-products of its real function: to act as a means of exchange. Although, on its own, such a definition gives us no real clue as to how money came into existence, it is often concluded from this definition – in an act of plainly circular reasoning – that money must have evolved from the exchange of goods and wares, vulgo barter. As early as the fourth century bce, Aristotle claimed that money was first invented in order to facilitate exchange, the idea being that money, as an intermediary good between different traded goods – into which a trader could convert excess wares and then use again later to purchase other goods – enabled a greater number of people to satisfy their needs than would be possible with bartering (Aristotle 1990: I, 9).1 However, Aristotle also cautioned against accumulating money for its own sake, considering this to be a misuse of money. Around 2,000 years later, in the works of John Locke, money continues to appear first and foremost as a facilitator of exchange; only now – in a very significant change – it is money’s capacity to be exchanged for anything and everything that justifies people’s accumulating more of it than they need (Locke 1689/2003: 133–46; Priddat 2012). But the real locus classicus of historical (or genetic) exchange theories of money is Adam Smith’s Wealth of Nations, published in 1776, which is considered to be the founding text of the modern economic sciences: But when the division of labour first began to take place, this power of exchanging must frequently have been very much clogged and embarrassed in its operations. One man, we shall suppose, has more of a certain commodity than he himself has occasion for, while another has less. The former consequently would be glad to dispose of, and the latter to purchase, a part of this superfluity. But if this latter should chance to have nothing that the former stands in need of, no exchange can be made between them. […] In order to avoid the 1.  Elsewhere, Aristotle (2008: V, 8) conversely refers to money as a convention of the polis. On the ambivalence of Aristotelian money theory, respectively the already present fluctuating between money as economic issue and means of exchange, versus its political constitution, see Meikle (2000).

economic theories of money – and their critiques  .  3

inconveniency of such situations, every prudent man in every period of society, after the first establishment of the division of labour, must naturally have endeavoured to manage his affairs in such a manner as to have at all times by him, besides the peculiar produce of his own industry, a certain quantity of some one commodity or other, such as he imagined few people would be likely to refuse in exchange for the produce of their industry. Many different commodities, it is probable, were successively both thought of and employed for this purpose. […] In all countries, however, men seem at last to have been determined by irresistible reasons to give the preference, for this employment, to metals above every other commodity. Metals can not only be kept with as little loss as any other commodity, scarce anything being less perishable than they are, but they can likewise, without any loss, be divided into any number of parts, as by fusion those parts can easily be reunited again. (Smith 1776/1904: 24–5) As further stages in the development of money, Smith identifies the standardisation of certain quantities of metal and their subsequent minting into coins. He makes no mention of government-issued banknotes, which at that time had already been in use in England for three-quarters of a century (Hutter 1993). In the meantime, this origin myth of money has found its way into almost all economics textbooks. It is well known that Smith’s book was also a normative text, aimed at criticising mercantilist trade restrictions. Of course, contemporary economics is hardly objective either (neither, it goes without saying, is this book), at least not insofar as its representations of the economy and, beyond that, of society present themselves as revealing the ‘nature’ of things, especially human nature. ‘Orthodox’ – meaning liberalneoclassical – economics, and with it wider rational choice theory in the social sciences, assumes that exchange relationships between isolated, self-interested individuals constitute the ‘natural’ social order: society’s original and natural state. Smith (1776/1904: 15) himself refers to ‘a certain propensity in human nature […] to truck, barter, and exchange one thing for another’. ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest’ (Smith 1776/1904: 16). Paul Samuelson (1951: 53), winner of the 1973 Nobel Prize in Economics, seconds this view with non-ironic exaggeration: ‘a great debt of gratitude is owed to the first two

4 

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ape men who suddenly perceived that each could be made better off by giving up some of one good in exchange for some of another’.2 According to such pseudo-anthropology, the market – or rather a sort of ‘shadow market’ – in which individuals relate to one another as if they were in a market, even though what they want to trade does not yet have a price, has always existed. And money is, supposedly, precisely that invention which all ‘rational’ actors would, sooner or later, recognise as making the shadow market and the dyadic, random and (for third parties) invisible exchange relations visible. Exchange in general, meaning the exchange of one good for another, has on this view always existed, merely becoming easier when one no longer requires a particular good desired by the other party and instead can simply offer money. At the same time, trade became more ‘economical’, because now, thanks to the existence of an equivalising standard of value, all the prices of all goods can be compared and the best ‘deal’ found. Money, therefore, resolves what William Jevons called the problem of the ‘double coincidence of wants’: an actor, ‘Ego’, must find a partner to exchange with, ‘Alter’, who not only is offering what Ego wants, but also happens to want what Ego himself has to offer, and both of them must not only possess the ‘correct’ goods but also the ‘correct’ quantities of them. Carl Menger’s (1882) elaboration of this exchange theory of value retains a certain canonical status and continues to be used in essentially unchanged form by orthodox circles today. Menger assumes purely individualistic ownership relations and (commodity) exchange as self-evident and universal, but thinks them to be so cumbersome without money as to make inevitable the evolution of the ‘money’ medium out of the most exchangeable commodity, via precious metals to gradual standardisation before ultimately becoming a practically valueless yet perfectly value-representing symbol. In this story, the state, or any other force external to the market, only ever enters into the picture after the invention of money, if at all. Money is the ‘spontaneous result’ (Menger 1882: 250) of market participants’ interactions. The problem with this story is that it is both conceptually and empirically wrong. Even the simple fact that small markets with a limited range of goods and participants would need no intermediary good because the problem of the double coincidence of desires could be resolved by simply keeping tabs already discredits Menger’s assumptions about 2.  On the fact that apes do not exchange, see Türcke (2015: 59–62).

economic theories of money – and their critiques  .  5

money’s origins from humble village exchange. By contrast, in large, complex markets it would be practically impossible to find a single most exchangeable commodity, because between even a mere hundred different goods there are already 4,950 possible exchange relations. Believing that under these conditions one good would, without coercion, rise above all others to become money is extremely implausible. Moreover, neither history nor anthropology know of any societies based on non-monetary commodity exchange. Of course ‘primitive’ and prehistorical societies always have (had) some form of goods exchange, but this always existed within narrow bounds (Dalton 1982; Humphrey 1985). This is especially true of hunter-gatherer societies and thus of the form of society dominant for the longest period of humanity’s existence so far. The ‘natural society’, if it ever existed, was not a society of grocers and goods-peddlers. Nor did the development of agriculture and even the rise of cities automatically make markets the primary means for people to satisfy their needs or for societies to resolve their problems of social coordination and social reproduction. As I will discuss in greater depth in Chapter 2, goods exchange in non-market societies is primarily an exchange of ceremonial goods. The fact that they are gifts, rather than commodities, does not mean they have no value. Gifts, too, involve reciprocity; they are just not traded for each other. Gift exchange does not mainly serve the acquisition of goods that one would otherwise be lacking, but rather the construction and confirmation of (social) relations, as well as competition for status. Where everyday goods – whether ‘consumer good’, such as a millet beer, or ‘investment goods’, such as seeds – change hands, this is by and large not the result of a payment, but rather takes the form of a loan or simple gift. These communities are, of course, by no means automatically – and, in actual fact, rarely – communities of equals. Far from communist paradises, they are beset by intense rivalries and inequalities of wealth. Debt can – and, particularly in such social orders, does – lead to dependency and bondage. The point is that commodity exchange in non-market societies does not serve to avoid dependencies, but rather to create them. Moreover, small communities have little need for quid pro quo trade, as every person was (or is) a member of a larger household, and most households are autarkic, meaning they produce mostly the same things as others. Exchanging these manufactured goods would be economically pointless.

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Historically, trade makes its first appearance at the fringes of society. The most logical partners for exchange were outsiders, not just because they may have possessed rare or intriguing objects, but also, and especially, because it is better to trade than to fight, particularly if another group is potentially stronger than one’s own. Trade as a form of exchange between different groups serves as a substitute for violent conflict (LéviStrauss 1943). And because such trade remains a dangerous affair – a trade exchange with strangers could well turn out to be a ruse – it is subject to special codes and rules, such as limiting access to the marketplace to particular persons, forbidding the carrying of weapons there, nominating dispute-arbiters and establishing standard units of measurement. This presupposes a pre-existing political order, in the wider sense. From such external trade, means of exchange and payment could very well have evolved, and gradually come to be used within the societies whose external relations they served to facilitate (Polanyi 1957: 243–70; Polanyi 1963: 30–45). But this is a very different evolutionary pathway from the one described in the myth of primordial exchange. The presumed quasi-inevitable evolution of money – as all ‘sensible’ individuals realise just how difficult exchange would remain without it – and the subsequent experimentation with money as a means of exchange, starting with relatively homogenous and quantifiable goods such as salt, before moving on to precious metals and then coinage and printed notes and other symbolic forms: this simply never happened. This does not mean that money, once introduced, does not then become a means of exchange. But it does mean that money’s origins lie in something other than its exchange function, with which orthodox economics is ontologically and historiographically obsessed. Why, then, despite being so patently false, is this myth so tenacious? At least three reasons can be identified. First, it plainly favours the present economic order. Rather than illuminating the past, this tale serves to reinforce the status quo by making us believe that autonomous self-serving individuals, the institution of private property and the marketplace itself have always existed. But all three, like money, have real histories, rather than being simply given. To naturalise them means to legitimise them and declare them beyond question and not subject to debate. To take money to be a spontaneous discovery by homines economici in an initially moneyless marketplace naturalises money itself, such that it appears to be a primordial and essentially apolitical medium that only subsequently is captured and controlled by the state and other

economic theories of money – and their critiques  .  7

collective actors. It is clear that rulers and governments have repeatedly throughout history used control over the money system to advance their particular interests. But from this it does not follow that there ever has been, or could be, anything like a ‘neutral’ or ‘politically independent’ form of money, whose initial purity was corrupted by government capture (see Section 4.4). The myth of an initially politically neutral form of money, of course, does not have to be a deliberate falsehood. The fact that Aristotle, who was openly hostile to money making, advances such an account suggests that it can hardly be a self-serving invention of modern elites. But of course, why should proponents of liberal economics bother to lay bare a fallacy that happens to serve their own normative predilections so well? Second, just as in the realm of technological progress, path dependency shapes the academic advancement of knowledge. Decisions and fundamental assumptions, once made, are hard to revise, especially when, as with contemporary economics, entire canonical frameworks of theory have been built upon them. As the study of the history of science shows, even in the natural sciences advances in knowledge are not the result of incremental gains in knowledge, but rather of the systematisation of singular observations and explanations into so-called paradigms (Kuhn 1969). A scientific paradigm is akin to a grammar that regulates what is sayable and thinkable. Whatever fails to fit this framework or cannot be reconciled with it is declared an exception or an aberration, or perhaps not even acknowledged. Only when findings that contradict the basic assumptions underlying a paradigm gain the upper hand, or non-scientific factors make the reconsideration of a particular scientific worldview more likely, can a new paradigm replace the old one. Orthodox or neoclassical economics3 is, to speak plainly, an a-social theory of how isolated individuals rationalistically – meaning always opportunistically and self-servingly – pursue gains from exchange. In such a paradigm there is no room for the institution of money, as some of its more honest exponents have even admitted (cf. Hahn 1982: 1). To challenge economic orthodoxy by conceptualising our economy – that is, the modern capitalist one – not as a market economy, but rather as a monetary economy, would be awkward and hardly ‘rational’ for most economists. 3.  The meaning of the term ‘neoclassical’ is discussed in the second half of this chapter.

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Yet even liberal-normative intellectual bias – combined with the sheer epistemological gravity of the orthodox paradigm – cannot fully explain the social persistence of the ‘myth of money as a means of exchange’. It is likely that its wide currency, as it were, also stems from our own everyday experiences and understanding of money. Most people associate money with the physical coins and banknotes in their pockets, notwithstanding the fact that most Western people own more than one payment card or the fact that most money is no longer held as physical cash, but rather exists only non-materially in the form of term deposits or other accounting units.4 A handwritten account entry or a piece of binary code stored on electronic hardware is less evidently a means of exchange than cash is. And even cash – i.e. paper banknotes and coins made of cheap metal – does not strictly speaking have material value, merely representing value through monetary information. But is money, then, a means of exchange at all? Or more fundamentally: does money need to have value in order to facilitate exchange? Our everyday wisdom would say ‘yes’. In our imagination, money appears as something with substance – not just a symbol, but the literal embodiment of wealth. If this reasoning is correct, thinking of money first and foremost as a means of exchange would ultimately be less a product of liberal ideology or academic epistemological blockages and more the result of an urge, perhaps even an anthropological-cognitive necessity, to see money as an a-social thing and not as a social institution that creates and embodies social relations. Aristotle himself seems to have succumbed to this fallacy. Overcoming substantialism (in this case) about money is, to all appearances, a tough task. Economics itself, when it still took an interest in theorising about value, spent a lot of time chipping away at this problem. 1.2. OBJECTIVE VERSUS SUBJECTIVE THEORIES OF VALUE Society in a ‘state of nature’ – not that of early humans, but rather the condition imagined by liberal economists, as they suppose it would be if human ‘nature’ were unhindered by external (e.g. geographical) or internal (i.e. political) constraints – is a society built on exchange; already a market society avant la lettre. The people that inhabit this natural 4.  The share of money held as cash by non-bank entities is currently around 10 per cent in the euro area.

economic theories of money – and their critiques  .  9

market society are autonomous, single individuals, or perhaps are organised into self-sufficient families, and their aim is not only to secure what they need but also to improve their material standard of living. They possess individual talents as well as a basic set of resources, which they can productively put to use on an individual basis. Already these natural differences encourage the social division of labour, while the comparative advantages that arise from dividing labour strengthen this tendency. As the necessary enabler of the division of labour, the exchange of goods is at first performed without money. Perhaps relations between individuals and households are also shaped by relationships of friendship, custom and religion, and later by legal rules and political institutions that are not grounded in exchange. But their initial relationships are essentially indirect or ‘truncated’ exchange relationships: they are incomplete because their content, intent and purpose are not to create or maintain relationships with the exchange partners but are focused only on the objects being exchanged. The state of nature described by liberal economists is a society of isolated commodity owners. The obvious (and correct) objection that such a society has never existed in history and does not exist anywhere today has apparently not been reason enough for orthodox economists to discard this model. It is true that some modern societies are market-dominated and that non-market-oriented domains of life (e.g. the search for a spouse) increasingly follow the logic of markets (cf. Sandel 2012). Furthermore, models or ideal types need not be discarded just because they do not accurately reflect reality. On the contrary, their purpose is to direct attention towards particular, idealised aspects of reality, and thus allow the basic logic behind the development of an institution like the market to be identified and clarified (Weber 2011). Moreover, it is true that the ‘business’ of economists (and, not only in recent years, of some wellknown spokespeople of the wider social sciences as well) has long been to conceptualise and explain social reality through strictly instrumentalist, ‘rational’ exchange (Robbins 1931/1984; Homans 1961; Becker 1976; Coleman 1994). One peculiarity of such an idealised society, and surely in no small part a source of its appeal, is its manifest peacefulness (Hirschman 1982: 1464–6). The exchange of ownership of goods, although conditioned by price – that is, it is bound up with the provision of material compensation – occurs voluntarily. Neither violent robbery, underhanded theft nor falsely altruistic gift giving exist. Goods change hands only through

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mutual exchange or, after the introduction of money, the act of purchasing. At the same time, this mode of transaction, which, as one could easily fail to notice, is not only very specific and contingent and therefore supremely improbable, but also the only (or at least the only meaningful) mode of social interaction. Individuals (or subjects) encounter each other only through the exchange of (commodified) goods or services, entering into relationships that, in themselves, are object-like and abstract. They have no interest in each another, but care only for the material world of things. By being exchanged, these material objects create social cohesion. But how could mere objects be able to do this? Would it not be just as likely that – as one sees in the case of arguing children, equally entitled heirs or divorcing couples – that goods act as a source of strife and discord? Would disagreements about ownership and – in the absence of any arbiter – potentially violent relationships not be more plausible than peaceful, one might almost be tempted to say ‘autistic’, exchange? Contemporary economics no longer deigns to ponder such questions. Even the great Adam Smith, whose other key work alongside the Wealth of Nations is, not incidentally, entitled A Theory of Moral Sentiments, essentially reduced humans to traders. But at least the classical economists – Smith, David Ricardo, Karl Marx and even some of the founders of the neoclassical school like Léon Walras, William Jevons and Carl Menger – still wrestled with the problem of economic value.5 (Their theory of value may be said to have stood in for their lack of a theory of money. Contemporary economics, by contrast, neglects both completely.) And value is the key category on which all voluntary, peaceful and fair exchange rests. Only a clear notion of value can raise goods exchange as an exchange of equivalents – of materially different, but nonetheless equally valued things – above the more raw and honour-bound forms of asymmetrical exchange, robbery or gifting. Markets organise the exchange of equivalents: this justifies both their supposed peace-making power and, simultaneously, the treatment of money as both practically secondary and theoretically meaninglessness. But what is it that creates value? For classical economists, it is labour; for neoclassicals, it is utility. This point divides the two schools. Even though some of the authors already mentioned utility as a source of value before the neoclassical turn (just as one still finds the odd labour 5.  Many key insights into the history of economic thought can still be found in Schumpeter (1955/2006); see Brodbeck (2009) on the history of money.

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value theorist today), the sole purpose of that theoretical revolution was to place the notion of the exchange of utilities front and centre in the economic sciences. The way in which classical economics theorised value is also referred to as ‘objective’, because its exponents attributed all value to an objective quantity of human labour embodied in goods. Neoclassical value theory, by contrast, is subjective, attributing value to the individual actors’ subjective appreciation of the object being exchanged. We will see that this contrast is not so simple and that, in fact, classical and neoclassical economics both believe in the objectivity of value, and both, as odd as it may sound, have an actorless conception of the market. Without subjects to haggle, negotiate and demand ‘their cut’ there is no need of money for them to pursue. A clear, early expression of the objective (labour) theory of value is, unsurprisingly, found in Smith’s distinction between the use value and the exchange value of a thing. The former, he says, is an expression of its utility to someone, the latter of its ability to purchase something else (i.e. its purchasing power). Smith cares only about the latter: more precisely, about the correct measurement of its exchange value, the question being ‘wherein consists the real price of all commodities’ (Smith 1776/1904: 30). Because – Smith’s main idea goes – wealth is a function of how much labour someone possesses above what they need for themselves, labour ought to be ‘the real measure of the exchangeable value of all commodities’ (Smith 1776/1904: 32). But this core axiom is anything but self-evident. Apart from the fact that humans, when they exchange, do not necessarily exchange labour (or the products of labour), clearly not all labour is always in demand. Labour itself does not necessarily produce something of value. Moreover, the assumption that humans necessarily own the products of their own labour, as desirable as it might be, is far from being self-evident. This goes as much for salaried employees in modern economies as for legally and politically disenfranchised labourers in earlier societies. But one can follow Smith in one key respect: with a growing division of labour, the products of one’s own work increasingly need to be sold to other individuals and other products sourced from them. When such exchange, important as it is, happens voluntarily the exchangers will, according to Smith, be exchanging equal quantities of labour. In that early and rude state of society […] the proportion between the quantities of labour necessary for acquiring different objects seems to

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be the only circumstance which can afford any rule for exchanging them for one another. If among a nation of hunters, for example, it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer. It is natural that what is usually the produce of two days’ or two hours’ labour, should be worth double of what is usually the produce of one day’s or one hour’s labour. (Smith 1776/1904: 49) A logical rule of thumb to estimate the proportions in which products of work ought to be exchanged for one another is of course different from an ontological statement to the effect that all exchange value can be reduced to human labour. But Smith evidently believes that humans in economically less developed conditions – or perhaps especially in such conditions – would already recognise labour as the source of all value and therefore conduct exchanges according to relative quantities of labour, which serve as quasi-prices. He admits that in economically more developed circumstances it can be challenging to estimate these quantities (Smith 1776/1904: 33), either because the production process is complex and multi-layered and, in practice, impossible for the buyer of a product to survey, or because very different qualities of labour (e.g. physical or mental, easy or strenuous) need to be weighed up against one another and – in principle without using money – rendered commensurate. These practical challenges, as well as structural factors such as the rise and fall of supply and demand or the existence of monopolies – as Smith was well aware – could lead to the actual market price of a good deviating from its true or natural price (Smith 1776/1904: 57–65). Yet the fact that labour was the original source of all other economic value would inexorably lead the market price of a product to adapt itself to its true labour value. Thus, Smith already has a notion of something like an economic equilibrium. But, even more consequentially, he assumes that there are rules or even ironclad laws that every exchange, regardless of the actors’ concrete desires or possible ‘pricing errors’, must ultimately respect. For Smith, the objective value of the goods exchanged is what regulates all market processes. We find this labour theory of value again, in a more developed form, in Ricardo and Marx. According to Schumpeter (1955/2009: 567), Marx’s labour theory of value is ‘the only quite thoroughgoing one ever written’. But even if many metres worth of shelf space have been filled with works digesting this theory and pointing out the preponderance of problems

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over benefits, it is beyond any doubt that Marx clearly expressed and (with characteristically dogged resolve) worked through the problem of what it means to tie an analysis of exchange – a phenomenon that, interestingly, bothers Marx as little in principle as it does Smith, or economists on the whole – to an objective theory of value. To the question of what the equation ‘1 quarter corn = x cwt. iron’ means, he gives the answer: ‘there exists in equal quantities something common to both’ (Marx 1906: 43). This common ‘something’ does not correspond to a natural or innate property in the goods themselves. Rather, Marx believed that the ‘accumulated experience’ – not of some primordial economy, but rather of the ‘fully developed production of commodities’ (Marx 1906: 86) – shows that what is common is their ‘being products of labour’ (Marx 1906: 44). Of course, real human labour is necessary for the creation of any commodity, but what equalises them is not some equivalence of the activities involved in their production, but rather that a quantum of the ‘homogeneous mass of human labour power’, the ‘value-creating substance’, has gone into its production (Marx 1906: 43). For Marx, value is, therefore, both an objective and a socially defined category: objectively, value exists as the crystallisation of human labour, and socially it exists as a result of historical-cultural variables. Although it requires the concrete exertion of individual producers, value is an expression not just of this process in isolation, but, in every case, of the overarching societal relations governing production as well. Like Smith, Marx argues that the (monetary) prices for which goods are ultimately traded can easily mask their real value, an argument that burdens the theory with a whole range of issues that are collectively known as the ‘transformation problem’ (Bortkiewicz 1906–7/1976; Heinrich 1991: 214–22). In the final instance, however, for Marx it is the ‘law of value’ in commodity production that determines what happens in the market. To him it is ‘plain that it is not the exchange of commodities which regulates the magnitude of their value; but, on the contrary, that it is the magnitude of their value which controls their exchange proportions’ (Marx 1906: 73). Exchange is secondary to the determination of value; the parties involved are merely executing what necessarily occurs without their knowledge like ‘an over-riding law of Nature’ (Marx 1906: 86). Of course, Marx is aware ‘that commodities cannot go to market and make exchanges of their own account’ (Marx 1906: 96). Therefore, exchange and, with it, social actions and particular social relations need to exist, such that private owners of commodities come face to face with

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each other. But these relations simply enact the exchange of commodities and thereby help the law of value to become valid. Prices, and more generally money, are, for Marx, merely a veil covering the – for him profoundly atrocious – relationships between people in a society built on private property, where people encounter others merely as commodity owners, while the commodities themselves appear to be endowed with life (Marx 1906: 82). The rise and eventual dominance of the neoclassical subjective theory of value in the final third of the nineteenth century, which is a prime example of a scientific paradigm shift, saw economics adapt to a new conception of force derived from physics (Mirowski 1989). It signalled a break from the classical economists’ idea that some sort of objective value must underlie the relationship of market subjects to one another. Jevons, Menger, Walras and other innovators shared the creed that values are not objective and created by human labour, but rather subjective, individual acts of valuation performed by economic agents seeking to own or use a particular good. ‘Utility’ here could refer to a range of effects, from sensual pleasure to moral edification or instrumental usefulness. Just because Ego finds utility in something does not mean that Alter will do so to the same extent. So why not trade? Ego owns a good that he appreciates less than Alter does, who in turn has something Ego desires. What happens in exchange is, therefore, the transformation of subjective valuations into a price that has no fundamental objective basis, but which simply expresses the relative value attached by the partners to the exchanged goods. The problem is that none of these thinkers – except Menger, and even his treatment is insufficient (Brodbeck 2009: 658–66) – actually analyse the act of exchange, that is, bother to ask how the exchanging parties can agree on what quantities of goods to exchange and, even though they cannot agree on their objective equivalence, nonetheless conclude what both sides consider a fair exchange. These theorists resolve, or rather avoid, the problem by supposing the de facto existence of a money of account, despite conceiving of all exchange, and the market more broadly, in a moneyless way. Ex negativo, through this omission, they reveal to be true what they, and almost all orthodox economists today, believe – at least conceptually – to be false, namely that money is not a by-product of the emergence of markets, but their necessary antecedent. How neoclassical economics, as well as the hidden objectivism built into it, fails to adequately theorise exchange is best demonstrated by

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Léon Walras’ theoretical works (Orléan 2014: 39–50). Like liberal economics as a whole, Walras takes for granted that individuals are socially organised through ‘inter’-actions with third parties that are always peaceful acts of goods exchange and that individuals have already internalised certain rules of libidinous bookkeeping, following them as part of human nature. These are ‘Gossen’s Laws’: the ‘law’ of diminishing marginal utility and the ‘law’ of equi-marginal utility. (Gossen 1889). The law of diminishing (marginal) utility refers to how the pleasure from having more of any good does not increase in a linear, proportionate way, but becomes smaller with each additional unit. After a certain point, one has simply had enough – even of one’s favourite meal. But because humans have not just one but many different needs and desires (all of which, likewise, are subject to the law of diminishing utility), any market actor – faced with enough exchange partners with sufficient goods – will continue to exchange up to the point where gaining more of a particular good would bring no greater satisfaction than the current ‘basket’ of goods. This inner process of deliberation, which precedes any actual exchange, is what underlies the law of equi-marginal utility, which states that actors try not merely to maximise their enjoyment of one good but rather to optimise their enjoyment of all goods. The market subjects’ preferences are taken for granted and considered to be independent of the preferences of others. Before they show up at the market they know exactly what they are looking for and how much of it they want. What they see others buying has no effect on them. Moreover, they are ready and able to substitute anything on their shopping list that turns out to be unavailable or more expensive than expected with other goods of equivalent utility: ‘Fine then, I’ll take two toasters instead of eight books, it’s all the same to me.’ Thus, there are two necessary conditions for Walrasian economic equilibrium theory to model the market as the device for realising ‘the greatest happiness for the greatest number’ (Jeremy Bentham): all individuals must only ever want to exchange fairly, and they must not be affected in their desires by others. Individuals must be well behaved and free of passions. To be more precise, Walras (1886: 12) refers to the market as ‘a mechanism’, because for Walras it is no forum, or souk, replete with shouting and sales pitches, haggling and enticement, hucksters and trickery. It is more akin to a goods transit centre in which decisions, previously aggregated in a placeless data-processing centre, are carried out. Walrasian market activity is silent exchange, in which the actors never

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really interact, let alone communicate. Rather, it is as if a dispassionate auctioneer (who, contrary to all liberal anthropological assumptions of individual utility maximisation, notably takes no personal interest in the market outcomes) were to oversee and tally the actors’ desires to exchange goods: ‘I have five sacks of potatoes; I want 20 packets of paper!’, ‘Two pairs of socks for an armload of firewood!’, and so on. The auctioneer moves things along by urging all market actors to reformulate their desires and prices in different permutations, until finally a ‘Pareto-optimal’ system of equations emerges, a set of exchanges whose realisation would make everyone better off and no one worse off.6 The prices – meaning the relations according to which goods are exchanged – as per the auction-master’s orders, originally derive from the actors’ initial subjective valuations, but then return to confront them as objective facts. Value thus becomes, once again, no different from what it was to the classical economists: a natural phenomenon. Whether and under what conditions a thing is useful to me, whether and under what conditions it is a good, whether and under what conditions it is an economic good, whether and under what conditions it possesses value for me and how large the measure of this value is for me, whether and under what conditions an economic exchange of goods will take place between two economizing individuals, and the limits within which a price can be established if an exchange does occur – these and many other matters are fully as independent of my will as any law of chemistry is of the will of the practicing chemist. (Menger 1871/2007: 48) Economic integration and, to the extent that natural society is a market society, social integration, too, is achieved through price formation – the transformation of value into prices – which predates the exchange of goods and facilitates it, and which happens behind the backs – and perhaps even against the will – of the market actors, who can only see their subjective values. Even if the auction-master existed, before any prices could be calculated, he would – as Walras (1886: 12) openly concedes – require a money of account. This is, however, something wholly different from the means-of-exchange money postulated by 6.  References to a particular (equilibrium) condition as ‘Pareto-optimal’ credit the Italian sociologist and economist Vilfredo Pareto (1848–1923).

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Menger. For Walras, it is perfectly sufficient that all market participants have ledger books; they never need to handle any actual money. For Menger, the accounting unit and standard-of-value functions of money emerge effortlessly and inexorably from its supposedly primary function as a means of exchange. This is hardly plausible. First of all, the discovery of money as an exchange facilitator supposes the existence of well-developed, multifaceted exchange already, even though such exchange could never exist without money. Second, a market participant seeking a particular good would hardly accept an intermediary exchange good that he does not desire, without knowing that others are also already doing the same – the most exchangeable commodity would have to be one whose ownership is more or less equally meaningless for everyone. Third, as Walras inadvertently but clearly shows, the mental calculation of equivalent marginal utilities by each actor would be just as impossible without money as any market-clearing exchange of goods between all actors. All of this means that calculating and thinking in terms of money always precedes market exchange. It is not value but money that creates the market. 1.3. THE IMPROBABILITY OF EXCHANGE No theory – not even a constructivist one – can avoid making assumptions about human nature (Hahn 2004; Bröckling 2013). However, it is hardly necessary to start from homo economicus, the autonomous individual interested in consumer goods and therefore in producing goods to trade but otherwise perfectly happy in solitude. Moreover, to understand money, or even speak about value, one need not necessarily assume that there is some hidden value-substance embodied in all exchanged goods. Even Marx, who erroneously presupposed that the exchange value of all goods was created through labour power, understood well enough that this supposed value-substance was not the same as mere value-form. In exchange, different types of labour, or (considering that not only products of labour are exchanged) simply different things, are made equivalent to one another. A mimetic theory of money seeks to circumvent both problems – the methodological and ontological individualism of economics, as well as the question of the objectivity of value – by replacing, at a single stroke, an exchange-based theory of money with a money-based theory of exchange (Aglietta and Orléan 1982; 2002; Orléan 2014).

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The starting point for this mimetic theory of money is René Girard’s (1977; 1987) theory of mimetic desire.7 This too starts from needful, that is desiring, actors. But it assumes that they are not autonomous, meaning that they do not already know – and in fact are unable to know – their own needs and desires independently from one another. Their foundational act of orientation is, according to Girard, emulation, or in Greek mimesis. Many phenomena lend credence to such a mimetic perspective. For instance, when observing small children playing with or around each other, one often observes that it is not the toys or objects as such that captivate their attention, but rather those that are currently in the hands of another child that matter most. The present user of a particular toy will, in turn, often be particularly unwilling to stop playing with it if another child appears to take an interest. Similar examples can be found in the realm of love. A beloved might become more desirable and coveted if a third person shows interest in him or her. This jealous rekindling of desire finds probably its most ironic expression in Dostoevsky’s The Eternal Husband, with the story of a man who, having lost his unfaithful wife, sets off to find a new spouse. In order to determine whether his new love interest is really worth marrying, he must know whether his late wife’s last lover would also be interested in the new lady. Only if he can make him fall in love with her, too, Dostoevsky’s protagonist reasons, can he consider her as suitable for marriage. Fashion also works in this way, as particular clothing items or styles become trendy not by virtue of being better in some sense than previous styles, but because people follow trends, emulating those whom they believe to be fashionable or to be living a particular lifestyle, thus making a statement with their attire. Such changes in fashion are, in and of themselves, already economically significant, but they are, of course, wholly overshadowed by swings in financial markets that occur when financial actors emulate those around them and re-evaluate their own prior choices, sometimes with catastrophic effects (see Section 3.2). Although some theories of financial bubbles and swings are (or at least can be made) compatible with neoclassical economic assumptions (Shiller 1999), in principle it 7.  An earlier iteration of the mimetic origin theory of money, as arising from intersubjective desires, is found in Georg Simmel’s Philosophy of Money (2005; see Paul 2012: 92–104), which was only translated into French in 1987. Orléan’s later works underscore the affinity of his theory of money with Simmel’s (e.g. Orléan 2014: 142–146) but specifically refrain from mentioning Simmel’s earlier proposal of the mimetic explanation.

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contradicts the neoclassical equilibrium theory that rising prices can precipitate rising demand, while in crashes decreases in prices can spiral out of control. Any economic actor who focuses purely on individual marginal utility ought to be unaffected by others’ choices, whether in assessing a portfolio of financial assets or a bundle of goods. This is not the case for Girard’s postulated homo imitans. He only rarely manages to arrive at any independent judgement, in the sense of a judgement that probably still depends on that of others, but that at least does not affect theirs. Mimesis – that is, the imitation of others’ choices and, more generally, their desires – is mimetic theory’s basic conceptual configuration. In the rare case in which actors are indifferent to one another and interested only in the objects themselves, rather than in what they mean to others (as neoclassical theory assumes to be the norm), this is only because their general intersubjective orientation towards each other can be covered over by a common ‘objective’ orientation towards another ‘thing’. Under ideal market conditions it would seem that all actors want to and can pursue their own individual needs, perhaps not fully satisfying them but at least arriving at the best possible equilibrium thanks to their having learned to express their needs in the language of money. Money would thus offer a (provisional and always still precarious) solution to the problem of coordinating between mutually dependent actors who desire to emulate one another, and simultaneously would offer a way to overcome the problem of value. For Girard, compared to the far more specific needs that other species have it is quintessentially human to have unspecific desires, and consequently no necessary fixation on any particular ends or means. Of course, humans desire food, clothing, shelter and probably also sex. But what they eat, how they dress and live, and whether (and with whom) they procreate is largely undetermined by nature and is highly variable across peoples and places. This indeterminacy and openness is even greater in anything that goes beyond our most basic needs. Here, social standards are what we ultimately turn to for guidance, not only about what is good and bad or allowed and forbidden, but, even more fundamentally, about questions concerning what really matters and what kind of world we live in. Parental upbringing – bending the child’s will to parental and social rules – plays a role but is not necessarily decisive. At least equally important is how the child and, later, the adult orients itself by watching what others do. Without imitation, one could hardly succeed in life. Human mimesis is, however, from the outset not just the emulation of particular

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behaviours or skills. Gaining the approval of others can also be counted as a basic human need. Human desire is always also an imitation of the desire of others. This includes, of course, desiring objects whose value derives neither from their rarity nor the human labour embedded in them, nor again from their ability to fulfil particular needs, but rather from the fact that a ‘significant other’ (following George Herbert Mead) already possesses them or even just desires them. While in intergenerational relations between parents and children it is generally clear who emulates whom, matters become more complicated among subjects with equal standing, i.e. people with equal rights or equal need for recognition and orientation. Here, no innate status difference, such as age, could create Ego’s desire for what Alter has (or holds to be desirable), while Alter’s desires are just as likely to mirror Ego’s. Formally, this situation resembles what Parsons (Parsons and Shils 1951) and Luhmann (1995: 102–36) call ‘double contingency’, where one looks to someone else before deciding one’s own course of action, while the other person does the same. Nothing can happen until, finally, some small action by the one or the other is taken as an intentional act or signal and made the basis for a response. The difference between Girard’s ‘zero hour’ and the problem of double contingency is that, in Girard’s case, the actors, being simultaneously role models and rivals to each other – role models because they seek to imitate one another, rivals because they desire what the other has – can become embroiled in a life and death struggle. Ego seeks to acquire what Alter has, which Alter might perhaps even willingly have given him if only Alter had not wanted it so much precisely because Ego desires it. Alter’s resistance to Ego’s attempts to get what Alter possesses, in turn, reinforces Ego’s belief in the sheer desirability of what Alter has. For Girard, the danger is that this mimetic relationship of competition can lead to unconstrained violence. Exchange, which could avert such an escalation by granting Ego what Alter has, and vice versa, is highly unlikely, if not wholly impossible, because what Ego ultimately seeks is not what Alter possesses but rather Alter’s recognition, which would, however, lose value if Alter were simply to surrender what he has. Perhaps we need not go so far as Girard in assuming that the mimetic crisis inexorably leads to violent confrontation, constituting, so to speak, a war of all for (rather than just against) all. But, recognising that desires are interdependent, rather than seeing humans – in the manner of (neo)classical economics – as a-social homines economici interested only in things and indifferent

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to their peers’ respect and recognition, it becomes clear that exchange and trade are hardly self-evident behaviours. Exchange is anything but the basic, standard form of interaction that all humans everywhere enter into the world expecting – or desiring – to engage in. According to Girard, the excess of violence – if it, in fact, comes about – is not only the climax of a mimetic crisis, but also the beginning of the working out of the crisis, or at least of partially and temporarily managing it. Just as in the case of the accidental, coincidental resolution of the double contingency problem, it is precisely when violence has become universal, and therefore lacks any particular cause, that, in principle, any random deviation (real or imagined) from the logic of pure violence could become an opportunity for the collective to refocus its anger on the perpetrator of this deviant act. The group – or at least a group – identifies, hunts down and kills its author. There is no guarantee that this collective murder of an in itself innocent victim will end the cycle of violence. But it is possible that, if the murder tires the killers out and they attribute the temporary break in the violence not to this tiredness but to the ‘righteousness’ of their collective deed and the ostensible ‘otherness’ of the victim, then this scapegoating mechanism holds the keys to the resolution of the mimetic crisis. Moreover, following Girard, this mechanism is the origin of all religion. The victim of the sacrifice not only takes the blame for all previous disturbances of the peace, and is thereby demonised, but also, if the collective (and therefore individually blameless) murder does in fact restore social peace, simultaneously becomes divine. The righteous murder of an innocent person, interrupting the cycle of violence caused by interdependent and mutually exclusive desires, represents the birth of the gods and the sacred. The starting point of all religion, for Girard – and similarly for Walter Burkert (1972) and Christoph Türcke (2015) – is human sacrifice. Religiously imbued rituals of sacrifice repeat the original murder on other innocent victims. They revisit it, and, as we see historically, often soon come to recreate it in merely symbolic form – as, for example, in the Christian act of Communion – in order to pre-empt its re-enactment in real life. Religion is, according to mimetic theory, a generally successful attempt to tame the ‘overkill’ of real mimesis through ritual mimicry. For Girard, sacrifice – the ritualistic ‘banishment’ of a person, and later of a non-human proxy, from society – is the origin of all culture and thereby of all subsequent social institutions, including non-religious ones. Early kingdoms, for instance, emerged, on this theory, thanks to

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a would-be victim having managed to delay the timing of their sacrifice, and having managed to translate their anticipated peace-granting divinity into earthly power (Girard 1987: 51–9). For now, we have no need to pursue this cultural-theoretical thesis any further, let alone to try to verify its validity. Instead, we can focus the final paragraphs of this chapter – before examining the prehistoric origins of money in Chapter 2 – on sketching how the mimetic model, with its hypothesis of intersubjectively constituted desires and their inevitable mediation, might be made fruitful for a theory of money. From the perspective of mimetic theory, the exchange of goods between autonomous market subjects is not the starting point from which all that follows can be deduced, but rather the opposite: a quite improbable phenomenon that demands an explanation. Just as sacrifice, religion’s central institution, was the foundation of society, so too did money first make possible the market. As mimetic theory would have it, goods are not – or at least are not initially – desired for their utility, but rather because owning them holds the promise of respect and recognition. The trouble is that this ‘calculus’ motivates everyone equally, and peaceful exchange is inhibited by the fact that surrendering a good would devalue both the object and its giver, while acquiring a good by whatever means would necessarily elevate the person who acquires it and make the object even more desirable. The original exchange of goods, if something like it ever existed, would be an endless zero-sum game in which all parties seek to gain objects whose sole purpose would be to fulfil not material needs but rather the desire to have something whose sole value consists in the fact that it is desired by everyone else. Such a thing exists – and we call it money. No matter what it is made of or looks like, it is the symbol for pure (purchasing) power, for one’s ability to acquire anything at any time, and therefore the embodiment of wealth. The existence of money allows us to channel mutually exclusive desires into its acquisition. The improbable, if not impossible, act of exchange can then finally happen, when the exchangers’ attention is directed away from their desire for desirable goods and towards the acquisition of money. The question, then, is how money first comes into being – or, more precisely, where it comes from, if it does not fall like manna from heaven. Does the mimetic theory of money merely give us a more dramatic variant of Menger’s theory of money’s emergence – spiced up with a bit of dark anthropology and religious magic – while still making money emerge ‘naturally’ as the most widely exchangeable good? For mimetic

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theory, too, it should not be the case that money just appears suddenly out of thin air, but, conceptually at least, it is exogenous to the not-yetexchange-ready, or rather mimetically desirous, subjects. A mimetic theory gives no clear, ‘positive’ answer to the question of how money concretely and materially emerged, since there is no single path or substance that brings it into being. Yet, money’s exogenous appearance does not rule out the possibility that money could emerge from the mirroring of desires between individuals who have already developed certain patterns of exchange and who, in a moment of panic, seek (and find) a new anchoring point that comes to command everyone’s attention, precisely because of its exclusion from the circle of ordinary goods, just as the sacrificial victim is excluded from the group that he rightfully belongs to. But, in this case, the choice of the particular money-object would have to be accepted unquestioningly and not be seen as mere convention, just as the choice of sacrificial victim could never be questioned. The ostensibly special qualities of the victim and the monetary ‘stuff ’ would have to be beyond any doubt, in order to successfully end the actors’ obsessive mutual observation. Money could, of course, make its first appearance thanks to the intervention of a recognised authority, perhaps a religious one, who declares a certain thing to be money. If markets do not yet exist, such an intervention would even be necessary. What matters, in any case, is that money as the vector, or vanishing point, of everyone else’s desire be seen as something imposed from outside. According to mimetic theory, money does not just facilitate exchange but rather makes it possible and conceivable in the first place. Because everyone desires to have it and is willing to give up other things for it, it becomes a nexus for the conversion of one good into another. Whether it is intrinsically valuable, in the sense of having some material value aside from just being money, is beside the point. Instead of mobilising and measuring the value of other things, money itself constitutes the category, the idea, of value. In a mimetic theory of money – and, as we will see, not just here – its ‘function’ as the standard of value is its primary one. Contrary to orthodox economics, money-as-standard-ofvalue precedes money-as-means-of-exchange. Money is the third party, the superior authority that creates exchange and the market in the first place. But this is no irreversible social achievement. The risk is that money, or rather the particular currency in which it appears, can once again

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lose its desire-channelling powers. The actors might begin to doubt and question whether there is an alternative or better way of measuring, mobilising and accumulating value. Money can lose the confidence that needs to be placed in it for it to be money. In such a situation, with money transforming from a mediator into a mediated object, the mimetic crisis reappears, first in the form of currency speculation, and then finally in the drying up of markets due to the loss of an accepted standard of value. This brings the actors back to the fundamental interdependency of desire, which markets can only help us to overcome in reality thanks to money. Let us see whether and to what extent this mimetic theory, which (at least at first sight) may appear odd and disquieting, allows us to capture the prehistory and the present of money as we know it.

2 Money’s Unlikely Origins

2.1. GIFT EXCHANGE AND CEREMONIAL MONIES If not from trade – or at least not spontaneously from goods exchange – then from where did money originate? The primary alternative to exchange-based theories of money are means of payment-based theories. The distinction might, at first, appear trivial. For what are payments, if not just one side of money-enabled exchange, mirroring the transfer of a good? Is it not true that the reason we pay with money at the market, in shops or on the Internet is that in any society built on the division of labour there would otherwise be no possibility of exchange? Is not the purpose of money’s existence and the reason for its discovery (or invention) in so many places and at so many different times, that it enables exchange, by separating the transfer of one good for another, equally valuable one, when it inserts itself as a neutral, tertiary, go-between ‘good’? Is it not a simple and ingenious trick to liberate trade from the immense constraints posed by the double coincidence of wants? Is payment not an outcome, or a descendant, of the use of money? How, then, could it be that payment, which after all requires money, could precede money? The failure to distinguish the exchange and payment functions of money is inherent in the stories told in orthodox economics, but it also plagues many actual histories of money. It is as if there were no difference between exchange and payment. The only difference being that exchange came first and then necessitated and enabled payment. As popular as this argument is, it stems from an anthropological error followed by a corresponding conceptual one. Surveying the histories of different cultures, we see that goods exchange – and, more generally, exchange patterns oriented primarily towards the goods that are being exchanged – has never been a dominant form of human interaction (Dalton 1982; Humphrey 1985). It is true that in ‘prehistoric’ times (before written language), people who had no natural access to particular materials or goods still managed to obtain them, apparently over quite

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long distances, and therefore goods must have moved between different prehistoric groups (Parzinger 2014: 66, 68). The mere presence of non-local materials and objects, of course, does not prove that they were necessarily obtained through trade rather than through raids or from being unilaterally passed on. More importantly, trade-like relationships of exchange, to the extent that they existed, played a marginal role, or no role at all, in the material reproduction of the societies involved. Neither the hunter-gatherers who dominated for most of the Anthropocene, nor more recent, post-Neolithic settled agricultural communities, depended for their survival and sustenance on trading with neighbouring groups, let alone with more remote, culturally foreign groups. The ‘economic’ relationships between units of early, segmentary societies were marginal, in more than just a geographical sense. Only with the emergence of the city states of Mesopotamia from the fourth millennium bce onward do we find any regularised trade relations emerging between different polities (Oates 1993). And even this trade, like the later ‘international’ trade of the Phoenicians, was ‘cashless’. Worse yet (for the exchange-based story) is the fact that neither prehistorical communities nor the hunter-gatherer and tribal societies that, until recently, survived in the shadows and folds of empires knew of such a thing as markets in which individual actors or families, seeking sustenance, could haggle, bargain or trade. Dealing with traders was never a self-evident thing to do and often not even possible. In non-agrarian societies, the poorly developed division of labour rendered an exchange of everyday objects largely pointless. These small communities, moreover, had quasi-familial constitutions, which, although never free from envy or competition, were not defined by goods exchange among or between families. Apart from a few personal items, such as clothing, jewellery or weapons, property generally belonged to the entire family. The typical way in which items changed ownership between families or individual members of a village was through loaning or gifting. The latter was not immediately or necessarily tied to reciprocity, and to the extent that it was reciprocation was not in terms of ‘equal’ value. Loans generally had undefined terms, and although they contained the implicit promise of future mutual assistance, they were interest free. In settled farming societies, increases in material differences led to processes of deep social differentiation – although not necessarily division of labour – and, although they did not generate regularised, institutionalised markets, they at least led to the occasional exchange

money’s unlikely origins  .  27

of those goods that one person might have a surplus of and another a need, in particular foodstuffs, seeds and household items. Thus, economic exchange is not a feature of modern societies alone. But – and this is crucial – exchange, and with it markets (insofar as they existed at all), have remained unimportant and inessential for people’s survival and social integration throughout the majority of human history. The exchange of certain useful objects in no way led inevitably to the development of markets, let alone to their unbridled growth. All of this hardly means that no exchange ever took place within or between traditional societies, or that these societies had no – or could not have had any – money (Parry and Bloch 1989; Akin and Robbins 1999). However, not every act of exchange is a goods exchange, and not all monies are – or were – mere intermediary goods that serve to facilitate goods exchange. The dominant premodern form of exchange, which still remains alive and important today, was the gift. Monies, when they existed, were ceremonial ones. Gift exchange is a form of interaction that individuals or collectives can partake in (Mauss 2002). It does not necessarily involve useful things, but can also, and especially, concern symbolic objects. Objects charged with magical powers or religious significance, or imbued with worldly prestige, as well as acts of deference, festivities, titles and even human beings (normally unmarried girls and women of childbearing age) can be exchanged. Gifting and reciprocation are often not simultaneous. The practice is not haphazard, but is governed by traditional rules prescribing not only when a gift is to be given, but also what gift ought to be given, and the giver has no right to demand reciprocation in kind. The relationship is not one of equivalence but of adequacy and appropriateness. Gift exchange can be strongly asymmetrical, and gift exchange is often the foundation of social asymmetries: it allows one party to press another into an inferior position through an extraordinarily large or meaningful gift (Baudy 1983). The key distinction, however, is that unlike goods exchange, in gift exchange, although it may entail transferring valuable things between individuals, this transfer is not its actual purpose. Goods exchange, where it exists and creates at least rudimentary markets, serves to move useful and valuable things from one set of hands to another, and the social relationship between the exchanging parties is a mere brief moment of contact. After the exchange, in principle (if not necessarily always in reality) it immediately loses its significance. Gift exchange, rather, serves

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to create, cement and transform the social relationships between givers and recipients by moving things. The same is true for ceremonial monies (Hénaff 2010: 295–314), which are objects that are often countable, sometimes divisible, perhaps useful or desirable for their material content, and thus are very often mistaken by scholars for precursors of our own (means-of-exchange) money. Yet these precious stones, pearls, shells or pelts are anything but means of exchange. It was, in fact, common for the offer of such monies to be requited with a reciprocal gift from the recipient, one that would, as dictated by tradition, have to reflect the quantity and quality of the gifted monies, as well as the circumstances under which they were given. This explains why outside observers, accustomed to money-facilitated goods exchange, would be prone to mistake gift exchange for goods exchange, and fall victim to a serious misinterpretation. Where, for instance (or especially), the marriage of a woman from one clan into another is countered by the latter giving ceremonial monies (or rather, money-like gifts), these are not a payment, which would serve to end or preclude any further obligations or debts. Rather, they are given as an objectified symbol of thanks and acknowledgement of a debt. The receiving clan gains not only the woman, but, above all, any children she gives birth to. Because the woman gives life, or at least is capable of it, the clan that receives her owes her original clan a ‘debt of life’ (Rospabé 1995), which her new clan ‘pays’ – not in order to settle it, but on the contrary, in order to acknowledge and recognise it – with ceremonial money. This debt will only ever be paid, or more likely overturned, when a woman is married in the opposite direction. As the previous recipients become the givers, they also receive ceremonial money, which materially documents and embodies the debt and obligation of the other party. Ceremonial monies are especially, although not exclusively, used in the exchanging – usually in the form of reciprocal gifting – of women of childbearing age and, as we will see in the next section, of ‘another life’. Payments might also be made in response to material or non-material gifts. In any case, the gifting and the payment become a single, reciprocitybased act, serving to create or confirm a social bond that extends beyond the exchange of objects or people. The payment is not, therefore, the completion of a sale, but rather – to the extent that economic categories apply at all – the creation of a debt relation. Inasmuch as ceremonial monies can also be counted, accumulated to greater or lesser extents, and indeed paid, they can also be used to represent or quantify relative

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values. But the value they signify or recall cannot be separated from the concrete personal relationship, the specific debt relation between the two parties, let alone be transferred onto any other object. Ceremonial money is collateral, a pledge, a right to reciprocity for a special and specific act, not a generic and generalised representation of purchasing power or a universal standard of equivalence. That in itself would already be reason enough to avoid the term ceremonial ‘money’. But one would be at a loss for a term with which to encapsulate (for readers raised in contemporary societies) the means of payment that families, clans and groups employ in their gift exchange relationships. Our money, the money of markets and trade, did not, in any case, simply emerge out of or descend from ceremonial monies. Gift exchange was not a precursor to or trailblazer for goods exchange. These are two fundamentally different forms of interaction. But there are many indications of generalised means-of-exchange monies having undermined pre-existing practices of (goods) exchange and pushed out ceremonial monies. The list of authors asserting this ranges from Marx (1844/2010a) and Simmel (2005) to Igor Kopytoff (1986) and Michael Sandel (2012). One famous study that sought to show exactly how this happens is the anthropologist Paul Bohannan’s (1955) account of the effects of the monetisation of the economy of the Tiv people. Although it cannot, on its own, tell us where our money came from – all we know so far is that it did not emerge from trade or ceremonial monies – a detour to northern Nigeria will bring us closer to the answer. In precolonial times, the patrilineal, cattle-rearing and crop-growing Tiv distinguished between three spheres of exchange. The first was a market-like sphere, in which everyday objects and agricultural products were exchanged without the use of money, according to individually negotiated deals (land, by contrast, was not for sale). The second sphere was the more prestigious sphere of textiles, cattle and slaves, which were traded with the aid of brass rods (which themselves had prestige value). Finally, in the third, ‘highest’, sphere, people who were free but dependent upon men, especially women of marriageable age, were exchanged among the (exogamous) family groups.1 Bargaining was only possible in the first, that is, subsistence-oriented, sphere. The rates of exchange between prestige goods in the second sphere were fixed. In the third 1.  On the exchange of women, Lévi-Strauss (1969, 1992) remains the authority even today.

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sphere, a woman could only be ‘paid for’ with another woman. (It bears mentioning at this point that a woman had to consent to her own marriage.) In principle, a mixing of the spheres of exchange was never intended, although it was always possible that someone, acting out of economic or marital necessity, would find themselves having to trade, for instance, brass rods for foodstuffs, or to accept brass rods as collateral in lieu of a bride not yet received. The Tiv were well aware of the asymmetrical character of such acts of exchange, and considered it honourable to exchange wares from a lower sphere for ones from a higher one and a stain on one’s honour to do the opposite. As has already been mentioned, everyday goods were exchanged without the use of money. Whenever rods were used in the context of bridal exchange this only concerned their function as ceremonial money. Within the sphere of prestige goods, by contrast, the rods served as a means of exchange, but the range of goods that could be traded for them was limited. Moreover, the goal of such trading was not to fulfil (and therefore diversify) the material desires of the parties involved, but rather the display and expenditure of prestige objects. (The rods could themselves be reworked into jewellery.) And even if brass rods occasionally moved across spheres, to be traded for food or be given as collateral in advance for a promised bride, then this was not because the rods were capable of buying everything or representing the value of anything, but rather because economic scarcity or a lack of suitable women could force one to engage in such cross-sphere trading. For Bohannan, the metal rods themselves were therefore neither exclusively a ceremonial money nor a universal means of exchange. Rather, he blamed the introduction of a universal money by the British colonisers for the collapse of the Tiv people’s established hierarchical differentiation of the economic spheres.2 Bohannan reports how the British outlawed slavery and slave trading, as well as bride exchange, and thereby largely destroyed two of the three spheres. He also discusses how, with the colonial settlement and pacification of northern Nigeria, groups that once had been the Tiv people’s enemies became their trading partners and new products roused their interest. Still, for Bohannan it was fundamentally colonial money that caused the distinction between three spheres of exchange to collapse. For 2.  As strange and far removed from modern ideas as such ways of organising the economy may appear, it is not as if everything in our societies is fully monetised either. For the time being at least, we also have goods that are morally or legally removed from the market, such as human organs and sexual services (see Section 5.2).

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even before it entered into practical use as a means of exchange, the new money introduced the idea of the tradability, and thus of the exchange value, of things. Of course, it stands to reason that the introduction of a universal standard of value not only promotes the exchangeability of things that previously had not, of course, been without value, but had definitely not had a price. It also makes more relative the value of those prestige objects that were valued precisely because they were so hard to obtain. And it appears plausible that such a new money could, if not eradicate gift exchange, then at least ‘contaminate’ it with the ability to imagine debt-free exchange, and therefore to replace more complex human relationships with the exchange of things. Bohannan thereby recognises – as the argument suggests – that money’s function of standard(isation)-of-value matters at least as much as, if not more than, its means-of-exchange function. But it is also clear that he must be overestimating the ‘technical’ power of colonial money in assuming that the generalised commensurability of values would simply follow in its wake. This is not the case. It was not colonial money’s greater power as money that led to its adoption by the Tiv, but rather, as Bohannan knew all too well, the colonial state obligating the Tiv to pay taxes with it. Not only were they legally obliged to use colonial money, but also, like many other colonised peoples (see, for instance, Servet 1998), to earn it, for instance by producing aptly named ‘cash crops’ to sell to the colonisers. To note this is not to deny the effects that colonial money had on the Tiv economy, but to highlight that these did not arise automatically from the British introducing foreign currency by paying with it. On the contrary, they arose from the obligation to pay the British imposed on the Tiv. This picture fits with Georg Friedrich Knapp’s (1924) state theory of money. Although it had some intellectual predecessors, Knapp’s theory challenged the, at the time, more or less dominant view that money had to be backed by gold or some other objective source of value in order to reliably function as a standard of value, store of value and means of exchange. Knapp’s view was that money, irrespective of its concrete materialisation in precious metals, was necessarily a legal creation. For Knapp, money is a means of payment that might, for merely practical purposes, be materially valuable, but that fundamentally gains its status by virtue of the state’s subjects having to render dues in it. The actual purpose of money, he argued, is the servicing of debts, not the purchas-

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ing of goods or the facilitation of exchange. In practice, it is the state that defines the currency in which its lawful subjects must pay their debts to it. This is exactly what happened to the Tiv: the British colonial state not only imposed tax duties, but also declared that taxes could not be paid, for instance, in brass rods, but exclusively in colonial coinage, not because one was more valuable than the other but in order to give the new currency value in the first place. ‘Chartalist’ money is, or rather becomes, valuable thanks to the person who demands it and is in a position to do so, declaring it a means of payment – and furthermore, as with the Tiv, possibly even introducing it into circulation in the first place. At least for the Tiv, therefore, what made colonial money dominant was the politically imposed duty to pay with it, instead of any economic enticement to accept it. Knapp, however, remains evasive on the obvious question of whether and how the means-of-exchange function of money emerges from the dominant means-of-payment function. The case of the Tiv suggests that the former follows inevitably from the latter, for British colonialism not only created a new, and larger, economic space in which trade could flourish. The Tiv were also forced – by various means, including trade – to obtain the means of payment they now needed in order to pay off their debts. In other words, it was not the self-invigorating growth of trade that led to the discovery of a generalised means of exchange – or, in the case of the Tiv, the generalisation of the exchange function of the brass rods – but rather it was the simultaneous imposition of tax duties and the introduction of a supreme means of payment that created a new exchange-based economy. As we can see, the distinction between means of payment and means of exchange is more than semantic. Rather, it is the shibboleth that separates institutionalist from (neo)classical theories of money, as well as sociologically heterodox theories from economically orthodox ones. The former hold that money, despite its undoubted capacity to stimulate economic exchange, originated from non-economic sources (despite this distinction in itself being a kind of retrospective projection of a very modern distinction). The latter, as we saw in Chapter 1, hold that money arose from exchange. Nonetheless, means-of-payment theories of money scarcely constitute a homogeneous body of theory, and in the following pages we will encounter some of their diverse and not always reconcilable variants.

money’s unlikely origins  .  33

Beyond simply distinguishing them from means-of-exchange theories, we can note two further important, interconnected facets of means-ofpayment theories. First, they stand the usual understanding of the order of development from money to credit on its head – or on its feet, in fact. For if money was first and foremost a means of payment, created in order to pay with, then money does not predate credit. Rather, it was credit – or, more generally, debt – from which money emerged (Mitchell Innes 1913/2004). Means of payment serve to redeem debts and end pre-existing relationships of debt, and thus logically the debt relation must come before the means by which it is redeemed. Second, if money is to serve as such, then a standard of value must already exist. John Maynard Keynes offers the classical formulation of this position: Money of account […] is the primary concept of a theory of money. A money of account comes into existence along with debts, which are contracts for deferred payment, and price lists, which are offers of contract for sale or purchase. Such debts and price lists […] can only be expressed in terms of a money of account. Money itself, namely that by delivery of which debts contracts and price contracts are discharged, and in the shape of which a store of general purchasing power is held, derives its character from its relationship to the money of account, since the debts and prices must first have been expressed in terms of the latter. […] Money proper […] can only exist in relation to a money of account. (Keynes 1930/1971: 3) As the means of payment, money therefore serves to settle and redeem previously determined debts. But this must mean that value as an economic category, meaning the idea of quantifiable and therefore comparable value – that is, with Marx, the value-form – is a social creation rather than an inherent product of human labour or a fact of nature. 2.2. MONEY AND (THE END OF) VIOLENCE Knapp and the majority of contemporary ‘neo-chartalists’ (Tcherneva 2006) highlight the coercive nature of money, or to be more precise the fact that the monopoly on the use of force can be used to coerce people to adopt a particular means of payment. They also see the capacity of the state to enforce taxation as a necessity, if not an outright economic and social-political blessing. It is David Graeber’s (2011) history of

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debt, however, that truly and critically places the structural connection between money and violence centre stage. His story recounts the birth and development of money as steeped in blood (he claims that even today’s financial system would be unthinkable without the threat of massive violence). The broad interest in his theories (except in economics, of course), at the very least, makes them worthy and necessary of consideration here, although on one decisive point I will not follow him. My objection is that, in his wholly justified critiques of classical as well as modern chartalism for having a blinkered view of money’s violent side,3 Graeber papers over the essential distinction between money proper and money of account, which we just discussed, in favour of an exaggerated ‘alchemy of violence’ (Graeber 2009: 124). Moreover, my critique of Graeber will lead us, in Section 2.3, to the initial emergence of an economic standard of value out of the Mesopotamian temple ‘economy’. As an anthropologist, Graeber is perfectly well acquainted with the economies and forms of interaction of traditional societies, and he too distinguishes ceremonial monies – or, as he calls them, ‘social currencies’ – from commercial or ‘economic’ currencies. Where social currencies exist but commercial ones do not, as was the case for the majority of human history, Graeber sees ‘human economies’ at work. Here, monies may also have been used, as seen above, not to facilitate the acquisition of goods or commodities but rather to facilitate the transfer – or rather, the changing of social positions – of a single, unique individual, by granting a sort of unconvertible collateral through which the receiving party expresses not only its gratitude but also its obligation to return the ‘gift of life’. In commercial economies or market societies, by contrast, money serves as an (economic) means of exchange and (state-imposed) means of payment, which quantifies liabilities that are either discharged or continue to accumulate (Graeber 2011: 21). Graeber’s key concern is how human economies became economic ones, and thus how obligations became debts. His – all too clear – answer is: through violence. This includes, for instance, the colonial violence that bound the Tiv into the colonial economy. But in Graeber’s view such forcible integration was a relatively benign case of a, in principle, much 3.  Beyond what Tcherneva’s (2006) review article presents, the property theory of money developed by Gunnar Heinsohn and Otto Steiger (1996) is worth mentioning. Martin (2008) offers a critique of its neglect of violence. For an examination of the inconsistencies in this theory, which this companion does not expand upon, see Heering (1999) and Paul (2012: 159–78).

money’s unlikely origins  .  35

more brutal process. For Graeber, it is the transfiguration of human economies into commercial ones that prompted the emergence of slavery or, more precisely, the slave trade. Even modern capitalism, for Graeber, is just a form of slavery (Graeber 2006), such that to understand capitalism – and within it modern monies – one first must understand slavery. Graeber’s key points of reference are the human economies that persisted at the margins of colonial empires well into the twentieth century. He dramatically narrates their dissolution in the case of the West African slave trade, which Europeans by no means created, but certainly intensified and made more brutal in the eighteenth and nineteenth centuries (Graeber 2011: 148–55). The raids conducted by slave hunters extended ever further into the West African interior, ravaging the affected communities with losses of mostly young men and women. But it was also the goods flowing along trade routes in exchange for the capture and handing over of slaves to intermediaries that managed to corrupt even societies that were not (yet) directly affected by the slave trade. Ever greater numbers of Africans began to engage in the dark trade in dark skin in exchange for European goods or money, which were often offered in advance in exchange for a hostage from their own family or community, who would be released upon the presentation of a slave by the other party. In the event that a deal backed by human collateral failed to produce a slave, the financier of the expedition would simply take the hostage into slavery instead. Human beings, who, because of their unique individual worth could never be exchanged for one another, and could only mutually be gifted, thus became tradable commodities. Naturally, this variation on the destruction of human economies presupposes the existence of militarily, politically and economically advanced – or from the perspective of a human economy, corrupted – societies, meaning commercial economies. By contrast, take the case of the Lele, who live in what is now the Democratic Republic of Congo. Graeber (2011: 137–44) describes the problems and occasions that are peculiar to human economies which, as a consequence but not necessarily deliberately, worked to exclude people from the human economy and thus prepare the ground for the trade in human beings. The breach of the social fabric, he argues, was in this case the ‘exchange’ of brides (cf. Meillassoux 1986). The marriage of women into a new family and consequent social displacement, he says, creates new social relationships, while loosening but not wholly undoing old ones. For Graeber, too, to see the matrimonial practices of societies that have human economies as the

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‘buying’ and ‘selling’ of brides is an economistic misconception. Rather, ‘payment’ for matrimony in social currency serves to showcase that this ‘purchase’ of a singular person and wife may only ever be redeemed by the gift of an equally unique wife (Graeber 2011: 131–3). However, in the case of the Lele (and not just here), one party’s weakness in the cycle of bride exchange could cause the other party not to acquit its debt. As strong as the moral pressure to reciprocate may have been for the recipient of a wife, the claim could never truly be enforced. In such a case, it was possible for the ‘expectant’ party to transfer their claims for a ‘fee’, paid with valuable objects, to a third, stronger party that was not involved in the cycle of bride exchange, and would be entitled to raid the non-compliant party and subsequently ‘sell’ any woman who had been snatched at random. Such a woman, taken from the shelter of her own group, could then be fed into the marriage system of the raiding group (as with female slaves among the Tiv). Even an internal payment for this abducted woman within the group would no longer be seen as expressing a debt, but, on the contrary, as settling the ‘delivery’ of a woman once and for all. ‘In this sense, the term “human economy” is double-edged. These are, after all, economies: that is systems of exchange in which qualities are reduced to quantities, allowing calculations of gain and loss’ (Graeber 2011: 159). In other words, the violence against women and the trafficking of human bodies that their expulsion from the marriage system engendered was not always and everywhere an external intrusion into human economies. As stable as such types of society may have been, the factual inequality between exogamous groups can naturally create instabilities that can overturn the principle that human life is not for sale. But this means that the clean dividing line drawn by Graeber between the mutual gifting of wives and outright matrimonial exchange, in which women were perhaps not fully reduced to objects of exchange but nonetheless were clearly instruments of marital politics conducted by men, is less clear than he claims. Gradations exist between binding gifts and free exchanges, between human and commercial economies. Violence is by no means the polar opposite of human economies, but part of their fabric as much as that of any other social formation. For Graeber, the next stage in the transfiguration of human into commercial economies was when, already accustomed to trafficking members of one’s own society and violently reducing them to mere objects of value, the pricing of ‘in principle’ invaluable, singular (and

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therefore incomparable) humans became the norm. In other words, when the violent practice of slavery leads to a sort of internal process of moral perversion, these ‘honour societies’, as Graeber calls them, become acquainted with the concept of capital. While, at first, the cult of (masculine) honour may still have served to remind everyone of the original, actual value and honourable nature of human life, at this point humans became a form of cumulable capital. Here Graeber exposes, if not the flaw in, then at least the conceptual insufficiency of his explanation. The example he uses to illustrate his thesis is early medieval Ireland (Graeber 2011: 171–6; see also Gerriets 1985); a stratified, clientelistic society composed of a multitude of structurally identical, yet dispersed and therefore segmentary, groups with internal status-based stratifications. The Irish people were farmers and pastoralists. In the absence of goods markets, prices on goods were unknown. And yet, Ireland at the time was, in its own way, a highly monetised society.4 Payments were given, among others, to those who produced artisanal works, undertook artistic performances, gave medical advice and provided armed assistance. However, none of this was wage labour. A few specialists were given a fee, while patrons and nobles received a tribute. In both cases, the payment was a demonstration of respect. This was true more broadly for most payments made in Ireland at that time: they were signs of respect, or more precisely compensation for having offended someone’s dignity, whether for insulting or slandering a man of honour, attacking or injuring him or one of his loved ones, making eyes at his wife or daughter, or calling into question his autonomy in some other way. Although every free man was in principle a man of honour, he could have more or less honour, be held in higher or lower esteem, and could increase or diminish (his) honour. This honour was defended, and simultaneously threatened, through physical force, that is the ability to assert oneself against others who are similarly self-assertive and competent at using violence. A man’s honour was both his most precious and his most vulnerable asset. To offend his honour was to play with fire. To avert violence, legal codes existed for almost every imaginable misstep or offence, with compensation graded according to the status of the offended party. Payments 4.  More remarkable than the fact of Irish society being monetised was the extent to which it was. Most of the Celtic, Germanic and Slavic communities of the early Middle Ages had money.

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were defined in units – that is, in a money of account5 – and measured in livestock, grain or (uncoined) silver, as various forms of ‘money proper’. The honour of free men – meaning in particular those who could avoid involuntary formal dependency, submission or enslavement – thus had a clear price. One’s status could be measured in monetary units and, despite variation, in principle compared with that of another. The transformation of ‘singular’, ‘inherently invaluable’ human beings into differentially expensive and, if not strictly buyable, at least precisely value-able objects, had therefore, in Graber’s eyes, reached new heights in early medieval Ireland, and more generally in all comparable honour societies. The question of how these societies came to be honour societies – how egalitarian segmentary societies became politically and economically stratified ones – he leaves aside. However, for him it is no coincidence that many, if not all, were familiar with the institution of slavery. After all, the struggle for honour is a zero-sum game: the honour gained by one is lost by another. Moreover, one who manages to take away the freedom of another altogether, making him a slave, becomes a particularly respected man of honour. Graeber sees this connection confirmed, at least in the Irish case, by the fact that although the Christianised Irish of the early Middle Ages no longer had a slave trade, one of the most common measures of value was a cumal, meaning ‘bondmaid’ or ‘female slave’. According to him, the standard of value thus stems from a relationship of violence. To enslave a human meant, at first, ‘only’ to place them in a position of absolute dependence. But enslaving them in order to sell them – or more precisely, in a society without money, to exchange them – is to begin to compare the incomparable. Paradoxically, or rather perversely, the commensurability of values thus ​​ would have arisen precisely from the forceful equalisation of in themselves incomparable human individuals turned into slaves. The human-thing thus became the standard of measurement for other things. The first money of account (although Graeber does not use the term) would thus have been the slave. Without a doubt, this is a compelling argument. Yet an alternative interpretation not only of Irish historical evidence but of the leges barbarorum6 more broadly and other pre-statal systems of punishment is not 5.  In fact, the Irish at this time used a panoply of not yet harmonised units (Gerriets 1985: 332–338). 6.  The ancient Germanic laws, ‘laws of the barbarians’, were codified in the early Middle Ages.

money’s unlikely origins  .  39

only possible but more convincing. This is Philip Grierson’s (1978) ‘legal’ theory of money,7 which he advances against the logically and empirically untenable derivation of money from exchange. Graeber is well aware of this theory, appraising it as ‘the closest I know to a proposed solution’ (Graeber 2009: 122), but he turns Grierson’s (correct) thesis concerning the concept of abstract measures of value being a social means of pacification on its head. Early Medieval European, and more generally segmentary pre-state societies, were, as Trutz von Trotha (1995) puts it, ‘orders of violent selfhelp’. They were, of course, social orders with systems of rules, rather than pure chaos. Revenge was the highest, rather than the main, means of regulating conflict that one could resort to, that is the highest, decentralised institution of sanction in these orders. Not to be mistaken for an individual psychological reaction of the aggrieved person, revenge was rather the aggrieved group’s right to inflict more or less commensurate damage on the party of the aggressor (Paul 2005). Violent self-help orders, too, had unwritten rules, or at least traditional standards, regarding who had recourse to revenge on whom and for what offence. Nevertheless, revenge, when it was pursued, was a bloody affair, always carrying with it (due to there being no monopoly of violence) a real risk of the actors spiralling into cycles of retribution, which could draw in initially uninvolved third parties. The introduction, by consensus, of fixed compensation payments that the aggrieved party could claim, or that the aggressor at least had a right to offer, was a legal – and indeed civilisational – milestone. In the Germanic realms, these payments to suppress revenge and, ideally, the violence entailed, were known as Weregild.8 Comparable legal institutions have been known around the world. Generally speaking, an additional function of social currencies – quite closely related to their core purpose of acting as life collateral – would have been to appease the desire for revenge. What distinguishes early medieval societies in Europe from others (or perhaps is known only from there, thanks to written documentation, if not from written records as such), is the precise and detailed system of Weregild tariffs. The unique importance in monetary history of such tariffs is that they reveal the commensurability of very different, not obviously comparable ‘things’ – in this case, measuring a 7.  Simmel (2005: 357–76) has already advanced some arguments along these lines. The following pages also draw on Miller (2006). 8.  Literally ‘man-price’.

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variety of misdeeds using the same rule and thereby helping to give rise to the idea of equivalent value. But this establishment, or perhaps even discovery, of the notion of equivalence was not a result of some previous enslavement of humans, but rather the expression of a desire for peace. At the origin of the economic conception of value stands not violent comparison but rather the notion of comparable monetary value that helped societies overcome violence. It was not incommensurable human beings that the leges barbarorum sought to compare and render commensurate, but injuries and injustices. Perhaps the tariff systems governing compensation were gradually extended to property damage and this was how objects also first came to have a price. But because the Germanic tribes had the slave trade before the goods trade, slavery may well have been the bridge by which the idea of a common standard of value was transferred from people to things (Grierson 1978: 15). Like (the honour of) free humans, slaves too could have a price, but they were also a kind of thing. Therefore, it is quite likely that the slave trade contributed to establishing the principle of equivalence, which is not the same as saying that the idea itself must have arisen from human trafficking. 2.3. ECONOMIES OF SACRIFICE Where then could this concept, the ‘form of thinking’ of equivalence, come from if not from the praxis of Weregild? According to one older and, until recently, nearly forgotten theory put forward by Bernhard Laum (1924/2006), it stems from the act of sacrifice. Laum, a classicist, economist and follower of Knapp, read Homer’s epics, the Iliad and the Odyssey, as economic, or rather money-historical sources. Laum noted that these Homeric accounts of the Archaic Age in Greece, in roughly the eighth or seventh centuries bce, never mention markets (cf. Finley 1979), yet Greece’s first poet already reports cattle serving as a measure of value. And from the fact that cattle served as the Greeks’ main sacrificial good, the most sacred object that they could give to their gods, Laum deduces that the category of economic value must have had non-economic, quasi-chartalist – that is, religious, or more precisely sacral – origins. We will return to ancient Greece in Section 2.4. But Laum’s thesis already fits with the situation of the even earlier city states of Mesopotamia (Renger 1995; 2011), where what we see, long before the ‘Greek’ invention of coinage, is the invention of an ‘actual’ money of account.

money’s unlikely origins  .  41

The origins of ancient Middle Eastern cities, and with them the earliest civilisation, were religious ones. The stem cell of the fourth millennium bce city was the temple, whose purpose was to bring sacrifices to the gods. The first cities were not, at first, places where people lived or met for easy-going exchange with one another, or to divide up jobs on the basis of their naturally differing talents, but rather congregations that developed around sacred places in order to serve the construction, maintenance and expansion of grandiose buildings (Schmidt 2006). They were places in which sacrificial animals and other products of agriculture were kept, prepared, slaughtered and sacrificed to the gods. In addition to the actual sacrificial experts – the priests – these cities were gradually populated by labourers, the earliest craftsmen, master builders, security personnel and also administrators. All of these people, who directly or indirectly worked to keep the gods appeased via sacrifice, naturally needed to be provisioned. Part of the sacrificial offerings therefore would have been reserved by the priests for the upkeep of their ‘staff ’ as well as for their own consumption. Individuals or (village) communities may initially have offered goods for sacrifice voluntarily. However, this would not only have been in order to satisfy the insatiable hunger of the gods – whose power would likely have grown with their voracity and, conversely, their voracity with their power – but also to meet the internal needs of the incipient temple economies, one can assume that rural populations were soon compelled to furnish their labour power and provisions. This transition from sacrifice to tribute (or taxation) was probably as unnoticeable and gradual as the growth of temples into palaces. The early kings were all sacred kings, whose power was grounded not only in military strength but also in their proximity to the gods. The larger the temples’ dominions grew, the more their personnel would have come under pressure to devise various means of keeping an overview of the flows of goods (not yet commodities) and, if need be, to direct and manage these. It was in the context of temple administrations, the world’s first bureaucracies, that so-called ‘tokens’ emerged as precursors to cuneiform writing (Schmandt-Besserat 1996). They were small figures made out of baked clay that, in virtue of their shape, were assigned to particular goods on a one-to-one basis. One token stood for a particular quantity of grain, another for sheep, another for jugs of oil and so on. From the fact that the oldest tokens, dating to the seventh millennium bce, were already present in larger agglomerations of

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settlements and, within these, in the graves of wealthier nobles, as well as the fact that all of the more recent tokens produced before the invention of actual writing (around 3000 bce) have been found in temples and palaces, it follows that from the outset they served to account for tributes and to document tribute obligations. For example, a herder or a village elder who was required to furnish a sheep four times per year and who delivered it on time would be given four sheep tokens as a kind of receipt. Only this receipt was not given to him, but rather enclosed along with other tokens in a clay container that the giver and recipient would both seal, to be kept in the temple’s ‘archive’. This served to avert fraud as well as to allow accounts of the prior fulfilment of duties to be checked by breaking open the clay vessel in the presence of both parties. The next logical step was to imprint the tokens into the outer wall of the still-wet clay vessel, and in this way create a kind of copy of the receipt. The vessel no longer needed to be broken in order to check who had delivered what. But for the emergence of actual writing (Bottéro 2000: 19–30), the crucial step was that the tokens no longer needed to be sealed into the vessel at all and instead were used as logograms printed, alongside numerical ‘multipliers’, onto clay tablets. (One could almost say that, in this way, printing predated handwriting.) The first documents were inventories, in the sense of lists of quantities of goods, and these counters were thus not the predecessors of ‘money proper’ but rather of letters, that is, of symbols that over the following centuries came to no longer be used only to denote stock but all sorts of objects and, finally, abstract concepts. Similarly, through further development (of mathematics) they became numerals. Most important for our purposes, they were initially units of measure of concrete commodities and thus an immediate precursor of the ‘barley:silver’ price ratio, which existed as early as the middle of the fourth millennium bce. This ratio (Hudson 2004a: 113; 2004b: 312–14) defined a shekel, the first monetary unit we know of that remained valid for thousands of years, as equivalent to the weight of 240 barley grains (about eight grams) of silver. However, eight grams of silver would hardly have been ‘worth’ 240 barley grains, which would have been exorbitantly expensive even by today’s standards. Rather, each shekel was the equivalent of a gur, or 120 litres of barley, which was the amount of grain assigned to a temple ‘worker’ each month. (The Sumerians not only invented measures of value, but also ‘our’ calendar, dividing the year into twelve months with 30 days each. To synchronise the sun and calendar years, they used ‘leap

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months’.) Thus, a shekel corresponded to a worker’s monthly salary. His being provided two meals a day (= 1/60 shekel) thus formed the basis of the sexagesimal monetary system: 60 shekels made up one ‘mine’ and 60 ‘mines’ a talent. These currency units did not circulate as coins and only ever in exceptional cases as raw silver. The weight of a shekel would have corresponded roughly to a modern two euro coin, a mine weighed about 500 grams, a talent about 30 kg. Their high value (one, 60 or 360 monthly wages) also indicates that they were not used as everyday means of exchange and did not emerge from the everyday exchange of goods. They were created by administrative fiat. The temple bureaucracy further set the prices (in shekels) of goods other than barley and services other than the wages of temple staff. To be clear, prices were fixed for all possible goods that could be owed to the temple by the populace, and derivatively for the goods or labour that they may have exchanged among themselves. This meant that shekel-denominated levies could be paid in different goods, and goats could be exchanged for fish ‘on the market’ without the need to first define or discover the right exchange relation between them. That trade and commodity exchange benefited greatly from such a value standard existing is beyond doubt. But this standard did not just gradually emerge out of moneyless exchange. Rather, the development of the market gained force by the actors being given a benchmark against which to orient themselves, and this is what happened for the first time in Mesopotamia between 4,000 and 5,000 years ago. The breakthrough to a commercial economy was therefore an unintended consequence of the earliest forms of administration. Its real purpose was to document and administer the flow of goods and workloads. With only slight exaggeration, we can thus say that central planning gave birth to the market. And an essential driver in this historically crucial transformation was the invention of a unit of account. Thus, at the very beginning of ‘civilisation’ we already find money, if not in the form of cash then as a form of thinking, a Denkform, a category invented by humans that allowed different things or qualities to be treated as quantitatively equivalent. Money, or rather money of account, was just one driver of this transformation, and not the sole one. It was part of a whole bundle of ‘economic’ innovations – that is, innovations that had economic effects – concocted and tested by the Mesopotamian temple bureaucrats. These included, as we have seen, calendars, precise time, and interest rates (Van De Mieroop 2005). Interest, contrary to the claims of neoclassical econom-

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ics, is not a ‘real’, universally known and effectively moneyless economic phenomenon (see Section 3.1). In segmentary societies founded on gift exchange, the accumulation of material wealth, especially individual accumulation, is frowned upon. The fact that it nonetheless does occur and creates social stratification, and that it thus might even lead to the emergence of embryonic forms of statehood (Sahlins 1963), explains why these societies always have redistribution and ‘wealth destruction’ mechanisms, such as systems for the communal distribution of the spoils of hunting and surplus-squandering festivities. Whoever requires material assistance (except in matters of bride exchange, which produces ‘political’ imbalances, as Sections 2.1 and 2.2 discussed), particularly in terms of food, is helped free of charge. Yet this is less the product of any innate kindness or sauvage noblesse and more of the awareness that one might find oneself in similar need at another time. Either way, compensation and temporary help are the result. If, therefore, interest could be introduced and enforced in Mesopotamia, presumably initially as a mark-up levied on loaned goods, and then as an arithmetic surplus value on borrowed ‘capital’, this suggests that only an actor with some special authority could surmount the highly stable conventional reciprocity norms that would have inhibited it. And this actor would appear to have been the temple (Hudson 2002: 12). Temples had the power to enforce compulsory levies and demand interest because what they offered in exchange exceeded the value of anything anyone could claim from their peers. Sacrifices to the gods not only promised protection from calamities, they also served to uphold the cosmic order (Bottéro 2000: 34–66). In external relations with weaker foreign groups it had always been both possible and normal to take whatever one wanted or was able to take. The temple now became something like an internal external. Although the gods and priests lived at the expense of the believers, the former could treat the latter ‘from on high’ as beings inferior in virtue and value who first had to buy their respect. In stark opposition to the prohibition and condemnation of interest in the Islamic tradition and in medieval thinking in Christian Europe (Le Goff 1988), in Mesopotamia interest was justified in the name of religion. It is possible that, before charging interest on seed loans to ‘indigenous’ peasants, the temples initially charged interest only to the caravan traders through whom they sourced building materials and silver from the mountainous fringes of the Mesopotamian plain, that is, on external trade. (These imports were paid for with grains and

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handicrafts produced in the temple workshops. Any surpluses generated by the temples could be used for trade.) Only with time did this practice seep into the ‘internal’ relations of the temple with ‘its’ peasants, encouraged perhaps by a shift to the temple no longer collecting levies itself and instead relying on ‘private’ tax farmers to collect and deliver the tributes. If a peasant was ever unable to meet his obligations, he could not rely on his community. He would have to ask the temple for an extension and, depending on the harvest, also for an advance in the form of seeds. In return for this, the temple or its tax farmers levied interest, a practice that dates back to the middle of the third millennium. Such loans were documented in writing, and on a set date the peasant would have to give back more than he had been given upfront: a quantity, measured in shekels, (usually) of barley. The interest rate did not vary but rather was administratively fixed.9 If a peasant was unable to settle his debts, creditors had the right to take possession of his property, which is to say his land (which in agrarian, non-state societies was never for sale), and if this did not cover the ‘damage’, his and his family’s labour as well. Thus, it was credit that brought about a new, economically determined form of inequality, which the Mesopotamian rulers sought to control through the regular forgiveness of debt, or jubilees (Hudson 2002: 29–31). Peasants (but not traders) would have both the interest and the initial debt forgiven, land that had been seized would be returned, and individuals in debt servitude would be freed. The purpose of these jubilees was not only to relieve the social tensions that accumulated in what may be said to have been the world’s first, and perhaps most fundamental, form of class struggle: that between creditors and debtors. It was also to replenish the ranks of the free peasantry, who were motivated to defend their land – standing armies and mercenaries did not yet exist – while limiting the wealth and autonomy of the tax farmers. Yet, in spite of this socio-structural, political mechanism of (re)stabilisation, it was here, in the Mesopotamian temple kingdoms, that the old ‘world’ of gift giving (which continued to exist outside of the great civilisations, and even until recently outside modern capitalism) 9.  On payments in barley, interest was levied at 33.3 per cent. Interest for silver was fixed at 20 per cent. One explanation for this differential might be that weighted silver, as rarely as it was used in practice, was in greater demand as a store of value and status symbol than ordinary, perishable barley. In any case, the interest on payment in silver corresponds to one shekel per month per mine (1/60 per month equalling 12/60 or 20 per cent per annum).

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first became undone. In Graeber’s words, it replaced human economies with commercial ones. Only, contrary to Graeber’s assumptions (2009: 122; 2011: 176–7), this shift was not due to the ‘perverse’ (ab)use of social currencies as commercial currency, but rather to the bureaucratic invention of a money of account. The centralised (and centralising) temple economy required an administrative apparatus, which devised accounting techniques and then, inevitably, credit. These bureaucratic innovations (backed by, but not born of violence) were what made gift exchange, if not completely disappear – since ‘disinterested’ gifts now became possible – then at least lose its central place in upholding society and maintaining cohesion. The newly ‘political’ constitution of society replaced the rule-free ‘social contract’ of the gift-exchanging collective. In particular, the (initially vertical, top-down) credit relationship swept aside gift exchange in the interactions of collectives and individuals. Despite the superficial resemblance, and perhaps even actual kinship, between gift exchange and credit – there being, in both cases, donors and borrowers, creditors and debtors, and the original balance needing, in both cases, to be restored after a certain time – it was the stipulations attached to loans that transformed religious and social guilt (Schuld) into economic debt (Schulden).10 This opened the door to an entirely new social universe. For it was the formal contractuality – the fixed date, the clear measure of value and, as applicable, also the agreed-upon sanction – that distinguishes economic (or more specifically monetary) debts from mere obligations to reciprocate in gift exchange. A gift ‘in return’ for the original gift is not agreed, it is simply expected; it can happen sooner or later, or never. Whether the same or a similar object is gifted ‘back’, or whether it is something different altogether, is unclear (despite the weight of established practices). And finally, refusing to oblige would not result in the forcible appropriation of collateral but, if anything, in the breaking off of relations. Because it presupposes calculation and formal sanction, charging interest is just the straw that breaks the camel’s back in the context of an already ongoing rupture with the gift exchange world. Moreover, inasmuch as it brings a new dynamic to social inequality, it is also a lever that, left uncountered, has the potential to unbalance entire civilisations (cf. Hudson 1992). 10.  Translator’s note: the affinity between the two terms in the German language is particularly striking in this case.

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2.4. SECRETS OF THE COIN The first ‘thoroughly’ monetised society that we know of is ancient Greece in the fifth century bce (Seaford 2004: 96–100; Schaps 2014: 40–4). Of course, this is an exaggeration insofar as today the range of goods for sale and our dependency on money are far greater than was the case in Greece 2,500 years ago. Greek society at the time was marked by a range of relationships of personal dependency, above all slavery. Not only the aristocratic ideal but also that of much of the rural population would have been one of economic independence (Finley 1981). At the same time, our perception of ancient Greece’s relative ‘modernity’ stems – aside from the invention of democracy, its philosophical advances in rationally exploring nature as defined by abstract principles and laws (rather than divine moods), and the flourishing of sports and drama – at least partly from its relatively developed market economy, particularly in Athens. Markets and, more generally, the exchange of surpluses and special products had existed before, and elsewhere. But nowhere, not even in Mesopotamia, did the market become an entity upon which the provisioning or reproduction of society depended. The core principle of the economy (and not just of the economy) in that earliest high culture was that of redistribution – the centralised collection and distribution of goods – instead of decentralised markets, which would have needed a multitude of suppliers and consumers. Phoenician trade, meanwhile, in the eastern Mediterranean in the first millennium bce, was essentially long-distance wholesale trade with and between trading houses and political actors (Sommer 2004). Permanent markets, visited by people of all strata and classes, in which individually manufactured products could be sold and anything, especially food, could be bought, and which also contained a large number of retailers who depended on retail trading, were a Greek innovation. And it is also in classical Greece, or at least – as we will see – at its fringes, where we first encounter what most people (and almost all small children) see as ‘real’ money, namely coins. Coins were not the first ‘money proper’, in the sense of being a means of payment and exchange operating in reference to a standard of value. Weighed silver already served this function in Mesopotamia and especially among the Phoenicians. But coins were the first money proper that no longer had to be weighed but could simply be counted. This presupposes confidence in the value of the token; the capacity to take it, as it

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were, at ‘face value’.11 As false as it would be to equate money with coinage (meaning with the idea of an intrinsically valuable ‘money-thing’) that gradually evolved into paper banknotes and then electronic tokens and finally beyond any material substrate – for as we have seen, the truly fundamental innovation was the development of an immaterial standard of value – it is nonetheless true that only in the form of coins did money really became a universal means of exchange able to fuel the growth of the market. Of course, the simultaneous emergence of markets and coins does not entail that coins had to have been devised in order to facilitate market exchange. In fact, it appears to have been the other way round. Clearly it would be quite absurd to argue that markets were invented just so that people had something they could do with their coins. But the evidence does suggest that it was the political invention of coinage and its religious framework that enabled markets, and commodity exchange more generally, to become as widespread and socially significant as the all-too-familiar economic narrative supposes them to have always been. Unlike the development of money in general, the invention of coins can be dated quite precisely. As small, round, handy metal objects, characterised above all by being minted – that is, impressed with a sign, symbol or image – coins were first struck in the seventh century bce in Lydia, on today’s Turkish Aegean coastline. In the mid-sixth century they were introduced into Greece, spreading throughout Greece itself and the Greek colonies with (for that era) astonishing rapidity (Davies 2002: 61–86). Emerging from the vast multitude of coins of varying provenance and value, the Athenian Tetradrachm established itself as the Greek anchor currency in the fifth century. Already for Aristotle, the fourth-century bce philosopher, the existence of coins was a fact of life that was regrettable – because it promoted human greed – yet indispensable, because it coordinated life in the polis and was necessary for justice (Meikle 2000; Hénaff 2010: 77–91, 317–31). The remarkable thing about this development was its speed, in particular the explosive spread of coinage throughout Greece and the fact that neither the Phoenicians nor the Mesopotamian technocrats, both of whom were technologically up to the task, invented it. The first coins were, instead, struck or minted at the interface between ancient, internally largely pacified empires and the emerging Greek city 11.  Various social currencies, used in bride exchange, could also be counted, but these operated without reference to a money of account.

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states, which were racked by civil war-like conflicts. Lydia was a prosperous kingdom, neither truly Greek nor dependent on the Persians. Its harbours, in particular Ephesus, near present-day Izmir, were ports of call for Phoenician ships and transit points for the international traffic in goods. Its kings were said to be extraordinarily wealthy, the last of whom was Croesus, whose name became synonymous with infinite wealth. The kingdom’s affluence was no doubt related to its coinage, but Lydian coins were certainly not created to serve long-distance trade. The Phoenicians managed to make do wholly without and Lydian coins have only ever been found in the Lydian heartland, not at the end of long-distance trading routes (Kraay 1964). Neither would these coins have been designed to facilitate local retail trade, at least not by the traders themselves. Not only would the effort and entrepreneurial risk have been too great, but, more significantly, individual traders would also have lacked the authority to issue coins. They would have lacked the necessary confidence (on the part of the coins’ prospective users), particularly given how, in contrast to weighed silver and other precious metals, the coins’ nominal value could diverge from the value of their constituent metal. The first coins were not melted down pieces of metal that were then imprinted. Rather, they were naturally occurring pieces of metal of similar size, found in the Lydian kingdom’s rivers, all stamped with the same signs. Moreover, Lydian coins were not made of pure metal, but of electrum – or ‘white gold’ – an amalgam of silver and gold that occurred in differing compositions. The coins thus had varying metallic value. It was the symbol stamped on them that made them equal. The first metal coins thus already partly contained a quantum of faith or ‘belief ’ in their nominal value corresponding roughly to their metallic one. Even assuming that a trader, a smith or a jeweller had been able to make the first coins: their clients, had they accepted them at all, would hardly have had reason to think of them as a ‘finished’ product. If trade, then, may be ruled out as the origin of coins, what else might explain their curious emergence? Robert Cook’s (1958) thesis holds them to have been minted in order to pay soldiers. And in fact the Lydians were at war more or less constantly with neighbouring kingdoms, which in itself was far from an unusual situation, leaving aside the fact that the Lydians fielded mercenary armies. Peasant armies had the advantage that peasants, if free, were fighting for themselves and their own freedom, but their campaigns could never last too long or venture too

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far afield, since their land would lie fallow. An alternative was to promise land to previously unfree soldiers, which was a long-standing method of feudalisation that served both to ‘export’ excess male populations and to expand the territory under a ruler’s command. But the disadvantage of this approach was that all too often the new ‘feudal masters’ would make the conquered territory their home, take up agriculture and begin to demand independence from the king or ‘actual’ sovereign.12 To secure land borders far from the centre required standing armies that were simultaneously mobile. A professional army was indispensable, and in Lydia it consisted above all of Greeks. If these troops were to be prevented from looting the land that they were supposed to protect or conquer then their sustenance would have to be assured, but to do this by means of goods transported from the Lydian heartland was beyond the kings’ logistical capabilities. Thus, it might have been precisely in order to solve this problem that coins were invented, as a payment from the Lydian kings to their Greek mercenaries. Yet the vexing question remains: why could these payments not simply have been made in unminted (weighed) silver rather than with coins? And, supposing that well-developed, durable markets did not yet exist, what good would the money have done the soldiers in the field? Why should the local, largely subsistence-based population have accepted it? An older, classically chartalist answer (Cook 1958; Kraay 1964) to these questions is that the state, in this case the Lydian king, must have imposed a tax on the population to be paid in coins. In order to gain coins, the borderlands’ residents would have had to offer goods to the soldiers, who were initially the only people who possessed coins. The soldiers would thus have been able to forego looting and plundering, while the farmers behind the front line would have been able to pay their taxes. If the obligation to pay tax (in coin) was extended to all of the inhabitants of the land, the residents of the kingdom’s interior would then subsequently come into trading contact with the borderland population. And thus, through taxation and the provision of a means of settling tax debts, the farmers would be encouraged to produce a surplus beyond their subsistence production, which others would want to buy. While in Mesopotamia the price-regulated market was an unintended effect of the temples’ bureaucratic management, in Lydia the free market would have 12.  This is what happened not only to the medieval European but already the late Roman emperors (Weber 1950).

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been a deliberate creation by the political authorities to ensure the provisioning of their mercenary forces, via the introduction of coinage and taxation in coin. Raw, weighed silver would not have worked in the same way – or at least not quite as well – because tax-liable farmers in principle would have been able to source it in other ways than by trading food for soldiers’ pay. Although there are no written sources for this interpretation, many other documented cases from later history, not just from antiquity (Schoenberger 2008), suggest that events could have unfolded in this way – for the first time in history – in Lydia. As elegant as this explanation is, it would however imply that the Lydian kings had remarkable, or rather almost implausibly brilliant, foresight. Economistic explanations of money’s origins are challengeable on the grounds that one cannot conclude simply from money’s functioning as a means of exchange that it must have originated as a means of exchange. Chartalist explanations, which see the emergence of markets as resulting purely from the political imposition of payment duties, are questionable for analogous reasons. It is far more likely that the market, as in Mesopotamia, was an unintended effect of political decisions or acts of political or religious authorities. There is no question that the Lydian kings were involved in ongoing wars and that professional soldiers fought in their armies and took care of themselves. However, the soldiers would probably have taken not only food but also, and especially, easily transportable valuables and prestige objects, notably silver and jewellery. The Lydian hinterland was not only home to poor peasants. Farming societies are stratified ones in which significant differences between the wealth of different families and economic units develop. Precious metals were widely used as treasure or jewellery, and employed by wealthy families in gift exchanges. This silver, stolen from the subjugated population, might have been offered back to them in exchange for food and other supplies. The aim of engaging in such trade would have been that it is preferable to give away reasonably plentiful goods – where there is agriculture there are surplus stocks – in exchange for coveted, ‘aristocratic’ silver, rather than to endure any (further) looting. The awakening of markets in order to supply armies therefore need not be the result of some brilliant calculus of the political and military leadership. The establishment of a basic – and for supplying the troops essential – exchange relationship with the locals might have been an ultimately mutually beneficial substitute for the asymmetrical ‘trading’ of violence against goods.

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According to David Schaps (2007: 315), it might have been the observation that the circulation of precious metals had stimulated the emergence of (proto-)markets that first gave the Lydian kings the idea that perhaps not only soldiers but anyone providing ‘services’ to the court could be paid with coin. And in this way, in the pacified hinterland and the peaceful centre, it is possible that they stimulated an exchange that, as raw silver first did in the field, mobilised ‘hidden’ value and thereby expanded the tax base: the scope of goods and activities for which a levy was owed to ‘the crown’. The coinage of raw silver would have had the dual function of, on the one side, making the coins acceptable, and on the other keeping them in circulation. This embossing would not only have guaranteed the coins’ value, it would also have prevented their usage for purposes other than market exchange. The Lydian kings would have thus discovered that mass-produced coins made it possible to further promote the trade that their war had created, and which, through taxation, helped to increase their own wealth. Even this, however, would have been a so thoroughly rational, economically motivated policy choice as to warrant scepticism. Whatever happened in Lydia, in Greece things cannot have unfolded in this way. What can be ruled out is that the Greek mint was also started for the purpose of paying standing armies, because in Greece professional, paid armies were set up only a hundred years after the introduction of coins. Did the Greeks, as Schaps (2007: 317–18) thinks, simply adopt Lydian coinage, perhaps by way of Greek mercenaries returning home from Lydia? Maybe – we might even say probably. But what exactly did they do with the coins? Why did they begin using them? Did the Greek city rulers want to stimulate trade in order to profit indirectly from it, as the Lydian king is presumed to have done? The fact that trade in archaic Greece, if it existed at all, was marginal, and traders did not enjoy a good reputation, makes this unlikely. Promoting trade would have done a political leader little good. It is therefore highly unlikely that coin usage was introduced in order to profit from trade. But even if coinage was ‘only’ supposed to facilitate trade (being better than raw silver, which even the Greeks knew quite well how to use) due to its being countable and no longer needing to be weighed, why would the mercenary Greeks (rather than the highly trade-oriented Phoenicians) have imitated it? Why would the Greeks, of all people, have allowed themselves to be fobbed off with a promise of value stamped on metal rather than valuable metal itself? What would have motivated them to

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accept these potentially overvalued coins before they were even useful for anything? Perhaps, as Schaps also surmises, it was not so much (or merely) the means of exchange that the Greeks adopted, but rather the concept of a universal standard. But what could they have needed that for? And why would it have been connected with coinage of all things? Was it not, as we have seen, the act of comparison that makes one thing a proxy for another (and eventually perhaps the universal equivalent) rather than exchange or money proper? The adoption or imitation of coinage cannot, therefore, have proceeded smoothly and without preconditions. Two well-known channels can be identified through which coins, in Greece, were transformed into what is still considered the epitome of money today: criminal ‘law’ and sacrifice. First, in archaic Greece we see how – in a way that is logically and empirically connected with earlier Weregild payments – proto-statal penalty payment systems (which accompanied or perhaps even enabled the emergence of the Greek polis) replaced pre-statal, ‘private’ practices of retaliation (Peacock 2013). Second, following Laum and his ‘rediscoverer’, Richard Seaford (2004), it is possible that certain peculiarities of Greek sacrificial practices first made coins – as tokens whose nominal value and material value could diverge – socially acceptable. In addition to the written codification of laws – which already existed in Mesopotamia – what is distinctive about Draco’s legislation and, even more so, Solon’s (around 600 bce), is the definition of crime-specific financial penalties to be paid to the (still emergent) polis (Seaford 2004: 90–3; Peacock 2013: 289–92). In pre-governmental societies, it is family groups, clans or segments who take into their own hands the meting out of punishment for harm done to their bodies, property or honour. These are orders based on violent self-help. Traditional conceptions of justice offer a rough standard upon which to base retaliatory measures, while the interests of the tribe, as well as of non-conflicting parties, in not letting the conflict escalate at the expense of the entire community, places certain limits on the right to retaliate. Still, vicious cycles of retaliation can imperil tribal cohesion and autonomy. The Iliad and Odyssey offer particularly striking examples, or rather are examples, of the violence that can ensue from failed or rejected gift exchange relationships. In the Iliad, the warrior Achilles not only refuses the gifts that the Greek leader Agamemnon offers in return for having taken a bride from him (who was already an abducted bride), he also rejects those offered by the Trojan King Priam in exchange for the return of the

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corpse of his son Hector. In both cases, Achilles’ refusal to engage in an exchange precipitates the conflagration of violence. In the Odyssey, the hero Odysseus rejects the invitation by his wife Penelope’s suitors to join their feast, and what follows is a massacre that only Odysseus survives. Seaford (2004: 38–9, 44) interprets this as a crisis of reciprocity. In any case, in the honour-based society that Homer describes, the rank and strength of these heroes determines whether and how conflicts are to be resolved: by way of gifts or through sheer violence. In contrast, Solon’s laws required that not only the injured party be compensated, but also the state – that is, the legislature itself – and that punishment should depend solely on the gravity of the offence, rather than on the victim’s and the perpetrator’s status. The polis therefore claimed for itself a right that had not previously belonged to it, while treating its free citizens as equals. The medium used was money. On the one hand, a wide variety of deeds were grouped together into crimes. On the other hand, these were differentiated by the various quantities that attached to each crime. Weighed silver, which at the beginning of the sixth century still lay behind the ‘drachma’ amounts set by Solon as punishments, could not yet have functioned as a universal equivalent, but was already at least a leveller of qualitative (and a measure of quantitative) differences. This applied not just to punishments. Also measured in drachmas were different income tax classes with graduated tax burdens, as well as the polis’s payments to its citizens, in reward, for instance, for having killed a wolf or as a prize in a sporting competition. But this means that silver, as a money of account and money proper, even if it may have played a certain role in long-distance trade, in both cases owed its establishment within the polis to political reforms (Peacock 2013: 292–4). The Greeks therefore already had a chartalist monetary system before they discovered coin. However, this still does not fully explain why coinage first truly broke through in ancient Greece. It was only able to assert itself there because Greek sacrifice had already paved the way with (the idea of) economic value as different from value-substance (Seaford 2004: 7, 136). This helped to establish the confidence in money that is essential to its working (Simmel 2005: 176–8). From Laum (1924/2006: 15–52) comes the argument that a standard of value first emerged in human intercourse with the gods, a notion he developed from the Greek case. And as we have seen, there is indeed at least speculative evidence for the idea that the notion of substitution, and

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with it a precursor of the concept of equivalence, sprang from sacrificial practices. The first actual money of account that set the value of different goods and services in relation to each other only arose in the context of the Mesopotamian temple economy, an economy characterised by the centralised requisition of animal and plant sacrifices, where – some secular, economic repurposing aside – behind the temple walls goods were still being sacrificed to the gods in large quantities (Seaford 2004: 74). For the archaic Greeks, too, sacrifice was an indispensable practice. If one follows Seaford – or even Homer – one might even say that, in contrast to the competitive exchanging of gifts and the crisis of reciprocity outlined in the previous paragraph, sacrifice was the institution that (re)united Greek society (Seaford 2004: 48–67). Although Greek sacrifice looks economically insignificant next to Mesopotamian practices, at the same time – or indeed for this very reason – it was a communal and community-building practice. ‘In Homer’s works, sacrifices are meals, [...] and it may be added that every meal is essentially a sacrifice’ (Laum 1924/2006: 59, see also Baudy 1983).13 The sacrificial meal, the celebration of the sacrifice and equal distribution of the meat – which was not simply burned but rather roasted and eaten by the participants – celebrated and reinforced membership in the community. Every member of the community was entitled to a share of the roasted beef. This was the egalitarian dimension of Greek sacrifice. On the other hand, not all Greeks contributed equally to the sacrifice. Whoever owned more, and hence could afford it, gave more (Seaford 2004: 53–60). Unlike in Mesopotamia, where temples functioned as granaries and livestock stables from which priests could serve themselves at will, in Greece the priesthood depended on voluntary, private gifts of sacrificial goods. Temples only emerged as established structures in Greece in the eighth century bce. In this way, Greek sacrifices were institutions through which redistribution occurred. But with regard to sacrificial logic – that is, the principle of substitution and the possibly Neolithic replacement of human with animal sacrifices – the Greeks’ real innovation was to substitute agricultural and thus perishable goods with ‘dead’ and therefore more durable and especially valuable sacrificial goods, made from precious materials or crafted with hard work (Laum 1924/2006: 100–26; Seaford 2004: 60–7). Rather than being destroyed, 13.  Translator’s note: translation from the original.

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these were stored in the temples. The Greek temple was, from the outset, a treasury. Another uniquely Greek innovation followed the same sacrificial logic. As the ritual of sacrifice passed from smaller family or tribal units into the hands of a few religious specialists who monopolised it within larger communities, the members of ritual communities were no longer (only) given pieces of meat but also the roasting spits, and after a certain point perhaps only these spits (Seaford 2004: 101–9). Just as the participants in the sacrificial meal received equal portions of meat, those now excluded from the meal received the same, or the same number, of metal rods. These iron roasting spits – obelos in Greek – symbolised one’s belonging to the (sacrificial) community of the polis. The value of the obelos came not from the fact that iron was a particularly valuable metal, but from the sacrifice it represented and arose out of. It had been sacralised and charged with special significance; as an instrument elevated beyond its profane practical use it was more valuable than iron. Moreover, no rod was unique, but only an exemplar of a series. It would not have been necessary to weigh these spits in order to estimate the value of a good being sacrificed; counting them was enough. Six rods – as many as could be held in one hand – were known as a drachmon. The immediate predecessor, therefore, of the coin (Greek: obolos) as a countable and value-denoting, but not intrinsically materially valuable, piece of metal was a Greek sacrificial utensil. The Greeks had no need for Lydian coinage to teach them to have confidence in countable pieces of metal or to show them that others did so. This had already been the case with them for a long time. What remains to be seen is how the obelos could become the obolos. As a society, archaic Greece was undergoing profound social-structural and political transformations. Political communities had displaced older ethnic affinities. The polis, the political association of formally equal men, was a response to the perennial vendettas and barely controlled class struggles that shook the land. The old means of resolving disputes and keeping society in balance no longer worked. Although Greek society was held together by the ritual of sacrifice, growing social stratification had not left this institution untouched. On the one hand, the sacrificial meal itself increasingly became the exclusive affair of a political-religious elite. On the other, as the aristocrats set themselves apart from the commoners in this way, they sought to outdo each other with ever more lavish sacrificial gifts to priests and temples.

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Is it so implausible, then, that this religious crisis in the Archaic Age – that is, the transformation of the temples into treasuries, which ran counter to the older Greek idea and practice of sacrifice – would also have established the conditions for its own political resolution? The success of the polis, as exemplified by Solon’s reforms, was to save the deeply shaken Greek community from dissolution. Would not the means of doing so have been the establishment of tax dues (to be paid in weighed silver) and public punishments to replace bribery and vigilantism, as well as ensuring that all citizens enjoyed a share of the wealth that the temples accumulated, through a periodic distribution of silver mirroring the religious distribution of meat? Could the coins, which were struck from the sixth century bce onward in Greece by the political authorities, not have entered into usage as a substitute for – or rather, a conceptual amalgamation of – countable iron spits and weighed-out precious metals, thus becoming the ultimate means of payment, as well as a new medium of exchange? Whether this happened directly, through exchange, or circuitously, via taxation, is a secondary matter; what matters is that it did happen. With the arrival of Greek coinage, the genotypic prehistory of money comes to an end and the ‘mere’ phenotypic history of different monies can begin. Greek coins were by no means intrinsically worthless tokens, whose materiality served merely aesthetic purposes. Silver was also desired for its ‘proper’ or ‘intrinsic’ value, and we can rule out that, in antiquity, a pure token money would have spread, as coinage did, beyond narrow religious and political spaces. But – and this is the real secret of coinage, its religious ‘added value’ so to speak – the symbols and imagery imprinted on the coin communicated more than just its weight or metal content. They vouched that it would be accepted because in ancient times, for technical reasons, divergences between nominal and ‘actual’ value were inevitable. Minting coins standardised the value of a material ‘stuff ’ that was previously quantified in some way, if only by weight, by fixing this value. It retroactively drew the idea of money out of a homogenously valuable material, and created a standard that subsequently became the measure of everything else. Coins were, therefore, a symbol of faith in two senses: faith in there being such a thing as value in the first place and faith that others share this faith.

3 Money and Finance

3.1. TIME AND MONEY Having dealt with where money comes from in Chapter 2 – how money as we know it came to be – this chapter will look into the purposes it serves. Clearly, this cannot mean listing all of the things that money does and can do, which would be an endless and futile endeavour. Rather, we will show what exactly makes its existence and usage so significant. It is not social, socio-structural or psychosocial encounters of people with money (which will be dealt with in Chapter 5), but rather the more or less teleological descendance of modern financial markets from money that is the core issue. Financial markets by no means immediately or automatically follow from the mere existence of money, as we will see. Yet money already carries within itself an economic logic that will ultimately push it above and beyond itself to become something ‘higher’, namely finance. Beyond studying the logic underlying the ‘evolution’ of financial markets, the idea is to show why any theory of money – particularly in sociology, which has often bracketed out economic and political-economic questions, to its own disadvantage (Dalziel and Higgins 2006) – should pay greater attention to ‘finance’, that is, to the principles and practices of how money ‘works’ as finance. Our theoretical, as well as historical (i.e. empirical), starting point is the already thoroughly monetised society found from the early modern period (perhaps the seventeenth century) onward in Europe (for England, see Appleby 1978: 199–241; Muldrew 1998). During that period it was not yet the case that all members of society, especially not the subjects of the sundry lords and princelings who governed Europe, were completely – that is, existentially – dependent on supraregional (and therefore anonymous) markets. On the level of society as a whole, even with respect to Western and Central Europe and the US, it was only in the twentieth century that total dependence on markets emerged. Nevertheless, reliance on markets began to extend beyond the

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cities and into rural areas. Although they were still autarchic in terms of food, rural populations already found themselves reliant for everyday objects not just on local craftspeople but also on travelling (and later settled) tradespeople who had the know-how to source commodities from distant suppliers. An increasing share of goods were only available via the market in exchange for money, and hence a growing share of people’s labour products – perhaps even all of them – had to be traded for money. An immediate additional consequence of this was that wage labour became an increasingly dominant form of economic relationship, although it would only become the fate of the majority with the arrival of the Industrial Revolution. Equally widespread, quite inescapable in situations of need and therefore largely unquestioned was the practice of taking out loans and, consequently, the need to earn money with which to pay off the interest. To be dependent on the market meant, and still means, to be dependent on money. This practical compulsion had cognitive consequences: people learned to regard the things they owned and produced in the same way as the things they needed or desired, namely as embodiments of a nominally fluctuating, but nonetheless substantively equivalent, monetary exchange value. The same principle came to apply to the skills they possessed and the work they did. Anyone who wanted to purchase a new pair of boots, and who had to work, for instance, for one year as a labourer on a manor estate to achieve this goal, would learn to see his skills and labour power in relation to the price of these boots on top of his other necessary expenses. A growing dependency on faceless markets, the fact that anonymous others produced and sold the things that one needed (or at least wanted to have) and the fact that these others would, as a matter of course, accept money as payment all led inexorably to a reorientation of one’s own production towards meeting the needs of the market, or rather the prices found on the market, and no longer towards what one’s social environment expected. Nowadays it is common to ‘test’ our ‘market value’: a shorthand (and legitimate excuse) for a range of behaviours, including but not limited to renegotiating one’s salary. Yet each and every person initially had to learn such an orientation towards the marketplace – and the pricing of the world that it entails – usually in childhood. We are not born like this, but neither can we avoid becoming like this. The sheer fact that so many others around us assign monetary value to nearly all material goods, as well as to different behaviours, prompts us to emulate them. Through

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this behaviour, in turn, we confirm to others the inevitable correctness of this monetary ordering of the world. Of course, ‘in reality’ the world is not made up of exchange values, making this an ‘objective falsehood’ (Adorno 1966/2004: 37). But the same goes for many man-made institutions, such as gender roles and the law, which also draw their stability from the fact that we treat them as natural or self-evident (Douglas 1987). Social institutions inescapably overlay and supersede nature, thereby reshaping human beings themselves. Their practical existence, if not the concrete forms they take, is indispensable for the world we live in. They individually disempower and restrict us, yet at the same time create new possibilities by giving us more certainty about the world and the other people in it, especially those with whom we regularly interact, whose cooperation (or at least acquiescence) we rely on by ‘making’ them how we expect them to be (Gehlen 1956/1986: 7–121, Berger and Luckmann 1966: 47–91). By generating certainty and security institutions enable action and, more specifically, greater levels of specialisation – that is, the development of differentiated abilities and ‘action orientations’1 – that would otherwise be unattainable. Money and markets are just examples, or special cases, of this fundamental institutional, historical-anthropological dialectic of disempowerment and the potential for new powers, of closing down some avenues to open up others. On the one hand, the dependency of human beings on markets and money curtails their independence. Nobody can live anything resembling a normal life without acquiring the necessities of life, as well as most comforts beyond the bare essentials, by paying for them. This applies not just to the purchase of food, but also to visiting the doctor or joining a sports club, even if the doctor is employed by the National Health Service or paid by an insurance company and therefore there is no immediate obligation to pay oneself. The insurance company needs substantial funds, while membership dues are only the first of many expenses required for practising sports. We live in a society of money because participation, and sometimes even success, in the non-monetary spheres of life depend on having access to money (Moriz 2016: 150–96). To win a case in a court of law, or even just to be able to pursue it, depends upon being able to afford a good solicitor. Success in education is rarely a function of pure talent and hard work, but also depends 1.  Translator’s note: in German Handlungsorientierungen.

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on the monetary conditions under which the learning took place – if not, in some cases, of people’s ability to outright pay for access to the ‘right’ educational institutions. We are all inexorably dependent on the acquisition of money, for the most part through wage work, but in some cases also by ‘qualifying’ for transfer payments or being independently wealthy. Of course, social participation, professional success and even just the ability to live a satisfactory – if not fulfilled – life depends on much more than just having economic (starting) capital. But to deny that (at least up to a point) the chance of having meaningful friendships, a career and life satisfaction correlate with and depend on one’s financial security would be to deny the blindingly obvious. Leaving aside the ethically and politically unavoidable question of what levels of social – and therefore monetary – inequality can, or indeed ought, to be tolerated, the dependency of modern humanity on money mirrors the promise of freedom that money brings. Of course, in practice no poor person feels this way about their dependency on money, experiencing it not so much as a curtailment of their chances to live an alternative, autarkic life than as a lack of those freedoms that others have. But what exactly is this promise of freedom which explains the generalised craving for money in modern societies? What makes us see money not primarily as a source of alienation but rather as the opposite: the perfect tool for actualising our true selves? It is money’s extreme fungibility; its usefulness for nearly everything (as explained by Simmel 2005: 204–17). This capacity to not just be the universal equivalent and mirror of all other goods, but to act as a kind of ‘joker’ card that can be played at any time, irrespective of what is on the table (and even to determine for others how they should play), is what lies behind the universal pursuit of money. Money’s superiority over all other goods expresses itself in different dimensions. First, those who have it are free to choose from whom to purchase goods. This is the social dimension. Although habit might lead us always to buy our coffee from the same shop – and perhaps even from the same barista – if our expectations of friendly and respectful service should ever be disappointed we would have the option to buy it elsewhere. And we are aware of this fact, as is the vendor, who therefore has an incentive to be quite accommodating and serve us with a smile every day, particularly if he owns the shop. Furthermore, we are free to choose what we spend our money on. This is the objective dimension. Even if we need to do our weekly shopping on a fixed budget, we can

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still choose between different products. Moreover, the more money we have, the freer we are to choose. Trips to town or the shopping centre can be undertaken without any clear plan regarding what to come back with – and who could claim to have never entered a department store intending, say, to buy a swimsuit, but leaving instead with a T-shirt? The world of consumer products is cleverly designed to tempt us into buying one product rather than another, although in principle the one might be just as useful (or useless) as the other. Because in most cases one product is intrinsically as good as any other, especially with higher-end goods, advertising seeks to convince us that we are buying a special experience, an attitude, a personal statement or even a way of life. Notwithstanding how changing fashions and styles may restrict some of our choices, however, we still retain the freedom to choose. Finally, as people with money we are also free to decide when to spend it – which not only constitutes money’s special charm, but is also the source of one of its very distinctive problems. This is the temporal dimension. Aside from our basic (material) needs for regular nourishment, clothing and shelter (each of which, of course, could be satisfied in many different ways), the fulfilment of most desires can be postponed. Because there is rarely a need to buy anything right at this moment, friendly salespeople and alluring advertising are always trying to get us to make an immediate purchase. The advantage of being able to spend my money today, tomorrow, next week, next month or even next year is not just that I do not have to make a decision now. In deferring my purchase, I postpone having to make a decision at all, while giving up nothing. Under stable economic and monetary conditions, particularly in a society of surplus and plenty, in which buyers are in shorter supply than goods, I can safely assume that whatever I can buy today I can also buy tomorrow – when I can also decide what exactly to buy and from whom. Money is a means of delaying a decision until the time is right (Shackle 1972: 160, 206–8). It helps me to keep my options open and never forces me to commit. As someone with money, I am assured of being able to decide later, without even knowing or needing to know what choices I might face then. Money, put differently, helps to manage uncertainty and to look confidently towards the future, despite the future being unknown. Money is a tool for managing time, a tool for making the future your oyster. Through this act, the future itself gains depth and plasticity. If, as Reinhart Koselleck (2004: 255–76) has argued, a defining feature of the

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modern age is the decoupling of people’s expectations of what will come from their own experience of what presently is – if, in other words, the future can be expected, or at least imagined, to be very different from the present – this expectation stems as much from our collective experience of technological and political change as from the continuing monetisation of our economic and social relations. At least as true as Benjamin Franklin’s credo that ‘time is money’ – coined in 1748 in his Advice to a Young Tradesman, suggesting that time ought, therefore, to be used to make money – is that money is time. Yet, crucially, this great advantage for one person brings disadvantages for others. If I, as someone with money, can decide freely what to buy, and from whom and when, I amplify the uncertainty that others face about their ability to sell their wares, and thereby get ahead economically or even just to survive. Even though the key advantage of money – or at least one of its great advantages – is that it resolves the problem of the double coincidence of wants (Section 1.1), money’s existence – or rather the prevalence of money-mediated market exchange – by no means guarantees that all goods will find willing buyers. Money might alleviate my uncertainty but only by worsening uncertainty for others. Economic crises have many causes, but the sheer ability to hold on to money for an indefinite amount of time can, in itself, result in slumping demand or, if the necessary capital is lacking, slumping goods production as well. Most economic actors cannot simply create money (see Section 4.1); the present stock of money is what counts. And if whatever money exists is not actually spent, it turns from the viscous lubricant of the gears of the economy into the grit that jams them up. For John Maynard Keynes (1936/1976), this ‘lack of effective demand’ was the real reason behind the Great Depression that began in 1929, which had to be redressed by state-led economic stimulus financed, if necessary, by credit. If private owners of wealth and capital preferred to hoard their money rather than to spend and invest it, Keynes argued that the state should step in to restart the economy and reduce unemployment. If the state were to get itself into debt, this did not represent a problem in itself so long as it successfully averted the recession and restored economic dynamism by stimulating growth, which could then be taxed to facilitate the government’s debt repayment. Keynesianism, in this sense, dominated economic policymaking in the Western world after World War II and well into the 1970s (Pollard 1984). Even thereafter, Keynesianism never really disappeared, but transformed into ever

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more creditor-friendly forms, with markedly different distributional results (Crouch 2009; Streeck 2014). For strict free market economists, Keynesianism failed, and indeed was destined to fail, not only because states never tackled the deficits that they racked up to stimulate the economy (even in more prosperous times), but also – and more fundamentally – because political intervention in the market would always subvert the natural, or at least systemic, equilibrium of supply and demand. State interventionism hindered, if not wholly prevented, the necessary and correct adjustment of prices – including wages – to match consumers’ willingness to spend. For these orthodox economists, the conjunction of supply and demand hinges on the price mechanism working not only in the goods market but also in the money market via interest rates. From a neoclassical perspective, interest is simply the price of money, which adjusts the demand for money (i.e. for investment) and the supply of money (i.e. the propensity to save), bringing the two into equilibrium. If, for instance, the inclination to consume increases, firms will demand more credit. In order to acquire more credit, they will have to offer to pay lenders a higher rate of interest. Money holders will, in turn, be tempted by higher interest rates to save more and consume less. Finally, their hesitation to consume, prompted by the higher interest rate, will be felt by investors, who will in turn reduce their production and take out fewer loans. The interest rate goes down, more money flows into consumption, and thus the system self-adjusts. Holding money without it being spent immediately for consumption or saved and lent for interest cannot exist in this model; or it is assumed that any retention of cash balances to cover cash flow needs is statistically irrelevant to interest rates and thereby unaffected by these mechanisms. Empirically speaking, however, this supposed relationship is stubbornly difficult to prove. The propensity to save does not correlate with interest rates (although the interest rate does represent a yardstick for firms regarding whether an investment is ‘worth it’ or not). According to Keynes (1937/1973: 112–19), this is because, contrary to neoclassical assumptions, interest is not a measure of appetite for consumption but rather of fears about the future. For neoclassicals, interest is a ‘real’ phenomenon – one that would exist even in a world without money and is thereby universal – and can be explained by the temporal preferences of the market agents (Issing 1993). They suppose that agents are able to weigh up their present enjoyment of goods against their future

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enjoyment, and because they always prefer the former to the latter they demand interest (paid, if need be, in goods) as compensation for foregoing present consumption. But not only does this implied calculative logic hinge on a (supposedly self-evident) innate preference for immediate over future gratification – as well as the ability to artfully weigh up one pleasure against another, which is difficult to imagine without monetary prices already existing (Brodbeck 2009: 1020–6) – it also ignores the categorical difference between uncertainty and improbability. The future is uncertain, not just because we cannot know what will happen but because our actions today, even if they were predetermined for any given individual, would appear unpredictable to others who observe us in order to orient their own behaviour. In other words, even if no such thing as free will existed we would still have to behave as if others had one. Only when there is no chance of anything wholly unpredictable occurring can we speak of something being improbable in the true sense of it being stochastically more or less probable. In playing the lottery, it is highly improbable that I will predict the six exact numbers that will be drawn from among a set of balls numbered 1 through 49. Yet I can calculate exactly how improbable this is, and moreover I can be absolutely certain that the number 50 will never occur. All possible outcomes are known. In contrast to this, most future events are fundamentally uncertain. Were I, as neoclassical interest rate theory assumes, to financially discount an imagined future by calculating the value of my future consumption, this would only be possible if I already knew today the exact likelihood of my having particular desires tomorrow and of my ability to satisfy them then. Much ‘likelier’ (albeit more uncertain) is that my tastes, my preferences and my expectations would have evolved in the meantime. This makes neoclassical interest rate theory’s basic premises untenable, as it can satisfactorily explain neither the essence of interest nor the rate of interest itself. In seeking to do justice to the intertemporality of the economy, it negates its essential ‘eventfulness’.2 By contrast, Keynes formulated a monetary theory of interest to reflect the econometrically insurmountable uncertainty of human agency, and of the human condition more broadly. We have already seen how money allows individual actors to manage uncertainty. Of course, we cannot eat money, but people who live in a monetary (or market) society and have access to money can get whatever they need with money, even if 2.  Translator’s note: Ereignishaftigkeit – being composed of individual events.

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they may not yet know what – whether a loaf of bread or a particular medicine. Although money may never attenuate existential uncertainty – indeed, for those who lack it or only have goods that they need to sell it even amplifies it – at the very least money affords those who have it a more relaxed relationship with uncertainty. The freedom gained through money, the potential to act that it embodies and particularly its capacity to defer decisions goes a long way towards taming uncertainty. That said, it is not just that money cannot be eaten. It also does not, by itself, produce anything. This is precisely why neoclassical economics is unable to comprehend why money holders would ever fail to deposit it immediately in the bank, so that it would accrue interest, if they are not spending it. Yet economic actors do, in fact, hold money back, far beyond their regular or actual needs – rarely by sticking it under the proverbial mattress, but more often by letting it languish in low-yield current accounts instead of committing and investing it – because this keeps their options open and thereby offers reassurance. Even though – or perhaps because – holding money serves no practical purpose, it offers security. It assures me today that I will still be able to decide everything tomorrow. Money or, more precisely, the extent of money hoarding (provided that is possible for the actors to engage in it at all) is a measure of the amount of confidence they have in current circumstances persisting. The greater their confidence, the less money they hold on to. By contrast, the greater the uncertainty of the actors about their circumstances – whether as a result of fear of declining income or just expectations for better investment options in the future – the greater their tendency to hoard money will be. Interest is the amount of future money – the surplus – that money holders must be promised in order to surrender the security they enjoy from holding on to their money. Interest rates do not create an equilibrium between the propensity to save and the volume of investment – falling interest rates will not automatically stimulate a firm’s desire to invest, while higher rates will not necessarily diminish it either – but rather they set a bar, a mark, that the expected returns must surpass. This would apply even if interest rates were determined by markets, which thanks to the power and policy prerogative of central banks applies only in a restricted sense (see Section 4.1). Interest is the price paid against what Keynes (1936/1976: 226) termed the ‘liquidity premium’ of money, which Simmel (2005: 213) had previously referred

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to as its ‘surplus value’, that is the advantage of money as being immediately and indefinitely ready for action. Interest is a monetary and therefore not a natural or ‘real’ economic phenomenon because it serves to compensate for a very specific advantage inherent in money. Interest is unheard of in non-monetary societies (Heinsohnand Steiger 1996: 147–62; cf. more generally Heinsohn and Steiger 2013). In order for people to be able to think in terms of interest payments, money already has to be in use as a measure of value and goods have to be valued in terms of monetary equivalents. Moreover, in societies where social reproduction is not organised via markets and money, there is no such thing as a ‘joker’ card for every situation, the ownership of which would hold particular appeal. Although in traditional societies things are sometimes lent and the repayment of a greater amount is demanded (such as, for instance, when it comes to borrowing seeds), this is not because the lender seeks to be compensated for being deprived of immediate consumption or freedom, but simply because they have the power to demand more. Moreover, the ritual of Potlatch (see Mauss 2002: 42–59) is hardly an early example of interest-bearing credit, as it did not encourage the accumulation of wealth through lending but the acquisition of honour through extravagant waste, the purpose of the ritual being not to get debtors to do work but to ruin the recipients by means of gifts. There is a catch though. The advantages of money require that not everyone enjoys them. For me as a buyer, in order to have confidence in my ability to choose between different wares and suppliers, or to have the option of not even having to buy or choose anything at all right now, there needs to be a sufficient number of market actors willing (or needing) to sell their goods in the here and now. The superiority of money over all other goods stems from its exchangeability in relation to other goods, and these (especially in conditions of surplus or overproduction) will not necessarily all find buyers. Menger was correct to characterise money from its superior exchangeability, but this does not mean that money emerged out of barter. Rather, a well-developed market exchange of goods depends on the existence of money, which is why its origins need to be sought – and indeed are found (see Chapter 2) – outside of the market. Furthermore, it is possible for money, or rather a particular currency, to lose its marketability and be replaced by another. But even if one supposes (as I do in this book) that money has religious and political origins, this does not mean that religious and

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political authorities can simply impose a currency. Likewise – and this is the rub – in a more or less stable monetary order, an asymmetry between general purpose money and purpose-specific goods must be the norm. It is precisely this asymmetry that undergirds money’s promise of freedom, that is, the capabilities that those who possess it enjoy in the sense of expanded agency (Simmel 2005: 218).3 Should the majority, or even all people who possess money, however, at any point decide to hoard it (presuming, of course, that their material needs have already been satisfied, thus enabling them to do so), money would lose its liquidity premium. In order to enjoy this premium, which is immaterial but nonetheless quite quantifiable (in the form of interest), money must be scarce but still in circulation. Put simply, the price of liquidity for some is illiquidity for others. There are many reasons for the dynamism of monetary economies – their business cycles, their susceptibility to crises, but also their surprising resilience – and the liquidity paradox plays its own unique part in creating disruptions. On the one hand, money simultaneously has a positive effect in making one-sided ‘exchange’ possible and a negative effect in creating the possibility of crises when supply and demand fail to meet. On the other hand, the paradox that money’s unique value, its liquidity, arises from its general usability, but that it can also disrupt the whole system, needs to be managed. Those who possess money need not even be conscious of this contradiction in order for it to be resolved (even if not always in everyone’s interest). To believe that interest rates alone can resolve the contradiction is the province of market fundamentalists, while to at least attempt to resolve it is the task of monetary policymaking (see Section 4.4). The liquidity paradox leads to blockages much more rarely than might be expected. It often suffices (or rather helps) that actors seek higher incomes, whether to satisfy material desires or to prepare better for an uncertain future. In a closed system, one person’s gain would be the other’s loss. The alternative to this is growth. Individual actors can seek to spend their money in ways that result in more money returning to them in the future. Precisely this approach to money – investing it with a mind to making a profit – turns it into capital. The job of financial markets is to facilitate this by marrying opportunities for investment with as many of the advantages of liquidity as possible. 3.  Translator’s note: Simmel uses the term Vermögen, which in German means both ‘capability’ and ‘wealth’.

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3.2. THE LOGIC OF FINANCIAL MARKETS Dominant ways of thinking hold that financial markets, like money itself, exist to enable intertemporal exchange. They connect savings with investment capital and ‘intermediate’ between the two. They allow capital providers and capital seekers to find one another and for one to lend capital to the other, or rather to allow the other to enjoy its usufruct for a limited period of time. (The fact that, as shown above, the interest rate does not necessarily bring the propensity to save, or rather the desire of money holders to enjoy security into equilibrium with businesses’ demand for investment capital, can be left aside for now.) This analysis is not wrong, just incomplete and one sided. For, in actual fact, financial markets may be understood first and foremost as an answer to – or rather an attempt to resolve – the liquidity paradox. They postpone and alleviate, but never wholly resolve, the dilemma of one person’s enjoyment of liquidity always coming at the expense another’s – that is, the problem that the benefits of money in terms of liquidity can, in the long run, only be maintained through investments that entail at least a temporary surrender of liquidity. Institutionally, it remains the job of banks and stock exchanges to channel the unused capital of some into the industrious hands of others (and in this way to make ‘mere’ money into capital in the first place). They not only supply market actors with liquidity, but also minimise investment risks, inform them about goings-on in the market and enhance the mutual scrutiny of market actors towards one another. But these functions do not mean that they aggregate into an ‘organic’, functionally complete whole. Rather, we will see that, just as in the case of money, these individual functions can reciprocally impede one another. And not just that. The underlying problem that they seek to resolve – the liquidity paradox – reappears, just at a higher level. In the case of banks, as endemic banking crises, and with securities exchanges, as speculative exuberance. First of all, both banks and securities exchanges enhance liquidity and thereby increase the likelihood of exchange happening. They ultimately increase the actual velocity of market turnover, even without the overall quantity of money increasing. Above all, banks make loans. As we shall see (in Section 4.1), in this way they in fact create new money. But even if all loans were necessarily financed from previously collected savings deposits, liquidity would still increase and overall access to money would

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be eased, thanks to the ability gained by those who seek money to use the money of those who presently have a surplus of it, in exchange for interest. Money thus flows to where it is needed. Securities exchanges have a similar function. It is not only (and for a long time not even primarily) standardised ‘stocks’ of commodities that are exchanged here. What are exchanged above all are securities, comprising all fungible assets, such as shares and bonds. Shares in firms are forms of participation in economic endeavours; their owners partake of the spoils of enterprise by being paid a dividend from the profits. Bonds, also known as fixed-interest securities, are tradable tranches of credit. More precisely, they are documents that denote a share of a larger loan, whose holders are entitled to repayment, as well as interest payments from the issuer. In issuing shares or bonds, firms thus acquire money. Like banks, securities exchanges thus not only channel idle money towards profitable uses, but, by allowing securities to be traded, they also enable – almost miraculously, one might say – investment to be combined with liquidity. Buyers of shares or bonds must commit their money in order to gain dividends or interest payments, yet they can stay liquid insofar as they are able to sell their securities again at any time. And this ability to sell onwards – that is, to reconvert securities into money – can be expected to draw greater numbers of investors to the market and tempt them to invest than would be the case if investment decisions were irreversible. The risk, of course, of having to sell a stock or bond at a lower price than the initial purchase price, could just as well dissuade some potential investors from even considering entering the stock exchange. Yet, notwithstanding occasional temporary collapses, the long-term upward trend in average stock prices (recorded by indexes such as the US Dow Jones, the UK FTSE and the German DAX) has historically made stock investments a considerably better-advised choice than keeping one’s money in the bank. This holds true even without accounting for risks, such as savings suddenly disappearing if a bank goes bust or gradually being eaten up by rising consumer prices or the depreciation of particular currencies. Furthermore, the risk of suffering losses due to asset price fluctuations is counterbalanced by the upside of possible capital gains. This only partially applies to bonds, since interest and repayment schedules are generally fixed, whereas stocks, in principle, have unlimited terms (or maturities). Neither the extent of their future dividends nor their market value can be predicted with any certainty. Hence, the

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generally higher return on stock investments, at least on average over the long run, can be explained as a risk premium paid to stockholders in return for accepting greater risks than those faced by bondholding ‘rentiers’. But even buying bonds gives better returns than simply depositing one’s money in the bank. Second, banks and securities exchanges allow savers to choose something like a personal risk profile. This is likely to depend not least on the amount of money they can afford to risk. Those who are best able to endure losses thanks to their having sufficient wealth may be more willing to invest more money in riskier endeavours that could fail but that also offer the greatest pay-off if successful. Moreover, this is not necessarily a privilege enjoyed exclusively by the rich. The division of companies and commercial endeavours into smaller shares allows even some ‘small fry’ investors to speculate. Moreover, they can in effect join clubs by buying shares in funds, which in turn hold shares in various companies and undertakings, and thereby minimise the risk by spreading it around. Capital markets are instruments for individualising and redistributing risks, and thereby, in aggregate, raising individuals’ propensity to invest without exposing them to greater risks than they would individually be willing to bear. The same goes for banks, which also diversify and thereby reduce risk, for themselves as well as for their depositors. By bundling together the deposits of a large number of savers and lending them to a (smaller, but still fairly large) set of borrowers, they spread the risk of individual borrowers being unable to meet their obligations and the corresponding asset having to be written off, thus making the risk manageable. As financial intermediaries specialising in the creation and mediation of loans, banks have the advantage of being specialised. They draw on greater economic expertise and experience, and can make more extensive comparisons among multiple options than any of their individual depositors could, enabling them (and this is the third point) to better assess the solidity, viability and likelihood of repayment of prospective borrowers. They have an informational advantage, which they cultivate (and ideally seek to grow) and for which, in addition to their actual work of mediation, they are remunerated via the spread between the higher interest they receive on loans and the lower interest they pay to depositors. This informational advantage – their ability to assess the financial strength of their debtors – even permits them (fourth) to exercise a certain amount of control over their borrowers’ affairs: loans can be tied to particular

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purposes; particular conditions can trigger the payment and repayment of particular tranches; and reporting duties can be written into loan contracts. The same idea applies to the investment funds mentioned above. In joint stock companies, it is common for representatives of banks or funds to have seats on the supervisory board. Long-term bank–business relationships can be advantageous, as they allow creditors to get to know the strengths and weaknesses of their borrowers and borrowers to gain assurance that they will not immediately be held liable for mistakes or failures. Funds can be somewhat more uncompromising in this respect. Faced with entrepreneurial failure – or even just relatively harder times for their investees – they will often demand rapid responses and quick improvements. Aside from some potentially important differences in culture across different parts of the financial market, the greater recklessness of funds as institutional investors follows from the fact that they do not lend, but often instead own large shares of stock capital, and consequently their own (possibly even market-listed) value rises and falls based on the value of the shares they own. Stock exchanges generally are much faster moving than banks. This does not necessarily mean that ‘the market’ is more poorly informed than banks. One might even say that stock exchanges are in many ways superior mechanisms for information procurement and exchange, and thus, indirectly, superior means for exerting corporate control (Jensen 1993; for a critical perspective, see Kühl 2002). We will return to this idea shortly. In principle, we can observe that information about any listed company’s profitability can be gained either in a decentralised way (i.e. through the market) or from a central source. From the fact that large numbers of shareholders own listed companies, it follows that they all have a vested interest in the firm’s prosperity, and consequently seek to acquire knowledge about its profit outlook (as well as others’ views about the same thing) from as many sources as possible. Listed companies cannot escape this collective oversight. They are disciplined by the constant threat of their stockholders losing confidence, withdrawing their trust and selling their shares. This, in turn, would diminish the market value of the firm and reduce its creditworthiness, making any drive for growth or innovation more expensive and reducing its future profitability. One might even say, without much exaggeration, that stock markets are hotbeds of systemic distrust. It is this situation which drives firms to continually improve their ‘performance’, whereas banks base their expectations of

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future returns more on trust built up over time through previous successful ventures. However, beyond the differences in how banks and stock exchanges organise the delivery of liquidity, risk diversification, information gathering and corporate control, distinct bank- and exchange-specific roles (or functions) can be identified. Banks are particularly concerned with the issue of ‘term transformation’. This refers to the fact that they must finance long-term – or at least relatively longer-term – lending from deposits that can often be withdrawn at little or no notice (Stützel and Krug 1982). There is no problem so long as each individual deposit account is much smaller than the majority of loans and depositors do not withdraw their deposits all at the same time (which, under normal circumstances, they will not do). Another margin of security derives from the fact that banks pay lower interest on these deposits than what they charge on loans. This margin is the basis of their profitability and offers them some room for manoeuvre, with the option of raising deposit interest rates in the event of a shortfall of available capital or an unexpectedly large number of borrowers defaulting. This would eat into their profits, but their capital inflows and outflows would once again be balanced. Banking – or rather this fundamental aspect of banking – therefore consists in balancing the liquidity preferences and time horizons (i.e. terms) of different classes of clients and, within them, clients with different characteristics. This makes not only more capital but also more time available to the entire economy than would otherwise be the case. Yet the business has inherent risks, not just for the individual banks but for the banking sector as a whole, and with it the entire economy. It conceals a systemic risk. As we have seen, the interest rate does not necessarily balance out different actors’ propensities to save and to invest – and even if it did the necessary adjustments would take time. Banks consequently need to anticipate changes in interest rates, which they have only a limited capacity to absorb. If, for instance, savers’ liquidity preferences were to increase and banks were constrained to offer them more interest on their deposits, while interest income from loans continued to reflect (at least for the time being) the older, lower rate, the banks’ profit and security margins would diminish. They are able to manage this risk through variable interest rate contracts with their debtors, such that the borrowers’ interest burden tracks any rise or fall in the liquidity premium. While borrowers can, of course, hope for lower rates than they had originally agreed to, they also need to be prepared for the opposite

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scenario, in which their loans could end up becoming more expensive than expected. Prudent businesses would be expected to limit their borrowing – and thus their investing – under such circumstances, while bolder borrowers run the risk of being unable to afford rising rates and of losing their assets pledged as collateral. As a result, they might have to sell off corporate divisions or even declare bankruptcy. Such entrepreneurial failures would also harm the banks themselves. Not only the expected interest payments, but also the entire loan would have to be written off. As much as banks might thus hope to use variable interest rates to ‘pass the buck’ and escape the difficulties caused by sudden changes in liquidity preferences, this would exacerbate the risks their borrowers face and the failure of these borrowers would, in turn, become the banks’ problem. The challenge is intensified by the fact that a general rise in interest rates of this kind hurts not only individual banks but the banking sector as a whole, and by extension the entire economy. All banks face the dual problem of having to demand more interest from their borrowers, while worrying about how this affects their borrowers and the wider economy. In the worst case they might fear for their own survival (causing governments, in turn, to worry and possibly forcing them to bail the banks out). The thesis that crises not only follow distinct patterns, but that they are a fundamental and inevitable feature of a contemporary form of capitalism that necessarily relies on functioning and expanding financial markets, stems from Hyman Minsky (1982), a long marginalised but recently rediscovered heterodox economist. Contemporary capitalism requires financial markets to work to meet economic agents’ needs for capital, as well as to provide information flows and risk management for the broader economy. Minsky goes so far as to posit that the ‘real’ economy – that is, production and trade – increasingly depends on the financial economy, and he therefore grants financial markets analytical primacy. Whether this means that all major crises in modern capitalism are – or are caused by – financial crises is a matter of debate. Nonetheless, our present economic system may be understood as ‘financial market capitalism’ or ‘financialised capitalism’ (Krippner 2005; Windolf 2005), and Minsky’s model of the dynamics of financial crises encapsulates the last major crisis strikingly well (Cassidy 2009: 221–334; Paul 2012: 9–44). Furthermore, given just how little was learned from the last crisis and how financial integration and self-regulation have continued to be preferred over the alternative of compartmentalising and regulat-

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ing financial markets (cf. Shiller 2008), it stands to reason that the next crisis will also follow Minsky’s script. The starting (and vanishing) point of Minsky’s thought is the idea that stability itself inevitably breeds instability. Stability means a solid business outlook and the reliable fulfilment of expectations. This stability, in turn, allows for stopgaps and safety measures to gradually be removed – that is, for reserves to be liquidated, high or rising sales to be assumed in perpetuity and property titles to be mortgaged – and even more assets to be dedicated to investment. Investment booms are often buoyed by new technological visions (Deutschmann 1998: 45–64), such as, for instance, at the beginning of the twenty-first century with the Internet or today’s expectations of a ‘fourth industrial revolution’. Such technology-driven visions of transformation require substantial financial investments in order to be realised, even while, in the Keynesian sense, it remains fundamentally uncertain (or unknowable) what economic gains they will bring about over the long run. The premise that ‘this time is different’, that we are dealing with a ‘new economy’ to which the old rules no longer apply, also tempts more firms (including many brand new ones) to take out loans and banks to make more credit available and to assess their borrowers less on the basis of their collateral than in light of their ideas. Debt levels rise in one sector, at first, and then in the economy as a whole. Financial innovation permits the volume of credit to expand despite an unchanging monetary base. Experience shows that financial innovation leads both to credit expansion and to new investment opportunities simultaneously. In the run-up to the previous financial crisis, the crucial innovation that caused the debt overhang to increase was the securitisation of US mortgages, which transformed them into anonymous, marketable securities. But when interest rates rise – whether because individual lenders start to get cold feet and decrease their lending, or because central banks increase the base rate that commercial banks must pay to access ‘fresh’ money (see Section 4.1) – a downward spiral can ensue. Borrowers – not exclusively firms, but especially firms – who have accrued debts on the basis not only of their growing asset values but also of their anticipated future returns, up to the point where they can only service their loans by ‘rolling’ them over, are liable to suddenly find themselves struggling to refinance and to be forced to shed assets in fire sales. However, because the supply of corporate shares and other assets on the market rises, their price falls. Sometimes, already razor-thin safety margins evaporate and

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the former credit boom reverses into debt deflation (Fisher 1933). First the financial markets, then trade and production, descend into a recession. This process ends only when enough capital is – or, more precisely, when sufficient assets and promises of payment that were once falsely treated as money equivalents are – written down or written off, and what remains is backed by real profits or realistic profit expectations. At least until the next cycle begins. Insofar as banks worry about term transformations in particular, the problem is obviously not merely one of matching different but – at least statistically – determined time horizons, but rather one of expectation management in the face of more or less abrupt potential changes in money owners’ liquidity preferences. Banks might be able to defuse the liquidity paradox but can never abolish it. In certain respects, seeking to defuse the paradox can even exacerbate it, as bottlenecks caused by the liquidity preference of individual money holders might be avertable, but the credit system increases the overall amount of liquidity while not overcoming the fundamental susceptibility of the economy to crises caused by rises in interest rates. Occasional monetary traffic jams, so to speak, are averted only by amplifying the risk of less frequent, but for this very reason more significant, crashes. When these will occur is unpredictable, and any attempt to calculate the probability of such crises, for instance using data on historical debt levels (Reinhart and Rogoff 2009), offers at best false certainty about when the next crisis will erupt. What level of debt is ultimately sustainable remains unknown. For instance, Japan’s sovereign debt-to-GDP (gross domestic product) ratio of over 250 per cent (as of 2017) seemingly poses no threat, while Greece’s ratio of 175 per cent represents an extremely serious problem. When (and whether) lenders start to worry about their loans depends not least on their assessment of their borrowers’ economic prospects. One of the tools that they can use to decide this are securities exchanges. The special function of securities exchanges is price discovery. This refers, in the first place, to their facilitating the price formation process and making it more reliable, and second and more importantly to their completing markets by including possible futures. Exchanges put prices on goods that do not yet exist, such as shares in firms that have not yet made a profit, on the basis of promises of payment that may or may not be kept. The fact that exchanges are able to discover these prices is remarkable, as they depend solely on expectations and not on any real supply or demand. But the problematic fact is that, instead of merely

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providing greater security, speculation can also bring devastating price fluctuations and the abrupt destruction of asset value, which is just as bad for traders and producers as term transformations gone wrong. We need to differentiate systematically between commodity exchanges and financial asset exchanges, on the one hand, and spot and forward exchanges on the other (as relevant as ever for this is Weber 1894/2000). Commodity exchanges deal with standardised (and standardisable) goods, such as grain or oil, while financial asset exchanges deal with shares, bonds, currencies, derivatives and the like. The standardisation of commodities and stocks and the supervision of their trade by an independent organisation (i.e. the exchange as an organisation) allows buyers and sellers to avoid having to inspect the objects being traded or to negotiate specific contracts for each trade. Instead, they can focus exclusively on identifying the right price. This facilitates everyone’s access to the market and accelerates trade. Both goods and securities can either be sold ‘on the spot’, for money, or can be made subject to an agreement, whereby such a sale is contracted for a definite date in the future. A buyer, for instance, will give a shareowner a guarantee that he will buy a particular number of shares at an agreed price on that date and make a down payment now. One reason for entering into such a futures contract could be a current shortage of money on the buyer’s side. Another would be the hope that prices will rise, because if the value of the share rises above the agreed price in the meantime the buyer earns a profit. If, however, it falls, the buyer is obliged to pay the seller a higher price than could be obtained on the market. In this case, the buyer’s speculative purchase will have backfired. Either way, at the point of contracting the buyer at least knows what price he will have to pay in the future. It may be precisely this certainty that makes him willing to pay more than the current market price. Such futures contracts can, in turn, also be traded. The seller can sell his sales contract to a third party, while the buyer can sell his delivery obligation. The futures contract itself, therefore, has a price and value of its own, which is independent of the value of the initial down payment. Futures themselves are also financial assets. Because their value derives from the agreed purchase or sale of another asset (as in our example) they are second-order or ‘derivative’ assets. Apart from futures of this simple, narrow type, there are also other kinds, most importantly options and swaps. The former are not contracts to agree a trade, but mere options (or rights) to initiate one; the option may or may not be used, depend-

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ing on whether, by the time of its maturity (the agreed end date of the option), it is cheaper or dearer to execute the trade on the spot. Swaps, on the other hand, are agreements to swap particular payment streams for one another. For instance, a fixed income stream from rents might be exchanged, for a certain period of time, against more variable dividend payments, without anyone having to exchange the actual real estate or shares that have been rented out. As this example clarifies, derivatives permit a great deal of financial activity to be undertaken with fairly little committed capital compared to buying or selling the underlying assets. At the same time, however, the volume of trade in derivatives tends to vastly outstrip the trade in underlying assets – and, in turn, the volume of financial markets outstrips growth in the underlying economy – because an in principle unlimited number of derivatives may be created in reference to a fixed number of underlying first-order assets. The basic idea behind this trade ‘in’ – or even ‘of ’ – futures is, on the one hand, to guarantee economic actors reliable prices today in spite of the fundamental uncertainty about tomorrow, and on the other hand to smooth out overall price fluctuations. However, every ‘insurance taker’ must find a counterparty willing to act as an ‘insurer’, despite uncertainty about the future. One party’s gain in security, such as the certainty of being able to sell share X at price Y, becomes the other party’s risk, such as having to pay more for X than its value in a spot trade. But it is also a chance for the second party to profit by buying cheaply by contract and then immediately selling for a much higher price on the spot market. By way of so-called ‘short selling’, even falling prices can be used to make a profit. If I have reason to believe that a particular share will be worth significantly less in the future, then (for a fee) I can borrow this particular share from someone who owns it and plans to retain ownership, and I can sell it onward immediately, only to buy it back more cheaply later as the return date approaches. An ‘insurer’ – that is, a speculator – will, of course, only engage in such a risky venture if he has good reason to believe that the expectation of a lower future value is correct. A short seller can earn very large profits by committing quite a small amount of capital (i.e. the fee for borrowing the asset), as long as there is a substantial fall in prices. If, however, they unexpectedly rise, the difference between the buying and (contracted) selling price of the borrowed asset, plus the initial fee, might represent a substantial loss. Futures and, more generally, derivatives trading both applies and implies a potentially substantial amount of leverage, because relatively

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small amounts of money are mobilised against underlying assets worth many times that. In order to take such risks, speculators must be well informed about the factors and conditions that could push the price in one direction or another. They seek to use informational advantages to transform, so to speak, their surplus knowledge into surplus value, and in so doing even perform, at least in theory, a valuable service for the market. If the majority of speculators believe the spot price, or especially the futures price, of a commodity or share is too high then they ‘go short’ and sell it, thereby driving the market price closer to its ‘actual’ value. Conversely, they ‘go long’ and buy assets or papers when they have greater promise than their current price suggests. Ideally then, speculation ought to smooth out prices, dampen upward and downward fluctuations, and moderate the market’s ‘volatility’. The idea that stock markets generate accurate or ‘correct’ prices is known in contemporary financial theory as the ‘efficient market hypothesis’ (EMH) (Shiller 2000, 171–90). The EMH proposes that, in any sufficiently large and liquid financial market – exchanges with a constant turnover of a significant proportion of any given security – prices will always reflect all of the information about the assets that is available, meaning the profitability of the firm or the creditworthiness of the borrower behind this security. Prices reflect the average, and therefore, under present conditions, best estimate of the present value of a financial asset, whether it is a debt instrument, a corporate share or any other security. News or divergent interpretations of older facts are immediately incorporated into the price, because buyers and sellers reveal their knowledge about the ‘correct’ value of the asset through buying and selling it at a particular price. If their knowledge had no bearing on the price, they would not seek to trade. If they did not trade and seek to exploit any divergence between the current market price and the ‘correct’ price, presumably this is because they have no information that would genuinely warrant a change in price. This hypothesis is a more radical version of an older claim made by Friedrich von Hayek (1946/1992) that markets are always superior tools for processing information than central planning, due to their ability to procure and absorb a panoply of specialised forms of ‘local’ knowledge from the different actors that are involved in them. It is more radical because financial markets, according to the EMH, not only work far better than central planning bureaus, but actually work perfectly: no one can ever know better than the market. This, of course, does not mean that

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prices do not fluctuate, but rather that they fluctuate precisely because individual actors, albeit only for brief moments, know (or believe that they know) better. Present prices always reflect the best possible judgement of the value of an asset. Or, put another way, its price and its value are one and the same until someone comes along who buys or sells because they actually possess new information. If the EMH were correct, then investors’ so-called ‘fundamental analysis’ of companies, market segments, product innovations, consumer preferences, government debt levels or political trends, and so on, would be as futile and absurd as the notion of any ‘expert’ financial market advice. In the context of securities exchanges – and financial markets more generally – fundamental analysis refers to attempts to determine the ‘true’ value of an asset by carrying out an in-depth assessment of the producers or borrowers represented by the asset: examining their balance sheets, as well as their business plans and partnerships, using a range of indicators. If financial markets were efficient – information efficient, that is, because allocative efficiency in terms of directing economic resources to their highest utility use is another matter, and does not necessarily follow from this information-processing efficiency – then fundamental analyses would be pointless, because even the best analysis could never beat the ‘wisdom’ of the masses reflected in the market price. And if no financial expert or advisor could ever beat the market, then for large investors it would be sensible – and cheaper too – to buy index funds, which simply reflect the market as a whole, rather than pursuing specific investments. Any success would be pure luck rather than the reward for superior insight. Yet index funds have neither displaced fundamental analyses (and fundamental analysts) nor driven the purveyors of investment expertise out of business, perhaps in part because these actors have managed – quite like homeopaths in the face of conventional medicine – to brand their own expertise as not necessarily superior, but nonetheless a supposedly very helpful alternative. Even more important, however, is the fact that the EMH suffers from an elementary logical inconsistency, which offers solace to the aforementioned professions as much as it creates practical problems for the financial markets themselves. If the market always already knows best with respect to all possible contingencies, and any better assessment of value than the current price is impossible, then it is sensible and logical to trust exclusively in the judgement of the market and to refrain from conducting one’s own verification or

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analysis (Grossman and Stiglitz 1980). If market prices already contain all price-relevant information, then individual investors should rely on these prices without bothering to collect this information themselves. The same principle applies, of course, to all other investors in the market. Instead of relying on the dispersed knowledge of market participants, and therefore at least indirectly on fundamentals, it is good enough to simply observe price changes. However, in markets for promises of payment (in fact, for expectations) these price changes can unfold following a very different logic from that found in markets that connect real goods and concrete needs. Here again, we encounter the same mimetic logic discussed in the section on the improbability of trade (Section 1.3). In goods markets price rises generally depress demand, and through this mechanism they throttle these rises. But in financial markets a price rise can itself become the cause of a rise in demand. If the price of a share, for instance, begins to climb, this must be because its ‘true’ value was greater than its previous price – the price rise in itself already furnishes proof for its having been worth more – and anyone who believes the market to be infallible now ought to seek to acquire this share. As can be expected – and is often seen in reality – whatever their initial causes, price fluctuations become self-reinforcing. Changes in the market value of shares – even often the value of whole markets – routinely overshoot in one direction or another and happen far more quickly than any serious reassessment of the fundamental value or any recalibration of expectations regarding business prospects and future profits or losses could explain, the only solace being that these overshoots can be corrected with time. Interestingly, long before the postulation of the EMH, Keynes (1936/1976: 147–64) had already shown that a structural decoupling of value judgements from real economic facts was inevitable in financial markets. Keynes’ theory of speculation can be seen as the securities market counterpart to Minsky’s bank-based theory of crises. Financial markets are always places of second-order observation (cf. Baecker 1988: 198–209, 281–98). This means that market actors never observe what goes on in the ‘real’ economy independently of one another, adjusting their portfolios autonomously when circumstances change – ‘as though a farmer, having tapped his barometer after breakfast, could decide to remove his capital from the farming business between 10 and 11 in the morning and reconsider whether he should return to it later in the week’ (Keynes 1936/1976: 151) – but rather these actors observe (and indeed

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must observe) the observations that others around them are making. These others are comrades-in-arms – inasmuch as they all profit from the same trends, which often only exist thanks to the collective creation and nurturing of them – but also rivals insofar as what happens in financial markets is a battle of opinions, where being ‘right’ on the individual level – that is, buying and selling before others do – matters above all else. In this respect, the buying and selling of assets resembles the children’s game ‘musical chairs’, in which (x) players run in circles around (x−1) chairs while music plays. When the music stops, each child has to try to sit down on a chair. In every round, a player and a chair are eliminated, and the child who manages to sit on the last chair wins the game. When the music begins playing, the participants focus on the music, an authority over which they (expect) to have no (immediate) control. But as the children’s excited voices start to drown out the music, each of them focuses more and more on watching the others. Are they hearing what I’m hearing? They, in turn, are doing the same thing, observing the others and adjusting their behaviour. Inevitably, one of them will lose their nerve and sit down, while the others follow suit, even though the music is still playing, or all of them might continue to run around the chairs long after the music has stopped. Transposed to securities markets, this means that mutual observation takes the place of collective observation of the external environment. A spiral of observation thus unfolds, which blurs together observing facts with observing the observation of facts. Inadvertently, and inevitably, even genuine investors become speculators. The ‘real’ economy becomes obscured by the veil of others’ assessment that cannot be lifted, not only because one’s own assessment is always influenced by those of others, but also because the real economy hinges as much on financial markets’ signals as these do on the real economy, which must validate the promises of payment that were initially created in financial markets. And even if objective economic realities were somehow still discernible, they would be of little import as long as others were oblivious to them or seemed to believe that they have no meaning. Nobody can escape stock market trends, and everyone is well advised to follow the prevailing opinion, even if they think it is wrong. And by conforming to it, they are confirming it. Having good reason to be confident in the bright future of, say, Deutsche Bank, is financially worthless if others’ lack of confidence sends its shares plummeting. In this case, investing would be ill-advised.

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Asset prices are not, therefore, reflections of objective values, but rather conventions. As long as they appear to be more than mere conventions, or as long as broad consensus prevails about their reflecting (at least in principle) real values or reliable promises of payment, fluctuations in prices can count as the results of commonplace, inevitable and also profitable differences of opinion. However, as soon as new prophecies or doubts begin to spread about whether these great shared hopes are still valid, other self-reinforcing processes can take hold. The boom reinforces the boom; the slump prolongs the slump. Bubbles emerge, grow and burst. Bubbles are bubbles not because the real value of an asset or an index could ever be determined and juxtaposed against the inflated value, but because the still-significant difference between value and price is blurred. Viewed from the perspective of the EMH, the steadily rising price of a corporate share can be explained by the fact that even the newer, higher estimate of its future profitability was still too low. Conversely, its sustained fall reveals ever more new, or at least previously well-hidden, problems. Viewed from a Keynesian (or mimetic perspective), however, prices skyrocket or plummet because a convention weakens and the actors, now uncertain about just how badly they might have misjudged things – or rather, how much money they have wrongly staked on their judgement – look to each other for confidence and thereby reinforce each other’s sense of euphoria or panic. Such a self-reinforcing trend is broken only when actors once again successfully agree about how to distinguish pure speculation from real investment, or arbitrage from the quest to participate (at least indirectly) in real economic undertakings, a distinction that, strictly speaking, is in any case untenable. In making this distinction, they seek to revert from second-order to first-order observation. The real economy is, of course, as profoundly affected by the emergence and bursting of bubbles as by fluctuations in available credit, which is driven by the rise and fall of the liquidity premium. Inasmuch as rising asset prices and cheap credit enable growth and innovation, and inasmuch as all production depends on the ability to make investments upfront, so too do falling prices and credit contractions topple ‘actually’ flourishing real economies, when the deflation of capital assets makes debt servicing suddenly more difficult. It would be wrong-headed to deny the utterly remarkable capacity of securities markets to blend liquidity with investment and, through this, to supply much more capital to the economy than would otherwise conceivably be available. This is

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plainly indispensable for any modern economy. It is also worth underscoring how securities markets and banks manage to disperse risks, and in this way to prevent the anxiety of some from getting in the way of the boldness of others. But it must also be recognised that chasing liquidity – a fetish which a society of money can scarcely escape – inevitably involves a mere trade of individual risk for systemic risk. Attempts to address this problem using the tools of the market, meaning to manage the risks of financial markets through continued financial innovation, have a long history of failure (Kindleberger 1978). As much as ever, politics alone can – and must – set limits to the ‘logic’ of financial markets. But the contemporary political system, operating by and large within the boundaries of the nation state, appears to be confounded by the scale and complexity of the problem. While this is a topic in its own right that exceeds the scope of this book, we will see in Chapter 4 that the politics of money began long before the regulation of financial markets even became a problem.

4 The Politics of Money

4.1. THE FOUNDATIONS AND FUNDAMENTAL PROBLEMS OF CONTEMPORARY MONEY ‘This note is legal tender for all debt, public or private’ – this strange phrase is found on all US dollar bills. By law, the US government stipulates that all tax, financial and legal obligations between private persons and the state, and even those between private persons within its sovereign territory, are to be redeemed in dollars. As long as debts are expressible in monetary terms, the US government guarantees everyone’s right to pay and definitively settle them through payment in dollars (or, depending on your perspective, the government obliges every person to do so). The same applies to the euro in the eurozone, the franc in Switzerland and the yen in Japan. ‘Real’ money is what central banks issue in the name of the state, a small percentage of which circulates as cash – that is, in the form of banknotes and coins – while the rest is held by commercial banks, seldom as physical cash reserves, but most commonly as book money reserves (on what follows, see Ingham 2004: 134–51; Huber 2017: 57–100). Commercial banks can acquire central bank money by indebting themselves to the central bank, for which they must hand over assets with a certain minimum rating to serve as collateral for the loans. By changing the base rate – the interest rate commercial banks must pay to borrow – the central bank affects their demand for central bank money. Central banks can also make central bank money more easily available by being willing to take on more assets, or, conversely, they can reduce its availability by shedding the assets they own. In the latter case, they take back central bank money and thus remove it from circulation within the economy. In principle, central banks thereby have the power to create money ‘from thin air’, or to put it another way, to ‘print’ it at will and to make it disappear again by ‘destroying’ the banknotes they take in. However, this power is constrained by the legal prohibition on certain

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kinds of open market transactions and by the fact that access to central bank credit depends on commercial banks actually handing over assets as collateral. The risk inherent in central banks having this unique position – and this is one of the main accusations commonly levied against the present monetary order – is evident: central banks have the capability to introduce more money into circulation than economic actors (producers and consumers) actually need. This would cause inflation, in the sense of a generalised rise in prices, without there being any shortage of goods in supply or any rise in demand, simply because too much money is available. Prices would lose their allocative function and value as communicators of information. The same principle applies to an undersupply of central bank money to the economy, when a fall in average prices – deflation – results not from decreased demand but from an overall shortage of money to spend. The intertemporal comparison of prices would become impossible and misallocations of goods would be the result. For this reason, the official public mandate of central banks is to monitor developments in their currency area as closely and with as much foresight as possible and to adjust the quantity of money available to match real economic expansions and contractions. Central banks might have other responsibilities and tasks, but their chief duty is to keep prices stable. The fact that the European Central Bank (ECB), like other central banks, aims to ensure a moderate rate of inflation in no way contradicts this, since it merely reflects the widespread recognition that a small amount of inflationary pressure stimulates growth by inducing economic agents to spend. It has become a commonplace, or even a dogma, that in order to focus their efforts effectively on their primary objective of price stability, central banks must be politically independent. Yet today’s central banks are, in fact, political institutions, created by and embedded in the politico-legal orders of states (or unions of states), rather than being truly apolitical bodies. Political independence therefore refers, on the one hand, to the fact that governments have no power to direct them to reduce or expand the money supply, and on the other hand to the fact that they are not allowed to directly buy government bonds and thereby finance the government. Otherwise there would be no limits on government debt or to governments putting pressure on ‘their’ central bank to print money beyond what is justified by economic growth, and then using this excess money – money not backed by economic activity – to, for instance, indi-

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rectly buy votes by stimulating the economy before elections. Precisely because democracy and monetary stability are anathema to each other, the ordoliberal monetary theorists who currently dominate academia and the policy arena argue that central banks must remain insulated from elected officials’ attempts to influence them (see Hayek 1951; Weber 2014, 70–4). No doubt, servile central banks are prone to politically motivated abuse, which can harm the economy, as history shows all too well. However, it would be wrong to think that formally independent central banks operate in political vacuums. Not least the activism of the US Fed since the latest great financial crisis and the actions of the ECB during the euro debt crisis are proof to the contrary. The flooding of financial markets with liquidity since 2008 has helped avert their full collapse, which would have had incalculable consequences for the global economy. Moreover, it was the ECB that successfully curbed speculation against the euro or, more precisely, the debt-servicing capacity of southern European states. But regardless of whether one believes these interventions by the Fed and the ECB to be justified, or even indispensable, the question remains whether their loose monetary policy ought not to be grounded by some form of democratic legitimation (more on this in Section 4.4). For ordoliberals, by contrast, politicising central banks more than they already are would undermine their supposed capacity to engage in dispassionate and objective decision making. Another difficulty – representing a second major problem with our current monetary order – arises from the fact that money creation by central banks is only the first (or rather, as we will see, the final) link in a much longer chain of money creation (Huber 2017: 101–42; Gottmann and Pahl 2013; McLeay et al. 2014). As borrowers and recipients of central bank money, commercial banks do not simply pass it on to businesses and private customers, but rather use it to cover book money that they have already created through loans. Banks issue loans to clients, enabling them to meet their payment obligations towards other economic actors. A borrower could, of course, request from the bank that their loan (usually issued against collateral) be paid out in cash. However, in practice they will usually be satisfied to have it credited to their bank balance, which they can then transfer to others. From a client’s perspective, the bank’s book money is functionally equivalent to cash, and even the recipient of the transfer will rarely want to cash out all

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of the funds paid into their account. Banks, therefore, only need to hold a small fraction of their book money in reserve as cash. Legal reserve requirements require banks to hold a certain percentage of their book money as cash, to ensure that withdrawals by individuals – i.e. exchanges of book money into cash – are always possible. Textbooks on money and finance often treat this percentage as giving rise to a multiplier effect that enables banks to create money. For example, given a reserve requirement of 10 per cent, the story goes, banks could correspondingly lend up to 900 euros for every 1,000 euros they hold. The original 1,000 euros may have been borrowed from the central bank or come from the savings of depositors. As soon as the 900 euros that have been lent out are deposited at another commercial bank, that bank, in turn, can make loans amounting to 810 euros, while holding 90 euros in reserve, and so on. With only 10 per cent of the sum of credit always needing to be backed up with central bank money, a cash sum of 1,000 euros allows for the creation of up to 10,000 euros in book money. By means of the reserve requirement, the state or the central bank can limit the amount of money creation banks engage in. Yet this explanation is wrong. This is not because minimum reserve requirements have no effect or because banks circumvent them, but because the creditary creation of book money precedes the creation of reserves. First loans are made and then commercial banks draw on central bank money. They can do this because, at any given moment, central banks stand ready to supply them with reserves, in exchange for which they must pay interest and surrender collateral (specifically, debt securities). What commercial banks aim for is to earn a higher rate of interest than what they must pay to the central bank. Should they ever lack sufficient eligible collateral even their client deposits may, in extreme cases, be counted as collateral by the central bank. Most important of all, however, is the fact that while it may be possible to differentiate between central bank money and book money in principle, in practice the distinction is rarely clear and, moreover, it is difficult to operationalise in the context of monetary policy. In addition to central bank money, circulating cash and central bank money held in reserve by commercial banks, there are also clients’ demand deposits, savings deposits (with and without term limits), fixed-term deposits, promissory notes, money market funds and many other more or less cash-equivalent monetary objects. Although central banks define different types of money supply and focus on influencing the quantity of one or the other

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of these, the fundamental difficulty of differentiating between different types of book money remains, and is exacerbated by processes of financial innovation. The invention of ever new financial ‘products’ makes it possible to expand the money supply well beyond central banks’ targets, as long as economic actors treat these ‘products’ as if they were money. Conversely, central banks can inject more money into the market, but if commercial banks are not inclined to loan this money out then the injection will have no effect. Ordoliberals fear that central banks have too much power to manipulate the money supply and that politicians may seek to influence how they exert this power. By contrast, from a sovereignty-theoretical perspective – which is known in the context of monetary policy as a ‘chartalist’ one – their powers appear far too limited. While libertarian – that is, not merely ordoliberal – money reformers would therefore eliminate central banks altogether, reformers in a chartalist vein seek to empower central banks to become more effective. These two reform efforts, which (at least superficially) look diametrically opposed to each other, will be discussed in the following pages, focusing on the cases of Bitcoin (Section 4.2) and sovereign money (Section 4.3). 4.2. PRIVATE MONIES (OR BITCOIN) As we have seen, state-run central banks and private banks not only manage our payment systems, but also engage in money creation and thereby determine the value of money itself. Economic actors must trust these financial intermediaries. Moreover, they must pay them for their services, even when, in principle, what they seek is to engage in direct transactions with their business partners rather than with a bank. Common critiques of banks suggest that, as intermediaries, banks have essentially taken control of and gained abusive power over money, although money, in principle, ought to exist only as a facilitator of exchange between independent economic agents (Gedeon 1997). In the origin stories of money told by liberal economists, money emerged from the most saleable or most generally desired and simultaneously most preservable and easily divisible commodity that the market participants had (see Section 1.1). It is ostensibly for these reasons that money has so often been gold. Money, the argument goes, should be beholden to no authority or third party, such as the state, but only to its private owners. After all, they say, it is nothing more than the equivalent

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of what commodity owners would be willing to part with their wares for, measured against the value of other desired goods. In usurping the coinage prerogative – that is, the right to make gold or other precious metals into coin – the institutions of the state may perhaps have served the common good inasmuch as they standardised money as a commodity, but at the same time they gained the dangerous power of being able to manipulate the purity of the coinage at will. The price economic subjects paid for the coining and standardisation of money, the critique goes, was their gradual dispossession and disempowerment, as states claimed all of the gold for themselves and, so to speak, undertook to feed their citizens with official ‘counterfeit currency’. Such licensed abuse of private money, critics argue, was worsened by the introduction of unbacked paper currency. When political authorities seized the power to create money and cover public spending with paper notes at will, and thus to inflate any already existing paper money, they further dispossessed money owners by subterfuge. Supposedly, neither the formal independence of central banks from governments, nor the existence of private banks, changed this. And to make matters even worse, in democratic systems central banks are under constant pressure from elected officials to abuse their central banking power. For libertarian critics, the fact that private banks create money, as explained above, is no corrective. Rather, the banks’ ruthless pursuit of their own commercial interests imperils the welfare of market actors. Just as states supposedly find it hard to resist the urge to fund their own spending (or debt servicing) by printing money, so too do banks have an intractable impulse to issue as much credit as possible and thus to cause inflation. Thus, the real economy is repeatedly forced to go through disastrous deflationary crises, which painfully undo the monetary overhangs created and inflated by central and commercial banks. Although money is still the essential lubricant of markets, when governed by central and commercial banks it becomes a disruptive force in its own right and a driver of crises in the real economy. Resolving this contradiction – or rather, recreating a more faithfully market-serving monetary order – fundamentally depends on the wholesale depoliticisation of money, according to ordoliberal theorists of money. For more radical libertarian money reformers, this requires nothing less than the marketisation of money itself. Instead of remaining under the thumb of government authorities and their political interests, the idea is that money ought to be returned to its original commodified form.

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Libertarians, such as the former US Republican presidential primaries candidate Ron Paul (2009), have therefore argued in favour of a return to the gold standard. Others believe that the selection of the best currency should be left to the market itself. In the 1970s, Friedrich August von Hayek (1979; 1990) argued for the complete denationalisation of currencies, proposing that private money issuers should offer their own monies on the market, backed by precious metals, resources or price indices. Ultimately those currencies that proved most stable, and thus most able to meet the expectations and demands of economic agents, would succeed. While central banks would have no role to play in this system, private banks (and their commercial interests) clearly would. However, although they would still issue credit, they would also find themselves responsible for the value-maintenance of ‘their’ money, leading them to subordinate their credit-driven pursuit of profit to the preservation of a stable currency. Not least thanks to the political power of the economically leading countries, from which any such private money issuers would almost certainly come, in addition to the evident disinterest of states in ceding their monetary monopoly, for decades no such currency competition in a Hayekian sense came about. But the march of progress in modern computing and communication systems – viz. the Internet – have made the dream more real. Bitcoin is by no means the only cryptocurrency, but since 2009 it has been the most successful (so far) among the contenders seeking to compete with the great state-issued currencies. Bitcoin’s allure undoubtedly stems in no small part from its being free from state influence, and Bitcoin is, or at least is supposed to be, easy and cheap to use, impervious to counterfeiting and unequivocally anonymous. Each of these attributes on its own would already be of interest for many money users, but Bitcoin bundles them into a single package. If it continues to be unconstrained by regulation, Bitcoin (or any one of its emulators) might well see even greater interest over time (Casey and Vigna 2015; Greenfield 2017: 145–81). Even if we do not use it ourselves, we ought at the very least, as observers of others’ interesting behaviours, to pay attention to Bitcoin. In the first instance, Bitcoin is software. It allows users to connect with each other via a decentralised network in order both to trade units of value for goods or services and to create the units themselves (regarding the principles of Bitcoin, see European Central Bank 2012, 21–4; Koenig 2016, 105–28; Bjerg 2016, 55–7; Weber 2016, 18–19; Greenfield 2017:

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123–31). Bitcoin payments are direct user-to-user payments that do not pass through any intermediary institutions that could make a profit from facilitating them. A Bitcoin is a virtual unit of value, not backed by any commodity or physical asset, consisting of an encrypted line of code. It can be traded for regular currencies on special exchanges. One peculiarity of electronic data – and Bitcoin is nothing more and nothing less – is that it can be easily replicated or copied. To ensure that a Bitcoin cannot be counterfeited or spent more than once, a special safety mechanism exists. Every Bitcoin changes its identity every time it is transacted, such that its entire transaction history is inscribed into it. Every Bitcoin tells a story, so to speak, of who has previously used which parts or fractions of it to make payments, all the while keeping the actual owners of Bitcoin anonymous, hidden behind their lines of code. Likewise, the code gives no clues as to what the Bitcoin was used as payment for. Yet the identity or genuineness of a Bitcoin (or even the subdivided fraction of one) must be openly verifiable for every user of the currency. In practice, this works through both parties in any transaction (i.e. buyers and sellers) reporting their side of the transaction to the entire Bitcoin network, while the other participants in the network verify it. They check the correctness of the transaction history of the respective unit(s) of currency. Once this process is complete, the new information generated by that transaction – that is, the expanded Bitcoin identity – is communicated to the entire network. The Bitcoin network thereby forms a complete and all-encompassing ledger of transactions that is not only decentralised, but also impossible or extremely difficult to falsify. The network itself forms the distributed ledger. But what incentive is there for non-participants in a given transaction to help verify it? The system rewards the user who is quickest to verify a given transaction with new Bitcoin. Therefore, with each transaction that is carried out – or, more precisely, with each block of simultaneously verified transactions – the amount of available Bitcoin in the system grows incrementally in a way that all users can see. To prevent the currency from spiralling into inflation, the size of the increment added decreases over time, and it takes an ever-increasing amount of computing effort to add a new block to the ledger. The Bitcoin system is programmed such that the total supply of coins is limited to 21 million, a number that is expected to be reached in or shortly before the year 2140. While this sum may appear relatively

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small, what matters is that each Bitcoin can be subdivided into up to eight decimal units. In theory, each Bitcoin thus consists of one hundred million ‘Satoshis’ (named after Bitcoin’s pseudonymous founder, Satoshi Nakamoto).1 As in the case of gold-backed currencies, the supply of Bitcoin cannot expand indefinitely. Unlike gold, however, which can still be discovered, the total quantity of Bitcoin that will ever exist was restricted from the outset. Bitcoin production can neither be accelerated in the short run, nor can its value be inflated through overproduction in the long run. The algorithm controls, and will eventually terminate, the process of money creation. Fluctuations in the exchange rate against other currencies notwithstanding (which are in fact desirable for Bitcoin’s promoters, because they want it to compete with other currencies), from the year 2140 onwards Bitcoin’s value, or at least its purchasing power, will be determined solely by the supply and demand of goods offered up for sale in Bitcoin. In the eyes of Bitcoin enthusiasts, these advantages – i.e. the currency’s presumed value stability, its apolitical nature, its security and anonymity, the absence of intermediaries and the low costs – will guarantee its success, or at the very least herald the beginning of an age in which the principles informing Bitcoin will undo our present, deeply flawed monetary order. Probably – almost certainly – they have declared victory too soon. In the first place, a number of practical issues stand in the way of established currencies disappearing or even merely being substantially weakened. Second, a number of disadvantages weigh against the supposed advantages of this apolitical currency. And third, as will be shown, Bitcoin is unable to definitively resolve the core problems with existing money systems, but merely delays them (for a more detailed explanation, see Dodd 2014: 362–72; Weber 2016: 26–37). One of the main reasons why Bitcoin is unlikely to replace large national currencies anytime soon is that states can actively resist its advance, particularly if the cryptocurrency is used (even more than it has been so far) for trade in illegal goods, tax evasion and financing terrorism, or if it were to undermine central banks’ monetary policymaking. It is hardly a coincidence that Bitcoin was the currency of choice of the (now-defunct) online platform Silk Road (Bjerg 2016: 69), where not only drugs, human organs, elephant tusks and weaponry, but apparently 1.  While various persons have claimed over the years to be the ‘real’ Nakamoto, as of early 2020 his or her identity remains unknown.

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even contract killings were for sale. Naturally, the powers of law enforcement to combat cross-border encrypted trade are limited and the online marketplace has apparently reappeared in many different guises, but states’ powers of surveillance and suppression should not be underestimated, especially because illegal online trades usually involve real acts or items. In these cases, states take aim less at the currency than at the deals it facilitates. The situation would, of course, be different if a massive exodus of generally law-abiding citizens to Bitcoin were to take place, with the effect of neutralising public monetary policy. If everyone used Bitcoin, the effective money supply would be even more difficult to control than it is today and central banks might fail in their mission to stabilise financial market activity. In such a scenario, states would likely attempt to criminalise the use of Bitcoin itself (European Central Bank 2015: 29–32). How effective such an attempt would be is anyone’s guess. Perhaps some would cease to use Bitcoin, while for others its allure would increase further. Yet such a situation in which states (or at least major ones, or major currency areas) face such a ‘run for their money’ is not on the horizon. Proponents of free competition between different monies routinely underestimate the ‘lock-in’ effects that established government-issued monies have, which make the substitution of one currency for another unlikely in practice, even if in theory it might have certain advantages. First, the usefulness of a currency depends not merely on its value retention, but even more so on the number of actors using it, such that even a relatively unstable but widely used currency will generally, ceteris paribus, be preferable to a stable one with limited geographic and social utility. Second, states can force citizens to pay taxes, fees and penalties in the national currency, while paying out welfare entitlements and other transfers in the same way. With a share of GDP attributable to government expenditure of up to 50 per cent being the norm in Western countries, it would be hard for anyone to avoid the state’s money. Third, adjusting to a new standard of value takes a long time, not least since the consistent repricing of goods is needed before a new standard can replace the old one in people’s way of thinking. Consequently, it is highly unlikely that Bitcoin (or anything like it) could effectively compete with the likes of the euro, dollar or even just the pound or Swiss franc anytime soon. A second set of obstacles to Bitcoin’s ‘glorious revolution’ lies in the disadvantages of the new currency, which potentially more than outweigh

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its advantages. Two problems stand out above all others, which, taken together, make it hard to imagine Bitcoin ever playing the role of stable and neutral means of exchange, despite the hype from its proponents. First, although Bitcoin has enjoyed a gradual broadening of acceptance as an alternative means of payment in the world of online business, it has clearly been much more extensively used as something else, namely as an investment or, to be precise, an object of speculation. A quick look at the exchange rate makes this amply clear. The first Bitcoins had nearly negligible value. In early 2009, one euro cent could buy 20 Bitcoins, while one euro was worth around 2,000 Bitcoins. In spring 2011, Bitcoin reached parity with the euro. In autumn 2012, the value of a single Bitcoin reached 10 euros, then in the course of 2013 first 100 and later a peak of around 800 euros, only to collapse again to under 200 euros within a few months. It climbed again to more than 17,000 euros in late 2017, before falling to under 3,000 in 2018, and again rising to over 11,500 and falling to 6,000 before the end of 2019. These developments in no way correspond to changes in the usage of Bitcoin for exchanging goods and services. Rather, they have been driven almost exclusively by currency speculation. Although the causal links are difficult to prove, it is likely that the first – in hindsight negligible, but at that time striking – spike in 2013 was connected with the banking crisis in Cyprus, which saw depositors (in contrast to those financial crises that preceded it) being forced to contribute to bailing out ‘their’ banks (Dodd 2014: 369). The large sums of capital that had been deposited in Cyprus by wealthy Russians sought a means of escape, and found it, at least temporarily, in Bitcoin. As soon as it became clear that the rising value of Bitcoin was nothing more (or less) than a flight from the euro, the initial financial euphoria tipped into inevitable disillusion (see Section 3.2). The extreme fluctuations in value were driven, not least, by the comparatively small market volume of Bitcoin, with the consequence that a few large trades led to correspondingly large changes in price. For Bitcoin’s later exuberances there might be no such simple explanation, but only the ‘logic of financial markets’ itself (cf. Section 3.2). In any case, with Bitcoin there can hardly be any returning from speculative excess to the hard surface of the real economy or any ‘fundamental’ values, because no such real economy or fundamental values exist in this case. Bitcoin’s comparatively short history already confirms that it definitely appeals to speculators, but less so – quite understandably – to traders.

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The second drawback, which is rooted in the inflation-obsessed ‘digital metallism’ of Bitcoin’s inventors (Maurer et al. 2013: 262) – their virtual imposition of absolute limits on the money supply that are far more radical than in the case of gold backing – is the opposite of inflation, to wit: continuous deflation. The inevitable (and apparently deliberate) long-run consequence of limiting the quantity of Bitcoin to 21 million units flies in the face of any common sense, non-libertarian economic thinking. If ever larger amounts of goods are to be traded using an unchanging quantity of money, the prices of these goods must go down and, conversely, the value, or purchasing power, of the money must go up. This would be less of a cause for concern if falling prices did not, from all previous experience, lead consumers to postpone their purchases for as long as possible, in order to be able to get more for their money later. Because their reluctance to consume leads to a decline first in trade and then in production, today’s monetary authorities fear deflation much more than moderate inflation of a few per cent per year, which, in principle, (like a punitive, negative interest rate) pushes people to consume or to invest instead of holding on to their money. Ignoring short- or medium-term – that is speculation-induced – fluctuations in the exchange rate, the promise of Bitcoin to its users is to be a not merely stable, but rather endlessly appreciating currency. The price to be paid for this asset accumulation, however, is the stagnation of the real economy – or at least it would be if Bitcoin, contrary to any reasonable expectation, were ever to displace established currencies. Third, and finally, two structural contradictions in how Bitcoin was conceived bear mentioning. These problems are neither unique to Bitcoin nor, as its adherents generally assume, to established currencies. On the one hand, imagining that any money that can work without users trusting their exchange partners or banks is foolish. On the other hand, the re-emergence of financial intermediaries (even banks) would scarcely be preventable, particularly if Bitcoin were ever to become a success story. In fact, the trend towards intermediation is already visible in Bitcoin today. The first critique is largely trivial. As much as Bitcoin’s technology – in particular the control and execution of individual transactions through the continuous, decentralised updating of the ledger, along with the confirmation of the counterparty’s ability to pay and verification of the authenticity of the Bitcoin involved – is designed to eliminate the need for trust: it requires users to trust the system, that is, the software. While

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Bitcoin (like the non-commercial operating system Linux) is based on an open, transparent-to-all source code, comprehending how it works is at least as challenging for most users as understanding the ins and outs of contemporary banking (if not wholly impossible). Instead of living with the organisational opacity of banks, Bitcoin users must accept this acute informational asymmetry. The majority of users simply assume that the system works as promised by authors who manage to describe it in non-technical, relatively accessible ways, just as most investors in securities inevitably base their assessments of the profit potential of particular assets not on their own expertise but on assessments furnished by (real or supposed) experts. Users must also trust their own hardware, for if their computer crashes, encounters an error, is compromised or hacked, the game is up, so far as security is concerned. In other words, Bitcoin merely replaces trust in organisations, their rules and their employees with trust in technology and those who understand and command it. The need for trust itself remains. In fact, although the system has thus far proven to be fairly robust, attacks and instances of theft are not unheard of in the world of Bitcoin, and there is no reason to believe they will become any less common. The continued growth of Bitcoin is, moreover, likely to make the recruitment of new volunteers to tend to the system’s needs more difficult, precisely as the appeal to ‘criminal’ actors grows. ‘Criminal’ is in quotation marks here, because the term presupposes laws that define what is allowed and authorities to prosecute transgressors. In the case of Bitcoin, neither exists. Even simply defending the system against attacks, fixing bugs, improving security and resolving disagreements requires mechanisms of coordination and powers of problem resolution. Even if the actors who manage these are not (yet) financial intermediaries, they are already third parties whose cooperation and motivation needs to be assured, their impartiality established and their interest in maintaining the system (rather than manipulating it for their own benefit) somehow guaranteed. There is a modestly staffed Bitcoin Foundation, but the challenge remains to clarify for the future not only within the Bitcoin user community, but also in relation to state legal systems, what rules could, should and must apply to Bitcoin (cf. Parkin 2019). Beyond this, there will definitely be a rebirth of financial intermediaries, and with it a re-emergence of precisely that which Bitcoin was supposed to do away with (Gervais et al. 2014). If users find their home computers to be too insecure, why should they not entrust their Bitcoin

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to someone else’s care? Why, in fact, should banks not offer their clients the option to invest in funds that, among other things, buy Bitcoin? After all, institutionalised Bitcoin exchanges already exist. Most importantly, why should it not be possible – particularly given the lack of any legal rules that apply to cryptocurrencies – to borrow or lend in Bitcoin? How would anyone prevent those loans from being backed simply by claims on other Bitcoin, rather than by ‘real’ Bitcoin, just as our book money merely represents a claim on cash rather than the cash itself? And who would – or should – even bother to prevent this? The paradoxical (because retrograde) development of ‘coining’ actual physical Bitcoins already suggests that there are no limits to the unfolding of entrepreneurial innovation around Bitcoin (Maurer 2017), especially in terms of new financial products. If Bitcoin and cryptocurrencies as a whole are to have any future, an associated financial services sector and market will develop, and will be populated by genuine crypto bankers as well as digital bandits. All this, in turn, will necessitate the reintroduction of precisely those regulations and laws that cryptocurrencies were intended to make obsolete. 4.3. SOVEREIGN MONEY In contrast to such visions of marketising money as Bitcoin, ‘sovereign money’ and ‘positive money’ proposals aim to reanchor money in the state, thereby curbing not just speculation but all money creation by private banks. Just as Bitcoin is but one of many non-state currencies contending for the markets’ favour, so too have numerous initiatives aiming at a purely state-directed money creation process popped up in recent years. Their closest ancestor is the so-called ‘Chicago Plan’ devised by Irving Fisher in the 1930s in response to the Great Depression, which advocated what Fischer called ‘100% money’ (Benes and Kumhof 2012). Neither his ideas nor the recent ‘sovereign’ or ‘positive’ money proposals have actually been implemented anywhere, but there were serious discussions on this topic in Iceland after the country was hit by the 2008 global financial crisis (Sigurjonsson 2015). Many will have also heard of the plebiscite held in June 2018 that concerned a sovereign money proposal in Switzerland, the Vollgeld-Initiative, which more than three-quarters of voters ultimately rejected (in line with the voting recommendations of all of the major Swiss parties).

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The following discussion reflects, above all, upon the ideas of Joseph Huber, who has emerged as one of the most prominent contemporary proponents of sovereign money. Huber, a German economics professor, was a driving force behind the Swiss initiative, which, despite its failure at the ballot box, was the closest any sovereign money proposal has come to being implemented, at least in the recent past. In the English-speaking world, the UK-based Positive Money campaign group, whose proposals are based on Huber’s, promotes the idea (Dyson et al. 2016). The sovereign money concept rests on a single, simple, almost selfevidently logical proposal that is hugely problematic from a practical standpoint: that all book money deposited by clients in banks must be held by those banks as central bank money (see Huber 2004; 2014; 2017: 143–95). Private commercial banks would no longer have the capacity to create money by issuing credit, since the creation of money would be a prerogative that only the central bank would enjoy. No longer could promises of payment be traded against one another and used to create new promises that are subsequently treated as if they were ‘actual’ money. Only a strictly delimited quantity of central bank-issued money would be allowed to circulate – even, and especially, in the realm of digital payments. Of course, right now in practical terms bank credit is used as money, as Section 4.1 explained, even though in reality it is merely a drawing right with respect to central bank money. This money is created by commercial banks themselves, through the granting of credit lines to their clients, without the requirement to hold corresponding amounts of central bank money. Naturally, central banks could put an end to this practice by retrospectively withholding the necessary reserves if banks issued unbacked credit. But they do not, not least because, as the latest financial crisis showed all too well, the risk of a collapse in the circulation of money, pulling production and trade down with it, is far too great. This means that central banks effectively have no direct control over the money supply. What they do, instead, is try to keep price levels controlled and stabilised. At first glance, they have been successful at this. Since the 1980s, inflation appears to have been brought under control, and for the moment monetary policymakers fear very low or negative inflation rates much more. However, this impression of success might be a false one, or at least one that warrants closer scrutiny, because only consumer prices (which are used to calculate official inflation rates) have remained stable. Asset prices, on the other hand, have exploded. The

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average value of shares in particular has skyrocketed in a way that beggars any explanation in terms of real economic growth. Financial assets have consistently outgrown gross economic production, with only temporary corrections as the result of the bursting of the so-called dot-com bubble and the great financial crisis of 2008. If, or, as one might surmise, rather when the recent ‘Corona plunge’ of the world’s financial markets will be balanced remains to be seen, however. It is not only sovereign money reformers who blame banks for creating these crises through massive, reckless lending. Libertarian proponents of private currency competition do so as well. The lending that banks engage in is as logical (for them individually) as it is macroeconomically illogical and unsound, and it is to blame, if not for the emergence of ‘casino’ capitalism itself, then at least for its scale. Falling profit rates in the productive sectors of the economy and low interest rates have induced ever more capital to flow into the financial markets. Meanwhile, the financial industry keeps inventing ever new financial services to satisfy capital owners’ expectations of returns, leading to a constant expansion of the aggregate volume of credit. Behind the so-called ‘decoupling’ of financial markets – decoupled because they no longer, or only peripherally, connect with the real financing and insurance needs of traders and businesses – lies a cycle of uncontrolled ‘money’ creation by banks. Absorbed by speculative deal-making, which in turn fuels further speculation, the behaviour of banks was and remains structurally pro-cyclical: for as long as the game goes on, practically unlimited credit is extended, even though the returns that are supposed to enable repayment keep diminishing. After the crash in 2007/8, when many derivatives were suddenly revealed to be utterly worthless, this credit-making business ground to a halt. Long before the latest financial calamity it was already well known that the deflation of such speculative bubbles can subsequently sink real economies (Fisher 1933), because what counts in times of crisis is, suddenly, only central bank money, as the inflated promises of payment suddenly turn into demands for (re)payment. In 2008, the world’s great central banks averted a complete global economic meltdown, but only at the price of such a massive injection of central bank money that the groundwork for the next crisis was already laid by the resolution of the last one. Although the list of reasons for the last massive crisis is long – not least the apparent exhaustion of the capitalist system of production in the core Western economies (Gordon 2012; Teulings and Baldwin 2014) – the

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diagnosis of bubbles as being caused by some defect in the monetary system is compelling. According to Huber and his followers, endogenous money creation is the main culprit. Even without this, speculative exuberance and subsequent deflationary crises could still happen, but the rises and falls would be far less precipitous if the quantity of money were better controlled (or controlled at all). This control is what sovereign money reformers desire. ‘Sovereign’ money means declaring all clients’ demand deposits to be central bank money and ruling that banks can only make loans with money they have either already raised from private savers or borrowed from the sovereign central bank before lending. In this way, banks would become more like what laypeople generally believe them to be: simple intermediaries, which enable their clients to make deposits and payments, channelling one person’s savings into another’s investments. Banks would thus lose their privilege to create book money. Money creation would become the state’s sovereign prerogative. The effective multiplication of state-issued money would cease and the practice of anyone accepting a bank’s promise as being as good as – or the same as – ‘actual’ money would end. Sight deposits could be considered legal tender, but their transferral between banks would be tied to the movement of actual legal tender. For banks and their clients, this would entail no loss or transfer of wealth. No one would have any more or less money than before, with book money being transformed into central bank money. Deposits would remain deposits and debts would remain debts. Only transactions would have to be removed from banks’ balance sheets. But their clients’ debts would no longer count as bank assets. Issuing credit would no longer entail money creation. Naturally, banks could still acquire more money, but this would always have to be central bank money. Apart from when banks borrow from the central bank, which they could continue to do, new money would enter into circulation only if the central bank granted governments more money to use. An expansion of the money supply would only happen when the economy needed it, either because economic activity had grown or because demand in the private sector for money had increased, for instance due to a rising liquidity preference (which even sovereign money reforms could not preclude). Government, or rather parliament, would be free to use any additional money from the central bank to lower taxes or pay off debts. This money would create no inflationary pressure, because the central

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bank, which would continue to be independent – becoming, in fact, an even more autonomous ‘Monetary Authority’, a kind of constitutional ‘fourth estate’ – would only inject money in order to match expected growth or to meet the target rate for inflation. A reduction of the money supply would also be possible, through the government raising taxes or the central bank selling off collateral assets. The goal of monetary policy would still be to stabilise the value of money. Money would become a building block in a state-guaranteed political order in which the forces of supply and demand would ensure a more optimal allocation of resources, not just of goods and services but also of money itself. Central banks would be able to abandon their practice of adjusting the base interest rate, with its limited effectiveness, so that interest rates could ‘finally’, ‘once again’ be nothing other than the market price for money, that is the (ostensible) mechanism for equilibrating demand for credit and the propensity to save (see Section 3.1). Anyone who wished to borrow would have to convince others, through the mediation of the banks and by offering interest, to invest money in them. This goes for the state as well, although, according to the theories of sovereign money reformers, there would be less need for it to borrow, thanks to all expansions of the money supply taking the form of interest-free, open-ended loans from the central bank to the government. But the state would have to pay for this bonanza by guaranteeing the Monetary Authority’s absolute independence. No government could still expect the central bank, for instance, to buy its bonds in cases of need – as the ECB has been doing in practice. Such a fundamental reform could only ever be implemented through legislative fiat. It would fix one fundamental flaw in the present monetary order: its speculative or ‘irrational’ exuberance (in the words of former US Fed chairman Alan Greenspan). Of course, it is necessary to believe that this is the primary problem with money – and not, for instance, money’s political instrumentalisation and the perpetual threat of inflation that results from it – in order to become a believer in sovereign money reform. The diagnosis that our economic system has become even more dysfunctional and susceptible to crises thanks to financialisation, and is perhaps even fundamentally at risk of self-destructing, is accepted even outside the camp of advocates for sovereign money. Few will, no doubt, object to casino capitalism being reined in. But how should sovereign money proposals be assessed? What could be said against them? With Bitcoin, at least, we can draw on some prior experience. While our

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analysis was somewhat hypothetical, it built on trends that are already discernible. Sovereign money reform, by contrast, despite being (technically) quite straightforward, would be a huge gamble – a step into the utter unknown.2 Compared to the gradualism of new and alternative currencies, implementing a sovereign money system would entail a wholesale replacement of the present monetary order. This makes it all the more urgent to think through the potential consequences of such a move (see Weber 2014: 78–82). Notably, both social-democratically minded Keynesians (Flassbeck and Spiecker 2014) and (neo)liberal representatives of the financial industry (Baumberger and Walser 2014) would be right to worry about the restrictions that sovereign money would place on debt issuance. Keynesians – with good reason – are concerned that much higher interest rates would ensue, because under such a system savers would have to become investors. If prospective borrowers need to convince holders of central bank money to lend this money to them – instead of banks doing this through their current, anticipatory modalities – money holders can be expected to demand a much higher rate of interest than those currently in place, because their money would be locked in for the duration of the loan. In fact, in Huber’s vision any term transformation (i.e. short-term deposits being used to finance longer-term loans) at all would be restricted or forbidden. Bank deposits would become, in a sense, shares in loan funds. For savers, their liquidity risk would rise. The risk of banks going bust would dissipate, but would be replaced by the risk of investments failing. Not only would investments have to be much more solidly return-generating than they have been so far, in order to appease savers, but government-funded stimulus programmes would also be more expensive and less feasible. The counterargument presented by sovereign money reformers (Huber 2014) is that low interest rates – and even ones tending towards the negative – have not only failed to bring about real economic growth, but have also fuelled speculation and forced governments into debt, not least by rescuing banks, which can scarcely be denied. Although high interest rates tend to hinder investment, low interest rates do not guaran2.  There appears to have been one such case in history: immediately after being elected president of Argentina in 1946, Juan Perón launched a currency reform that seems to have followed the aforementioned Chicago Plan (see Triffin 1946). Due to most sources about this episode being in Spanish, I have not been able to find out many details about the success or failure of this apparently short-lived experiment.

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tee prosperity. Even worse, as the current impasse demonstrates, under conditions of low or near-zero interest rates, central banks become powerless unless they resort to punishing people for holding money. And even if they opt to do so, it remains unclear how, if at all, negative interest rates might facilitate real investment. The present low, zero and sometimes slightly negative interest rates already have the effect of gradually dispossessing small-time savers and imperilling pension systems. Moreover, it stands to reason that the financial industry would muster stiff resistance, because the introduction of sovereign money would undermine its major business model of primarily creating, rather than acting as an intermediary for, money (Breton and Coudret 2016). If they were not to forego these profits then, by way of compensation, service fees and interest rates would have to rise. Both would, given cross-border competition for clients, probably be infeasible. To evaluate such a scenario – given that it is in Switzerland that sovereign money has thus far come closest to practical implementation (involving, at least, democratic deliberation and rejection) – it is worth thinking through what the effects might have been in the Swiss case, although the scenario would probably not look so different in other places, such as the United Kingdom. Switzerland, like the UK, is a major international financial centre and home to several major banks, such as Credit Suisse and UBS, both of which are global players and would hardly remain passive. Three options appear to be open to banks. First, they could simply give up doing any business at all in Switzerland and move abroad. Second, they could offer accounts to their clients in foreign currencies and give them better deals with higher interest rates (leaving aside, for now, exchange rate risks, which will be dealt with shortly). Even today it is not unheard of for private homebuyers to take out loans in a foreign currency. Third, and most important, banks would probably invent new money-like instruments for their clients to use in borrowing. Monetary history, with its perennial battles between the state and private actors to define and control what money is, would predict just this (Davies 2002). Just as entrepreneurially minded individuals could scarcely be prevented from issuing Bitcoin-denominated loans without using ‘actual’ Bitcoin, issuing them instead as drawing rights on the digital currency, so too could banks scarcely be kept from offering their clients loans in ‘book money 2.0’, as long as third parties were willing to accept this as a form of payment. These loans could be exchanged for sovereign money

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whenever needed, or under particular, specified conditions. In principle, no one would even have to invent a new book money; other assets, such as shares in money market funds, could simply be used as money. While this could potentially entail greater liquidity risk for the actors – the banks and their clients – as long as borrowing in such monetary surrogates were substantially cheaper than borrowing actual money they would be expected to do so. Given this potential for evasion, new restrictions would then have to be conceived and implemented. Banks could scarcely be stopped from moving abroad, but foreign currency dealings and the use of surrogate monies could be legally obstructed or even prosecuted as a crime. But even if there was no resistance or attempt at circumvention, sovereign money reforms would still force regulators to work much harder. Not only would central banks have to be upgraded to the supreme Monetary Authority, they would also be confronted with far more administrative work. They would still have to monitor price levels and – as orthodox monetarists already want – calibrate the money supply in order to exactly match the economy’s needs. But how large, exactly, is the demand for new money? How many investments will succeed in the future and of which kinds? Which ones will fail? Central banks face a dual problem here, both epistemological and ontological. The epistemological problem is that one single central organ would face much greater challenges in estimating the demand for new money – that is, credit – when compared with a multitude of decentralised market actors (Hayek 2002; Masuch 1981). Although it is true that banks tend to overestimate the profitability of investments in boom times (and to underestimate them during a bust), a locally grounded, well-informed bank is likely to make better guesses than a spatially and functionally far-removed bureaucracy. The ontological problem is that, on the level of the economy as a whole, all investments need to be pre-financed before the rewards can be reaped. Before newly produced goods can be sold and profits made, machines must be bought, materials sourced, wages paid and so on. Only afterwards does it become clear whether the calculus was correct and the investment profitable. Yet, a priori it is not only unknown, but also unknowable, how many investments, and of what kind, will generate growth. Central planning is thus liable to produce serious misallocations. Moreover, political conflicts between the government and parliament on one side, and the Monetary Authority on the other, would inevitably

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arise – assuming, for a moment, that reality could ever even correspond to this ideal of true constitutional separation. For not only would the government’s debt-making capacity be severely circumscribed (as the sovereign money reformers want) but also, whenever there was a monetary overhang, it would be the executive branch that would have to raise taxes as directed by the Monetary Authority. Parliament’s budgetary sovereignty would be a thing of the past. Rather than the central bank being at risk of being instrumentalised by elected economic and social policymakers, independent central bankers would now control all fiscal policy. The sorts of tensions that would arise can be anticipated from looking at the externally imposed austerity programmes that some euro crisis countries have been subject to (Scharpf 2013). Of course, an independent domestic central bank could seek to gain citizens’ trust precisely by opposing parliament and the executive, but through this it would become a political actor in its own right, albeit without any accountability. As far as democratic principles go, the establishment of such a Monetary Authority would be, at the very least, deeply disconcerting. Finally, it is also very likely that any state that adopted a sovereign money system would sooner or later have to place controls on international capital mobility. As domestic borrowers fled abroad, foreign savers would be attracted to this ‘safe’ sovereign money, especially in a lowgrowth, low-interest era. The growing demand from abroad for sovereign money would, however, push up the value of the currency, impeding the country’s ability to export anything. To counter such upward pressure, the central bank could (or would have to) print domestic money to sell in exchange for foreign currency. This would, however, increase the money supply without any corresponding domestic economic growth. Whether, and to what extent, this monetary overhang – which would not initially affect domestic demand thanks to being held in savings – could be ‘sterilised’ (as experts call it) is unclear. The confidence in a currency that has been inflated in order to counter its upward buoyancy on international money markets would at some point wane, and buyers’ fears of having fallen for a mirage would become very real. Such dynamics have been seen in the case of the dollar (see Eichengreen 2008), the only difference being that its status as the key international reference currency does not (yet) appear to be under threat. The currencies of smaller countries can afford themselves no such luxury. Even without sovereign money, Swiss central bankers continually find themselves facing the problem of, on the one hand having to

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counteract the Swiss franc’s inexorable rise, while on the other hand simultaneously devaluing Switzerland as a financial centre. Had the Swiss voted in favour of sovereign money, this dilemma would have been exacerbated. For foreigners, buying Swiss francs as assets would have become even more attractive, and capital controls and (even lower) negative interest rates would have necessarily followed suit. All of this would be the logical consequence of yielding to the obsessive focus of sovereign money reformers on controlling the money supply alone, as opposed to remaining cognisant of the economy’s wider needs, as is presently the case with even very independent central banks. If sovereign money were implemented at some other time or in some other place, things would not necessarily have to unfold in this way. Predictions are as uncertain as the future itself, and unforeseen circumstances or unconsidered factors could play into the hands of some sovereign money reforms rather than complicating them. But any sovereign money reform would always be a highly uncertain experiment. It is likely that it would be successful to some extent on its own terms, particularly in ‘buying’ victory over dangerous speculation – but at the steep price of economic stagnation. For some critics of growth this may even be a desirable outcome, but this is not the case for most sovereign money reformers. Some of them are well aware of these concerns and criticisms and have, laudably, engaged with them in detailed and sophisticated ways. Yet it remains striking and – for other proponents of the state’s re-establishing control over the monetary system – quite irritating that sovereign money reformers generally present sovereign money as a merely technical project. Correspondingly – and here they are just as misguided as proponents of currency competition – their analysis of money focuses wholly on money’s function as a means of exchange, while neglecting its capacity to act as a store of wealth. This should not be taken to mean that there is such a thing as intrinsically valuable money or that one could be implemented at will, as the ‘sovereign monetarists’ imagine. It does mean that money is always more than just a means of exchange, being rather the reified symbol of wealth itself and thus of the power to act and choose, even when it remains open – or precisely, so that it can remain open – what that future choice will be. Yet, beyond questions of what money reforms might be implemented, or why certain ones should not be, such debates over the future of money have great value. Their greatest value is that they reveal money

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more clearly for what it really is: never a neutral institution, always a political question. 4.4. CENTRAL BANK INDEPENDENCE AND THE INESCAPABLE POLITICALITY OF MONEY Considering how many doubts and objections can be raised against Bitcoin and sovereign money proposals – or, more generally speaking, against radically marketising money and, conversely, against all-out nationalisation – it would appear that the present monetary system, which effectively blends private market and state hierarchical attributes, could not simply be replaced with a wholly ‘new’ one. There is no doubt that it needs reform. But all proposals for its wholesale replacement bring new problems (as well as making old ones reappear) in the place of those that ‘free’ or ‘sovereign’ monies would, purportedly, resolve. Is it perhaps not better to stick with the devil we know? Just like past gold-backed currencies, Bitcoin is a deflationary currency that ruthlessly privileges money holders while hindering credit creation and, with it, investment. Moreover, Bitcoin would not put financial intermediaries out of business, but would rather open up new fields of activity to them. Even Bitcoin could not work without regulation and services rendered by (more or less) neutral third parties. Like Bitcoin, sovereign money would hinder entrepreneurial activity: not because the money supply would no longer be created or expanded by lending, but because the enhanced need for monetary planning and savers’ fears of losses would get in the way of any reasonably demand-oriented supply of credit. Furthermore, sovereign money would require any country that introduced it to close itself off to all other countries and their currencies. And still the development and usage of new ‘non-book money’ surrogates for money could scarcely be prevented. In the case of Bitcoin, a reinvigorated hierarchy of monies would come into being. In the case of sovereign money, the emergence of new private currencies could not be prevented. With Bitcoin, the reinvention of a central bank of sorts would be inevitable, even though that was precisely what it was meant to do away with. With sovereign money, the central bank would probably never manage to meet all of society’s expectations and, more worryingly, as the Monetary Authority it would enter into conflict with democratic mandates and elected leaders.

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Against this backdrop, the final section in this chapter is dedicated to a closer examination of the role of central banks in our current monetary system. As we will see, their de jure – and in Organisation for Economic Co-operation and Development (OECD) countries usually also de facto – independence from government is more problematic and less selfevident than the business press, orthodox economic literature or even political agents themselves would have us believe. Hence, any legal or practical constraint on this independence would already in itself be a major act of monetary reform. Historically, central banks emerged to finance governments. This means their original mission was one that is today, as we will see shortly, regarded as deeply illegitimate, notwithstanding the fact that it has, again and again, informed their behaviour in practice – and not just since the 2008 financial crisis (cf. Goodhart et al. 1994; Ugolino 2011). Even before the first ‘proper’ central bank was founded in England in the late 1600s, throughout the Middle Ages private banks supplied credit to financially strapped nobles and city governments. What made the founding of the Bank of England, which remained a private bank until the twentieth century, so unique was its bringing together of a number of private bankers explicitly for the purpose of financing the British crown, whose tax revenues underwrote its borrowing. It also gave bankers a uniquely privileged position in marketing the government’s debt, in the form of bank notes (Ingham 2004: 107–33). This notion of ‘government’ money, or rather of private, tax-backed and thereby ‘national’ and widely accepted ‘bank notes’ – the idea of a money whose value would be backed by the nation’s taxes – became a model that was emulated around the world. Still, the use of paper banknotes only became commonplace in the Western world in the nineteenth century, and their convertibility (in principle) into gold or silver only came to an end in the twentieth century. From the start, a special relationship connected governments and ‘national’ banks. In exchange for banks gaining, among other privileges, the erstwhile sovereign prerogative of minting coinage – which now takes the form of a right to print ‘government’ banknotes – states not only acquired cheaper access to financing than ‘the market’ would offer; they were also able, at least informally, to align the interests of banks more closely with their own. Thanks to their privileged position, national banks generally grew to become the best-capitalised banks in the country and creditors to other, smaller banks, eventually also

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becoming the booking houses for the entire banking system. The money issued by the central bank became the national money, even without the state ever having legally declared its debt chits to be a currency. For a while, borrowing in currency issued by other banks remained possible and relatively common, but doubts about the solvency of any particular bank could lead depositors to shift their deposits into other monies that were presumed to be more stable, thereby pushing a – possibly not even ‘really’ insolvent – bank into insolvency. The most ‘solid’ currency, as a general rule, was the one that the national bank issued, not only because it carried the promise that its notes could be exchanged on demand for a fixed quantity of precious metal, but also because its money was the most widely used money of account, acting as a standard for calculating the value of the different currencies in circulation. The primacy of the national bank’s money over the promises of payment, or ‘book’ money, issued by regular banks was thus hardly the invention of some crafty twentieth-century banker. It was a practically inevitable outcome of the competition among currencies that preceded it (Goodhart 1988: 103–4). The fact that this competition was from the outset never completely fair, and that states gave ‘their’ money a certain head start, eventually declaring it to be the (only) legal tender, changes nothing about the fact that any monetary ‘order’ governing competing currencies will tend towards a hierarchical outcome in which a single ‘proper’ money ends up at the apex. From this, it becomes clear why another job eventually fell to central banks, namely to be ready to act as a lender of last resort in the event of a general banking crisis and drying up of liquidity. In the 2008 financial crisis – as with every major crisis since the Second World War – central banks stepped in when the credit or speculation bubble burst and all actors sought to preserve their own solvency by exchanging less liquid assets for more liquid ones (and thereby, of course, precipitating a further collapse in the value of the less liquid assets; see Section 3.2). Whenever all actors simultaneously seek a safe haven in ‘proper’ money, and thereby clear the market of it, the central bank ‘must’ flood the market with fresh money to stabilise the banking sector and, along with it, the real economy by averting a general scarcity of means of payment. Since the late nineteenth century this has been recognised as one of the key jobs of any national bank (Bagehot 1873), which does not, of course, mean that they have always done it well. The annals of economic history still present as a prime negative example the great economic crisis of the

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late 1920s, when central banks responded to an international contraction of credit by minimising their own exposure rather than extending emergency loans (Friedman and Schwartz 1963: 299–419). That this mistake ought never to be allowed to recur has been the conventional wisdom ever since. It is evident that a private – that is, for-profit – central bank would be a much more hesitant lender of last resort, whereas a state-owned central bank may be given a legal or political duty to do so. Backed by the state, the risks and potential losses that inhere in massive emergency lending – and in banking crises they are always immense – do not need to be borne by a small number of private bankers arrayed behind the national bank, but rather can be passed on to society at large, and ultimately the taxpayer. Indeed, the nationalisation of Western central banks during or after the Second World War is best understood in light of their failure to act effectively during the Great Depression.3 Aside from genuine financial crises and finance-induced economic crises, certain ‘systemic’ reasons also account for the nationalisation of, or at least granting of special legal status to, central banks (Goodhart 1988, 103f.). Operating as just one private bank among others, a central bank would have little incentive not to partake in the (highly profitable) inflation of the volume of credit. By making it part of the state, and thereby ‘breaking’ its profit motive, the central bank can be made instead to monitor credit development and, by being equipped with the right powers, even to prevent crises before they occur. Monitoring and regulating the banking system thus falls to central banks as an almost ‘natural’ or innate responsibility. Even just this cursory, generic sketch of the development of central banks already suggests an extended list of things that central banks (should) do, beginning with funding states or at least helping them to fund themselves. They support them, for instance, through cheap or targeted credit to particular sectors that correspond to policy objectives. For England in the nineteenth century and the US in the twentieth century (then in competition with England) it was in the national interest to promote their domestic financial sectors as centres of global capital markets, with the support of their central banks (Epstein 2005: 10–12). Central banks function as the banks’ bank, with respect to both the refi3.  In fairness to them, some private central banks have already functioned as lenders of last resort, because thanks to their proximity to the state they always carried ultimate responsibility for the financial system and treated their potential losses as less important than the potentially much larger (opportunity) costs resulting from ‘everything’ collapsing.

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nancing of banks and the management of payments between banks. They oversee and – formally or informally – regulate the banking system, as well as acting as lender of last resort. As Sections 4.1–4.3 clarified, they have the task of making money with a relatively stable (or in fact slightly decreasing) value available to market actors. This is important because only (at least reasonably) stable money makes the calculation of future costs and profits possible, and through this the accumulation of capital stock for investment and the capacity to hold savings or working capital in expectation of unexpected or still undecided needs. The money that national banks issued already had stable value by virtue of its coming from the single strongest bank and therefore being most in demand, but it was also stable as a result of its being backed by precious metal. But tying the value of money to gold also brought problems that were evident even before many states became (social) democracies. As a natural resource, gold is available only in limited quantities. While this natural scarcity guaranteed that only as many money claims could be made as there was gold available, it also restricted the potentially available volume of credit (not unlike the quantitative limits on Bitcoin). If, as sovereign money proponents seek to achieve, credit could only ever be issued using fully gold-backed money, this would severely restrict the credit supply. While that was not fully true for the classic gold standard era, throughout the nineteenth and early twentieth centuries the elasticity of credit volumes remained relatively low and constraints could only be overcome by large discoveries of gold overseas, which allowed for a much-awaited expansion of the money supply (Eichengreen 2008: 6–42). Neither the discovery of gold nor economic growth benefited nations equally. In effect, the value of a national currency, which was measured not only against domestic gold reserves but also foreign exchange rates, was stabilised by the interest rate. Just like today, in order to stabilise the exchange rates, the central bank could raise the rate at which it was willing to extend credit to (other) commercial banks, and thereby reduce the quantity of its banknotes in circulation – and vice versa. However, as monetary decision makers soon discovered, drastic increases in the interest rate, which may have been necessary to stabilise the currency’s domestic or international value, depressed the real economy. For this reason, a mix of interest rate policy and open market transactions (purchase and sale of assets and foreign currencies to manipulate rates) prevailed in practice. In other words, in the era of the gold standard,

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with its supposedly mechanistic rules, today’s instruments of modern monetary policy were invented and put to use in quite flexible ways. Yet our list of the responsibilities of central banks still needs to be filled out with the function of fighting ‘real’ inflation, which has, since the 1980s, been seen as their primary, if not sole, task (Bowman et al. 2013: 459–61). The prominence and dominance of this activity would surprise anyone who studied central banks in the past. It certainly cannot readily be explained by anything like a sudden discovery of economic laws of motion. Rather, political choices, epistemic fashions, fictions of rationality and not least the power of financial markets to pressure and threaten states lie behind the narrow focusing of central banks’ work on this issue. Inasmuch as central banks have always been concerned with currency stability, fighting inflation has always been part of their work. However, it became more relevant in the twentieth century. The two great periods of post-war inflation in Germany in particular (1918–23 and 1945–8) deeply impressed themselves on the collective consciousness of entire generations (Pierenkemper 1998; Bethge et al. 2002). Yet of even greater importance for the political shift in central banking were the double-digit inflation rates that other Western countries saw in the 1970s. In the UK, the rate of inflation surpassed 25 per cent in 1975. Some explained the (re)appearance of inflation in the twentieth century – from antiquity onwards there had always been periods of massive monetary value loss – as the direct result of the spread of (social) democracy in Western societies and the subsequent abandonment of the gold standard (see Hirsch and Goldthorpe 1978). The expansion of suffrage over the course of the twentieth century, competition between economic systems (starting with the Russian Revolution), the growth of welfare states, the relative willingness of capital to compromise after fascism and two world wars and the transitory hegemony of Keynesianism – ‘We are all Keynesians now’, as even Milton Friedman declared in the mid-1960s4 – all played a part. Unlike in the nineteenth century, monetary and economic policymaking was not geared exclusively towards underwriting the value of capital, but also towards satisfying wage workers’ material needs and expectations. It is hardly surprising that state-dominated and state-owned central banks would use their new-found freedom, after escaping the corset of the gold standard and exchange rate concerns, to work towards a general class compromise. And until the early 1970s, this arrangement between cap4.  Time Magazine, 31 December 1965.

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italism and democracy appeared to work. Rising wages, more generous social transfers and public economic stimulus programmes contributed to the ‘golden age’ of post-war economic development. Falling growth rates in the 1970s led, however, to an inflationary and, in turn, growth-impeding monetary overhang. There is thus some merit in the claim that inflation in the 1970s was, broadly speaking, driven by social democracy. However, it is equally true that the slowdown in growth reflected more than just the ‘excessive’ generosity of the welfare state and overblown Keynesian stimuli, or more generally an innate fiscal irresponsibility on the part of democratic governments (Pollard 1984). The equation ‘(social) democracy = inflation’ has gained widespread currency among orthodox economists, and perhaps might have been true for the 1970s. This is not the case, however, for other inflationary episodes, such as the two major German crises (Holtfrerich 1986; Brackmann 1993). These were caused, or at least brought about by the war expenses that preceded them: in the case of the Weimar Republic, by the burden of reparations imposed on the German Reich; and after the end of the Second World War, the collapse of state order. Nevertheless, in the literature the claim that inflation generally is caused by too close a relationship between central banks and their governments has become very common. Because they must appease voters, the narrative holds, governments always push central banks to be more lax with money rather than only doing what preserves the stability of the currency’s value. Hence, anyone who wants to avoid inflation – in the interests of the economy and thus, supposedly, of the wider populace – should want central banks to be as insulated as possible from politics and to have full freedom and independence in determining their monetary policy (Nordhaus 1975). Before 1990, only the United States Fed, the Swiss National Bank and the German Bundesbank were formally independent, and none of them was able, despite their independence, to fully prevent inflation – just as little as the independent German Reichsbank in the 1920s was capable of reining in hyperinflation (Holtfrerich 1988). After 1990, however, one central bank after another, in industrialised Western countries, the developing world and the new states of the former Eastern bloc, was declared independent. And just as predicted by orthodox central banking theory, at least in the case of the OECD countries, the spectre of inflation was banished.

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Leaving aside the questionable assumption that one and the same central banking template naturally fits the needs of the wide variety of existing economic and cultural environments, or that formal independence always means genuine autonomy, there are serious empirical reasons to doubt that the independence of central banks was the main reason for the disappearance of inflation and, at least in the West, a sustained period of moderate economic growth. First, inflation rates had already been falling in many places before central banks became independent. The prehistory of the European monetary union is the clearest case in point. Second, as comparative studies show, in the longer run countries with independent central banks do not perform better economically than others. Third, even inflation rates of several per cent a year do not entail less economic growth (McNamara 2002: 56–9). So if the evidence for the necessity, or even mere utility, of central bank independence is so weak, why then has it so often been invoked? In order to begin trying to answer this question, we can note how the discourse affirming the independence of central banks – or to be more precise, their eternal vigilance against inflation above all – obscures the fact that this is just one potential monetary policy goal among many, even if it is a sensible one. Moreover, it also obscures the fact that the pursuit of this goal does not, in fact, benefit all parts of society equally. While most monetary policy actors are well aware of this, the economics literature usually wholly omits or quickly glosses over the fact that a stable money – as useful as it may be for making intertemporal price comparisons and rational calculus more possible – clearly benefits capital owners and lenders. Borrowers, on the other hand, have good reason to want their debt burdens to be lessened by money gradually losing its value. While wage earners, pensioners and recipients of social transfer payments are, like capital owners, often fixated on the stability of money’s purchasing power, for them a rebalancing is possible via periodic adjustments. Capital stocks, however, are relentlessly eaten up by inflation. Monetary policy – and the politics of money – is therefore anything but neutral. It inevitably favours some social groups, or classes, over others (Kirshner 2003; Mann 2013) – at least (or especially) when they are defined less by their position in the production process and more by their position in credit relations. The entrepreneur who borrows in order to fund the growth of his company is also a debtor, while minor savers and investors who hold shares in funds that invest in corporate bonds are, on the other hand, effectively lenders.

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That this situation results in a blurring of the front lines between different classes and conflicting interests, even within one and the same actor, is evident (Deutschmann 2010). But it changes nothing about the basic fact that even independent monetary policymaking has distributional effects. Value-retaining currencies and interest rates set well above inflation rates are objectively in the best interest of ‘finance’, while interest rates that are diminished or ‘eaten up’ by inflation favour investment, at least up to a point (although, as Keynesians are prone to forget, they do not necessarily make investments more profitable or sensible). It also bears mentioning that governments are among the most important borrowers, while (especially in the US) people have increasingly taken to ‘financing’ certain lifestyles or even basic needs with debt. Low inflation thus serves ‘capitalists’, first and foremost, and can hurt others. While there may be good political-economic rationales for desiring such an outcome, the notion of ‘independence’ should fool no one about the fact that ‘independent’ monetary policy is, nonetheless, always a politics of and with money. In light of the modest, or at least unverifiable, success of independent central banking in terms of its socio-economic outcomes, one might well conclude that such an insistence on the overriding importance of keeping the value of money stable is just the outward face of the takeover of monetary politics by the interests of financial capital, cloaked behind the veil of science. Some evidence can be marshalled in support of this assertion (Posen 1993). The majority of today’s ‘independent’ central bankers began their careers either in banking and finance or in the politically and ideologically neoliberal world of economics departments. Such choices of personnel are usually explained as necessary for ensuring the requisite expertise. But the insistence on purported objectivity not only prevents more attention being paid to the distribution of wealth and opportunities by unelected monetary bodies in Washington, Frankfurt and elsewhere; it hides the fact that these decisions are being made there at all. The question remains, of course, why even (or especially) democratic states should maintain such a façade, even when their governments are not dominated by economically liberal or capital-friendly factions. At least part of the answer must lie in how states managed the end of the post-war compromise and the fallout of the neoliberal turn since the 1980s. Driven in part, though not exclusively, by conscious political choices, the globalisation of financial markets and the international

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competition for capital flows drove states to focus increasingly on their attractiveness for ‘global finance’, both as borrowers and as places to do business. Among the things they can do to increase their competitiveness is to enshrine central bank independence, which promises the international ‘investor community’ that a particular jurisdiction will offer their invested capital a safe and stable haven. At the same time, one should be wary – as I have sought to be, by enclosing ‘financial markets’ and ‘finance’ in scare quotes – of simply explaining away the universalised paradigm of central bank independence as a successful capitalist plot or coup. The interests of this group and its power to pursue them are, of course, very real and have met with success. But the connections and causation are, in reality, too complex to be simply a grand design foisted upon society by some hegemonic cabal. The hegemony is real – and this, following Kathleen McNamara (2002), is the second part of the answer to the question of why the paradigm became dominant – but it is as much the result of unplanned, yet from some point onward self-sustaining, institutionalisation processes as of political strategies. Central bank independence being the sine qua non of a biased yet ultimately ‘correct’ monetary policy is an organisational and epistemic ‘rationality myth’. As an axiomatic truth, it eludes falsification. Thus, precisely because of the dearth (or impossibility) of empirical evidence ever proving or disproving what works best, central bank independence was able to become the paradigm of their organisational design. There can be no doubt that financial-capitalist interests are better served by independent central banks than by politically accountable ones. It is also evident that certain states have benefited from financialised capitalism – including the US, UK and with some qualifications the European Union too – and have promoted central bank independence, including by using their influence in supranational bodies such as the World Bank and the International Monetary Fund. The thesis that the entire world has had this model coercively foisted upon it overlooks, however, how particular organisational forms become the standard less because of their functional effectiveness than because of processes of emulation, or mimesis. Because there is (and can be) no single indubitable ‘best practice’, one particular praxis – in this case, one particular form of institutional design – is often set up as the standard of acceptable or ‘correct’ behaviour. Specifically, epistemic communities in science, media and politics may codify and enshrine it, convincing the public (and themselves) of the possibility of monetary systems

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being rationally governed and controlled. Central bank independence – assuming the formal guarantee is always respected – not only constrains the choices governments can make, but also relieves them of some of the weight of decisions that would be hard to sell to voters. In much the same way, ‘scientisation’, the focus on just one policy objective and the following of rules, relieves central bankers of much of their burden of responsibility. This is the relief that the rationality myth regarding a single ‘correct’ politics of money brings. But to conclude the chapter by suggesting that the current myth of central banks needing to be independent could simply be replaced by another, better one – perhaps one that served wider interests than just those of financial capital – would be too hasty, not least because a certain mythical element is always needed to enable actors to act. Even so, it makes a profound difference whether one outright denies the ‘politicality’ of money, or seeks to manage it institutionally, at the risk, of course, of enshrining political rather than scientific recipes. As we have seen, neither competition between different currencies nor sovereign money offers a market- or capitalism-compatible alternative to our present monetary order, or even just a remedy for its seemingly intrinsic problems. But this surely does not mean that the monetary system could not, or should never, be reformed. On the contrary, we must keep a lookout for possible reforms that could regulate and rein in commercial banking (and, more broadly, financial capital), while at the same time working to democratise central banks (rather than just subordinating them to finance ministries), all while leaving the inevitable hierarchy inherent in our fractional monetary system intact (Mehrling 2013). I shall limit myself to discussing a few proposals that could define a new politics of central banking, letting them retain autonomy while not leaving them politically unaccountable (see Stiglitz 1998: 215–24; Dutzler 2002: 513–22; Bowman et al. 2013: 479–87). The rationale for, and goal of, any democratisation of central banking would be to better account for the multiplicity of its goals and the potential contradictions between them. Keeping prices and the value of money stable is, without a doubt, one of central banking’s key tasks. But determining when inflation actually stands in the way of macroeconomic development, as well as what importance – or even priority – should be attached to other aims, for instance promoting investment or tackling unemployment (which are part of the Fed’s mandate even today): these are hardly technical or politically neutral issues. Even the ECB’s statutes,

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which make it supposedly the world’s most ‘independent’ central bank, hold that it should also support the European Community’s general economic development as much as possible, ‘without prejudice to the primary objective of price stability’ (Article 1.2 of the ECB/2000/7 ‘Guideline on monetary policy instruments and procedures of the Eurosystem’). Although the wording of this statute clearly gives priority to price stability – which, as the Fed shows, is not inevitable – it leaves a fair amount of room for interpretation and debate once the primary goal can be said to have been reached or, conversely, when the pursuit of broader economic goals begins to interfere with it. For the sake of efficiency, it might be easiest to let central banks themselves decide what instruments to use in pursuit of their objectives. But why not let society’s elected representatives or bodies decide on the objectives to be prioritised or pursued in the first place? If this happened haphazardly or ad hoc, an inconsistent monetary policy might be the outcome. But why should there not be a formal consultation process between parliament and the central bank, at regular intervals, in which changes to monetary policy goals would be debated and decided? And even if it were true that inflation is likelier in democratic than in undemocratic polities – a claim for which, nota bene, no proof exists – it is hardly evident that a ‘democratically determined rate of inflation’ would be any less legitimate than the (undemocratic) privilege that is presently given to the interests of capital owners. The case for constitutionally enshrined monetary policy goals, such as those contained in the EU treaties, which are practically impervious to change, is unconvincing, particularly in light of the present monetary-political impasse. Nothing demonstrates more clearly than the experiences of the last ten years that circumstances change and that fighting inflation is now hardly the only, or even the main, problem. Central banks, above all the ECB, nowadays rather fear deflation, and thus try to stimulate private borrowing and spending. On the other hand and notwithstanding the official rationale of not interfering with public finance, the ‘independent’ central banks effectively long ago started to buy public debt to support politician’s efforts to stimulate the economy and at the same time to preserve the creditworthiness of the state(s). Central bank independence also entails that governments cannot or can only occasionally influence their choice of directors. While they must be accountable to the public and subject to parliamentary oversight, they ought not to be removable at will. Continuity of leadership and a

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modicum of policy consistency make perfect sense. But what objection could reasonably be made against staffing the boards of central banks, not just with people from banking, finance and academia, but also with representatives – for instance – of trade unions, religious bodies, the (public) pension system and savers and small investors, thus empowering them to shape the decisions and strategic direction of monetary policy in the wider public interest? Without expertise, the practical work of policymaking would be shoddy, but experts, too, are fallible and have their own political biases. Economic modelling (just like modelling in the social sciences as a whole) is not free from ideology and its assumptions and results are contestable. The neoliberal ‘consensus’ needs to be undone. One conceivable way to do so would be to complement the operational leadership of central banks with supervisory boards whose members would be elected from (or by) parliament. In any case, the goal would be to make central banks more sensitive to the needs and demands of wider sections of the population, by broadening their decision-making personnel. Ministers and secretaries, too, are not always experts, and not all experts make good ministers – so why should the directorship of central banks be any different? Last, but not least, a proposal for the ECB, in its specifically European framework, is in order. A central bank must be accountable to and responsible for a single political community. The ECB is not even formally accountable to the European Council, let alone to the European Parliament. It gains its legitimacy from the European treaties, which were, of course, at one point unanimously ratified by the elected governments of the member countries. But due to the unanimity condition, they are very hard to change and therefore practically insulated from any possibility of democratic alteration. Yet the ECB also gains legitimacy from successfully fulfilling not only its formal commitment to price stability, but, in practice, also from its success at realising the broader goal of enhancing the general economic welfare of member countries (Scharpf 2013; Streeck 2015). Especially since the euro crisis, this ‘success’ has been very unequally distributed, not only because the economic performance of countries in the eurozone has (always) varied to a great extent, but also because the ECB’s unitary monetary policy (particularly the single interest rate) made the acquisition of debt far too easy, in the past, for the ‘South’ while tending to make investment harder for the ‘North’. The ECB’s performance has therefore been criticised in both regions. The tragic irony of the situation is that, for years now, the ECB has gone above

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and beyond its formal mandate of stabilising prices, not least to remedy the effects of its own uniform, Europe-wide interest rate through the massive purchase of ‘Southern’ government bonds. If Europeans wish to retain their monetary union there will be no way to avoid democratising its monetary policy and, more broadly, expanding the monetary union into a real political union. Otherwise the euro threatens to tear Europe apart rather than unite it.

5 Money and Society

5.1. ALIENATION AND FREEDOM We can trace the origins of money back to prehistory. In the absence of any written records it would be an exaggeration to say that criticisms of money are as old as money itself, but at least since Greek antiquity the critiques have followed money like a shadow (Seaford 2004: 149–71). Aristotle, for instance, criticised the use of money for making more money rather than to simply facilitate goods exchange. The major book religions all condemn charging interest full stop or, at the very least charging it on money lent to ‘one’s brethren’ (Nelson 1949/1969; Werner 1997; Kloft 1997). Mesopotamian debt jubilees, too, already contained an implicit critique of interest. Reflecting its own economic practices, as well as pressure from changing circumstances, the medieval Christian church gradually revised and abandoned its dogmatically ‘correct’ condemnation of the money business (Le Goff 1988). Yet supposedly heterodox and heretical movements, from medieval mendicant orders to the (early) teachings of Martin Luther and Thomas Müntzer and twentieth-century liberation theology, again condemned the worship of money, the profit drive and the existence of finance for its own sake. Despite the relatively marginal position of economic (and especially monetary) thinking in philosophy, critiques of money appear again and again throughout the history of philosophy (Shell 1982). Perhaps unsurprisingly, secular critiques of money only flourished in the nineteenth century, against the backdrop of the ever greater monetisation and marketisation of livelihoods and lifestyles, which had previously been lived in a traditional way and without the use of money. The universalisation of the wage labour relationship was emblematic for how ever greater numbers of people found themselves having to earn money in order to survive. Karl Marx was hardly the only critic of this transformation, but he was certainly among its most eloquent. A world

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in which – although perhaps not quite everything – certainly far too much was for sale struck him as twisted and distorted. [That] which money can buy […] am I myself, the possessor of the money. The extent of the power of [my] money is the extent of my power. […] Thus, what I am and am capable of is by no means determined by my individuality. I am ugly, but I can buy for myself the most beautiful of women. Therefore I am not ugly, for the effect of ugliness – its deterrent power – is nullified by money. […] I am bad, dishonest, unscrupulous, stupid; but money is honored, and hence its possessor. Money is the supreme good, therefore its possessor is good. Money, besides, saves me the trouble of being dishonest: I am therefore presumed honest. I am brainless, but money is the real brain of all things and how then should its possessor be brainless?’ (Marx 1844/2010a: 324) But not only is it that ‘[money] makes contradictions embrace’ (Marx 1844/2010a: 326); money also alienates human beings from their humanity, it takes away from them that which makes them human and subjugates them to an alien power – or rather, a power that they have themselves created but have come to experience as alien. The essence of money is not, in the first place, that property is alienated in it, but that the mediating activity or movement, the human, social act by which man’s products mutually complement one another, is estranged from man and becomes the attribute of money, a material thing outside man. […] [I]nstead of man himself being the mediator for man – man regards his will, his activity and his relation to other men as a power independent of him and them. […] It is clear that this mediator now becomes a real God, for the mediator is the real power over what it mediates to me. Its cult becomes an end in itself. (Marx 1844/2010b: 212) For the young Marx, a human relation was a personal one, one in which the parties involved exchanged items or the products of their labour, not for the sake of acquiring similar objects in return but in order to satisfy each other’s needs. Marx held that this – and not using or consuming a product – was humanity’s primary and true desire. What Marx proposes here as the measure of humanity is not the often agonistic world of gift

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exchange (see Sections 2.1–2.2), but apparently something more like a loving or caring relationship. In love, partners may find fulfilment in complementing and completing each another, in gifting themselves to each other. The same might even be true of friendship. But in the majority of relationships, people are necessarily somewhat less passionate and exclusive. This does not only apply to monetised societies, in which others are ostensibly reduced to the status of animate objects or mere tools through which to obtain satisfaction. Pre-monetary societies, too, were far from idyllic, loving communities.1 Only in modern societies, well acquainted with the use of money, does the ideal of romantic love rise to the fore (Luhmann 1986). Moreover, on the whole there is no evidence for modern, monetised societies as a whole being any less moral than traditional societies (Elwert 1991). The opposite may even be true, as only money allows markets to emerge from simple goods exchange (see Section 1.1), enabling man ‘to build a world […] without conflict and mutual repression, to possess values whose acquisition and enjoyment by one person does not exclude that of another, but opens the door a thousand times for him to acquire such values as well’ (Simmel 2005: 291). Just as gift exchange enabled peace and the forging of alliances between collectives that were otherwise inimical to each other in their striving for self-assertion, so too does goods exchange, as ‘evidence of the greatest progress that mankind could have made’ (Simmel 2005: 291), enable the miracle of one person’s interests being served by serving those of others. Of course, doux commerce depends on conditions that, on its own, it can never guarantee, while markets can be dysfunctional or even ‘toxic’ (Satz 2010), but that hardly means that we should reject markets instead of ‘merely’ regulating them. Notwithstanding these provisos, one can hardly deny that for the modern world – meaning for us – money has become something of a life-giving elixir that we need almost as much as we need air to breathe. Just consider to what extent one’s ability to participate in the economy (and not just in the economy) depends on money (see Section 3.1 and 5.2). Consider too how the idea of ‘rational’ choice, whether expressed 1.  Marx hedges his bets in this respect. Although the theme of alienation never completely disappears, it grows more marginal in his later works. In Capital, it reappears under the heading ‘The Fetishism of Commodities and the Secret thereof ’ (Marx 1906: 81–96). However, his critique no longer bears on money alienating man from his nature, but rather on the naturalisation of capitalism. This critique was taken further by Georg Lukács (1923/1968), albeit in ignorance of Marx’s early writings, which were rediscovered only later.

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narrowly in monetary terms or more broadly in terms of the endless comparative calculus of weighing alternative actions against each other, holds sway far beyond the arcane world of economic textbooks. Homo economicus is not just the homunculus of some parts of economic theory, but often stands as the model of enlightened human agency (in support of this view, see Becker 1976; against it, see Bröckling 2016). Neither has criticism of commodities and the increasing commodification of new spaces abated since Marx or become outmoded (Anderson 1993; Sandel 2012). The organ trade and commercial surrogate motherhood are merely two examples of both the market’s continually advancing logic and our unease with it. Nor has the issue – that is, the social phenomenon, in the sense of a feeling experienced not just by some individuals but by many – of alienation, loss of control or futility, ever gone away (Jaeggi 2014). On the other side, there were and are voices, and especially arguments, that emphasise money’s liberating effects – the observation that the ideal of romantic love is a modern one already suggested this – without necessarily dismissing the criticism that money can also create alienation. The author who tackled this ambivalent character of money as no one else has done is Georg Simmel (2005; 2006a; 2006b). Section 3.1, drawing on Simmel, examined money’s special fungibility and its consequent superiority over all conventional goods. It distinguished the material, social and temporal dimensions of the use of money. From a material perspective, money can buy anything, whereas a good or commodity can normally only be sold for money. From a social perspective, money holders are free to choose from whom to buy any given thing – all that matters is finding someone selling whatever they currently desire. Who the seller is, or what kind of person they are, is irrelevant. From a temporal perspective, beyond satisfying concrete, urgent needs, money holders can gain freedom from future want through their possession of future purchasing power. Evidently, the expanded choices afforded to money holders, who can buy anything at any point in time from anyone, give them freedom. This freedom may, of course, also be experienced as overwhelming and some choices may feel unimportant, pointless or empty. Still, money holders are freer and less subject to control by others – at least until they have been manipulated or tempted – by advertising or ‘special’ offers – into buying one particular product instead of another. Even then, the choice of which temptation to give in to remains theirs.

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I would like to add to these three dimensions a fourth one: the dimension of the subject, that is, of the self.2 I will use it, on the one hand, to unpack money’s potential for alienation, its ‘corrupting’ side, and on the other hand to contrast this again (though in a somewhat different way) with its promise of freedom, that is, the societal gains of differentiation that it enables. Regarding the social dimension, money – or market interaction, which for our purposes is the same – makes Ego uninterested in his partner in interaction, Alter, for his own sake. He merely cares about him insofar as he is the private owner of a good that Ego desires. Fundamentally, Ego and Alter are not connected by any real social relation(ship). They merely encounter one another for the sole purpose of trading money for a thing. It is possible (and outside of Europe and North America even common) for buyers and sellers to negotiate and haggle, and in the process, to present themselves as people with stories about how obliged, entitled or even sorry they are to be asking or offering what they are. And yet, particularly in ‘advanced’ market economies, in supermarkets or department stores ‘silent trade’ is the norm. The amount specified on the price tag is paid at the checkout, without comment and, quite often, even without any verbal exchange at all.3 The buyer wants to buy something, but not to be bound or bothered in any way. The advantages are evident. Ego has no need to hide his interests and can assume that Alter, if he haggles or seeks to ingratiate himself, is only pursuing his own best interest. Ego’s purchase does not depend on Alter liking him or regarding him as a worthy buyer. For this reason, although his welfare depends on the services of an incalculable number of suppliers, who are unknown to him, ranging from postmen to medical specialists, Ego is free to choose and shape his own social relationships as he sees fit. He can, for instance, 2.  In his Paris Manuscripts Marx distinguishes (1844/2010a: 276–7) the alienation of the ‘worker’ – that is to say, of any person working in any sense – from his product, from his activity, from his fellow humans and from his ‘species-being’ (or his ‘essential being’, as a conscious human being). This echoes the dimensions of the material, the temporal, the social and the self. 3.  Silent trade refers to a form of contact and exchange in which one party places an offer in a certain place without the other party being present and then withdraws to give the other side the chance to inspect the offer. If that party fundamentally agrees to the exchange, they will in turn place objects next to the original object, and also withdraw. At the third step, the first party can accept the deal, reduce their own offer or withdraw it. They can also wait until the other party increases their ‘price’. Such practices are known to have existed at many different times all over the world. See Grierson (1903); Moraes Farias (1974).

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pursue pure love instead of having to adulterate his intimate relationships with economic or family-‘political’ considerations. Although even money can never make people fully independent from others – to the contrary, it increases their dependency by promoting specialisation – it does free them from situations in which they have no choice about whom they associate with. The flipside is that as the market expands into spaces that were once outside its ambit, such as the university (Münch 2011), the social relations that, although they may restrict freedom, also create stability and purpose (such as those between lecturers and their students), become more like buyer–seller relationships in which costs and benefits are continually calculated and which can be dissolved at any time. Markets are inherently premised on the freedom of agents to choose, and as they become more universal, flexibility (an unwillingness to enter into fixed relations) is increasingly rewarded, while the willingness and ability to make commitments is no longer practised (Sennett 1998). As regards the temporal dimension, using money simultaneously devalues the present and magnifies the future, enabling more extensive planning. Money itself cannot be consumed and gives no immediate pleasure. It thus dampens immediate pleasure for the sake of deferred enjoyment. Money and miserliness have an innate affinity (as do money and avarice; see Simmel 2005: 239–48) insofar as both elevate the sheer potential to do something or enjoy something over the actual thing itself. This is not necessarily harmful, because foregoing consumption means deferring gratification, which is an individual as well as a civilisational virtue. Moreover, because having money makes the future more accessible and tangible, in the sense of assuring us today of our ability to act and choose tomorrow, although it is still unknown (or unknowable) what tomorrow’s choices will be, a ‘moneyed’ person is likelier to develop the foresight that living in a moneyed society requires. To repeat what was said above: only where money is in use does specialisation become possible. As a result, the so-called chains of mutual dependence grow longer, that is, the reciprocal dependence not so much of individuals as of professionals and specialists. Under these circumstances, anyone who wants to not merely react but also act and shape things will need to keep their eye on the ball. It is money that teaches us how to do this. By referring to a dimension of the subject, or the self, I refer to the relationship that a person has with him or herself. Thanks to our

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self-awareness – that is, our ability to make ourselves the object of our own consciousness and contemplation – humans have a malleable relationship not just with other people and with the world of things, but also and especially with ourselves (Plessner 1928/1975: 288–308). And this relationship can hardly remain unaffected or untainted by whether or not we are acquainted with money, because money works as a sort of ‘wish machine’. As much as it assuages uncertainty when it is held, and helps us maintain our ability to act in the face of the unforeseen, it also always brings to mind the possibilities of spending it. Because money can buy (almost) everything, for anyone who spends any time thinking about how to spend it new options will always necessarily be coming into view. It spurs us to think about what is not there or not yet real; it stimulates the imagination. In this way, it also stimulates desire. It unfetters it from the simpler desire of fulfilling those types of needs that could, at least for a time, be satisfied, and instead lets desire grow into an abstract craving for the enjoyment of other things, and thus the enjoyment of more. Avarice is a trait found across cultures, yet money stimulates it in peculiar ways. The wanting-forever-more of avarice – which itself is joyless, but which the greedy person nonetheless rapaciously enjoys – meets its match in money’s capacity to embody the possibility of always getting more. Yet, paradoxically, money also allows those who possess it to make their wishes much clearer and more precise – to be free to choose exactly what they (and perhaps only they) want. Whoever has money can, by means of it, distinguish themselves from others.4 This means that money individualises, but not just that: money might not make us happy, but insofar as happiness is an utterly subjective thing and any judgement about what makes someone happy can only ever be made by that person, the nearly endless possibilities opened up by money could very well contribute to an individual’s pursuit of happiness. Notwithstanding the fact that those who most deserve happiness may often have the least money, it remains true that nothing can encapsulate the subjectivity of individual happiness as well as money (cf. Blumenberg 1976: 129). Finally, in its material dimension money has long been accused of having such an alienating, corrupting influence that it obliterates the 4.  Material possessions and consumption are but one aspect of our personhood, but we would be fooling ourselves if we imagined that humanity’s possessiveness and relationship with things is anything but innate. Ascetics and those who renounce fashions stand as cases in point for just how much depends on ‘mere appearance’.

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unique qualities that make things special, just as in its social dimension it deprives people of their individual personhood. Those who truly experience the world as nothing but an ‘immense accumulation of commodities’ (Marx 1906: 41) – and there is no doubt that such people exist – will see all of its diversity as mere quantitative differences in exchange values, expressed in terms of money. Thus, the monetary perspective on – or rather, the factual marketisation of – things flattens them (or renders them equivalent) in two ways. First, even though exorbitant prices may be paid for them, such uniquely precious objects as works of art – the trade in which our societies do not generally prescribe or condemn – can nonetheless be reduced to a common denominator with anything else that can be bought, whether cereals or cigarettes, simply by virtue of having been valued in monetary terms. Money trivialises. Second, it suggests comparability even where comparisons would be inadmissible or absurd, that is, between what cannot or should not be compared. Commercial surrogacy and the organ trade, mentioned above, or prostitution, arouse so much contempt because in these cases something that cannot or should not have a price, namely life and sexuality, is given one. Money corrupts. But money’s liberating, or even civilising, side allows for things to be made neutral, precisely through their having a price. The fact of the Qur’an being for sale in a bookshop by no means makes it less holy to the believer. Generally speaking, to put a price on something is not necessarily to deny or destroy its intrinsic value, but rather, at least initially, to apply a standard of comparison that allows actors with profoundly different conceptions of value to nonetheless exchange with each other. Precisely for (our) multicultural societies, therefore, the market is a suitable, if not utterly indispensable, mechanism of coordination, because it relativises everything. A similar, though earlier, civilising breakthrough was the replacement of revenge and the lex talionis – an eye for an eye, a tooth for a tooth – with monetary punishments (or monetary compensation, to be precise, because initially payments were made to the aggrieved party, and only later to the state or monopolist of violence; Paul 2012–13). And this remains true, or perhaps is becoming true again, as offenders are not only sentenced to prison terms but increasingly also made to pay their victims monetary compensation. Of course, no payment can ever really ‘replace’ a lost heirloom or good health, but it can provide some compensation where otherwise only very crude equivalence, or no equivalence at all, is possible. Perhaps one might say that wherever people use money

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there is always the risk of everything, or at least far too much, being measured against this singular yardstick. But, at the same time, people practice thinking in terms of equivalence and relativity. Indeed, do we not first have to compare, in order to realise that a comparison is impossible? Faced with this ambivalence – between money’s alienating and liberating properties, between how it corrupts and blurs boundaries and how it differentiates and makes us sensitive to difference – it is hardly appropriate to ask whether we ought to rid ourselves of it, even assuming this to be possible (Bockelmann 2006; Brodbeck 2011). Rather, not least in light of the pathologies of ever greater marketisation in recent decades, we ought to ask exactly where we, as a society – or as a political system that ought, ideally, to be controlled by citizens – might draw the line and limit marketisation.5 There is of course, as we shall see in Section 5.2, a constant pressure to ‘economise’ that emanates from the economic system and impinges on other parts of society; an innate systemic tendency for ever new spaces to be incorporated into the capital accumulation process (see also Section 4.2). But as the ongoing and, in all likelihood, eternal social and moral-political struggles over the (de)commodification of human labour, of the family and of the biological foundations of our very existence show, this hardly makes it inconceivable or impossible for us to define spaces that should remain outside the market. In this we are no different from the Tiv (see Section 2.1), or for that matter from any other society we know about through ethnography or history: we too have a hierarchical, sphere-differentiated economy, with zones of different relative monetisation separated, and kept separate, from one another. Whether it is a question of trafficking guns and narcotics or selling fruits and vegetables on the street, different markets are subject to different rules. But above all we distinguish between different social spheres in which different criteria of valuation (are supposed to) apply. In politics, the family, science or sports, it is not those who have the most money who are held to have the right to make decisions (although in practice sometimes they do), but voters acting on their beliefs and interests, family members feeling affection and solidarity, researchers 5.  Viviana Zelizer (1994) demonstrates that even our handling of money is anything but uniform and that, to the contrary, different rationalities exist depending on where money has come from and what its purpose is. Even high earners can be misers at home. Money saved is much more valuable than money won through gambling. Even more interesting is how ‘alternative’ monetary experiments aimed at strengthening local economies, such as the Brixton Pound, represent efforts on the part of civil society to (re)differentiate and (re) socialise money (Degens 2016).

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weighing up findings and arguments and sportspeople challenging one another in fair competitions. Despite the universal applicability of money as a standard of value, we operate, as sociological systems theory maintains, with multiple codes (Luhmann 1987) or – as one might say (with Michael Walzer, 1983) – we operate in different ‘spheres of justice’. Even though we know that ‘buying’ favourable judicial verdicts is possible – whether one wants it, accepts it or simply knows that more powerful actors can do it – this is in itself no reason to declare it the norm. In much the same way – as already highlighted by the example of the Qur’an – a norm that is (supposedly) incommensurable with money, by virtue of being normatively declared to be incommensurable, is hardly rendered invalid by simply putting a price on a ‘thing’ that has no price. The invention and widespread social acceptance of life insurance, to take another example, has not led us to think of life as worth only as much as an insurance company is contractually obliged to pay in the event of its loss (Zelizer 1979). And it is not as if it is only in the domain of money that we abstract away from everything that does not fit with its form of valuation. The logic governing other social spheres can also ignore a range of other values that may be attached to something. The criminal justice system, for instance, will judge a criminal for stealing a piece of art without rendering any judgement on the artwork’s aesthetic value, while the political will of the majority does not determine what the political sciences do. Still, it would be odd to deny that the dynamics of the economic system tend to undermine the distinctions between other spheres of value and encroach upon those spheres, or to deny that the autonomy of social subsystems has always been as much a postulate as a fact. It does appear to be the case that we are living in an era in which money is colonising ever greater parts of the lifeworld (cf. Habermas 2006: 332–73). On the other hand, anyone who offers such a diagnosis cannot shut their eyes to the fact that, if not money itself, then at least the forms of social interaction enabled by it have made a functionally differentiated society possible in the first place. In other words, the ambivalence of money, reflected in the intertwining and mutual contingency of alienation with liberation, reappears at the level of social structure. A monetary economy is as much a precondition for modern society’s existence as it is an inherent, innate and by no means coincidental threat to it. This is the topic of Section 5.2.

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5.2. MONEY AND FUNCTIONAL DIFFERENTIATION There are two types of answers to the question of what kind of a society we live in. The first type of answer is given by sociological diagnoses of the present, by authors who often use the titles of their works to give society a label, for example ‘risk society’ (Ulrich Beck), ‘multi-option society’ (Peter Gross), ‘adventure society’ (Gerhard Schulze), ‘knowledge society’ (Nico Stehr), ‘externalization society’ (Stephan Lessenich) or ‘society of disappearance’ (Stefan Breuer). The list could easily be extended. But social change, even in modern societies, where in historical terms transformations has been extraordinarily rapid (at least since the beginning of the Industrial Revolution), is nowhere near rapid enough to make possible the chronological alignment of all of these diagnoses. Most of them could not plausibly be reconciled with one another, at least not without undermining their key claims. However, the majority of these authors make no claim even to describe in its entirety all of modern Western, or Western-influenced, society (Eisenstadt 2003). They merely aim to highlight particular features or trends that have been important in, say, the latter half of the twentieth century, such as the increasing salience of (imagining and managing) risk or (acquiring and processing) knowledge. The second type of answer to the question of what kind of a society we live in comprises a smaller set of proposals, which are both much more general and much more widely applicable than those in the first group, but which are also (and necessarily) less precise. They focus not on trends observed over the course of a few years or decades, but rather on the basic features of modern society as it has emerged since the Middle Ages, with an emphasis on the French Revolution and the Industrial Revolution in the nineteenth century. Fundamentally, this second group comprises two subgroups or theoretical strands: theories of (‘new’) social inequality and theories of social differentiation (Schwinn 2004). Marxism exemplifies the first strand, sociological systems theory the second. Theories of social inequality, as the name implies, make inequalities between large social groups, such as wage earners and capital owners, central to their understanding of society, particularly in the modern age. Different dimensions of inequality can be parsed out – unequal ownership of the means of production, income, education and occupation, as well as other important signifiers of social class or stratum (Kreckel 1992) – but in essence, in these theories, despite formal freedom and

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equal citizenship, it is always the persistently unequal life chances between different groups that shape the real world. Theories of social differentiation, on the other hand, do not deny the reality of social inequality, just as theories of social inequality do not deny social differentiation. But they consider differences in the material (or horizontal) dimension to be more important than those in the social (or vertical) dimension. Their focus is on the processes (and outcomes) of differentiation: the differentiation of domain-specific logics of action, value spheres or social subsystems such as religion, politics, science and economics (Luhmann 2012: 65–108). Within each of these spheres, actors are guided by sphere-specific values, differentiation principles or codes. In the sciences, for instance, what matters is knowledge acquisition and what counts is to differentiate the true from the false. In politics, what matters is to shape the conditions under which collectives of people live and what counts is power. Acquiring or gaining knowledge or power are, however, fundamentally different ‘programmes’. They require different approaches, such as making electoral promises or appealing to sentiments of social justice in the political system, or different theories and methods in the scientific system. This does not mean that individual actors cannot engage in both the political and scientific systems. On the contrary, all of us, no matter who we are or what we do, are – at least occasionally – placed in different action contexts, or systems, for example as voters, churchgoers, partners (in marriage) or consumers. We do not, as a ‘whole’ person, ever belong to just one subsystem. Members of particular classes or strata are also, say, members of sports clubs or passionate fans of classical music. Yet theories of social inequality assume that not just their economic interests, but also their political orientations and even their tastes, are ultimately determined by their ‘class position’, and thus by factors that are (sociologically) more or less objective and objectifiable (Bourdieu 2010). Nonetheless, due to the multidimensional nature of social inequality, the growing diversity of lifestyles and the at least occasional processes of mass upward or downward social mobility, to simply equate actors’ social situations with their identity has become increasingly problematic. For this reason alone, theories of social differentiation strike me as reflecting the realities of modern society better than theories of social inequality do. Only by taking seriously the variety, inconsistency and ‘compartmentalisation’ of action orientations, which intersect within individuals – and are even responsible for really making them

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individuals in the first place – can we identify the modern condition, or at least come closer than we would by attempting to lump a plurality of individuals together into uniform classes, strata, life circumstances or milieus. In addition, social inequality can also be expressed in terms of social differentiation, whereas social inequality only ever insufficiently recognises differentiation. Moreover, theories of social differentiation are more prudent and judicious when it comes to scandalising their objects of study than are most theories of social inequality. Social inequality always figures as a problem, and equality is always the aim. There are certainly good reasons for thinking in such a way, but these are political rather than scientific. Social differentiation, by contrast, is first and foremost a fact. One could argue about how, for example, the family and the world of work ought to be separated. But hardly anyone would claim that the distinction should be abolished and the family be professionalised or the world of work made more familial. For this reason alone, we may take the system-theoretical characterisation of modern societies as ‘functionally differentiated’ as broadly correct. However, systems theory – or at least Niklas Luhmann and, following him, most of its contemporary revivalists – is wrong to posit the existence of an inherent equality (or equal rank) among the different subsystems, each of which specialises in the fulfilment of certain societal functions, and from this to claim that their ‘heterarchy’ makes it impossible for one part of the social system to ever subordinate another. It would, of course, be infeasible to measure their relative importance on any objective scale, but this does not make it impossible – and here, again, having some Marxist or inequality-theoretical consciousness helps – to acknowledge the economic system’s factual primacy over others. In fact, this means nothing more or less than recognising and admitting that our contemporary functionally differentiated society is a capitalist one. In what follows, we will see, first, how money has played an essential role in the process of functional differentiation that constituted modern societies, and second, that the money medium, respectively the economic system, has come to structurally dominate the reproduction (or self-preservation) of functionally differentiated societies. Regarding the role of money in the emergence of functionally differentiated societies, the separating out of an economic sphere with its own logic needs to be distinguished from the differentiation of subsystems more generally. As we have already seen throughout this book, well-

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developed, anonymous markets would be unthinkable without money to act as a medium. This insight can be developed further with reference to Karl Polanyi’s (1944/2001: 71–80) work on economic history. Polanyi argued that, for the emergence of a ‘self-regulating’ market obeying the laws of supply and demand, as found in Western and Central Europe since the eighteenth and nineteenth centuries, a preceding, or at least concurrent, transformation of the factors of production – i.e. labour, land and money – into commodities was essential. Without labour, land and money being for sale (or exchangeable against each other) not only would the market principle not have been able to extend into key areas, neither would the economic and occupational specialisation that goes hand in hand with the development of markets have been possible. For this very reason, the liberation of the peasantry, which was set in motion across Europe between the seventeenth and nineteenth centuries, was paramount. On the one hand, the peasants were liberated from the feudal duties that they owed to landlords. Whatever they earned belonged fully to them. On the other hand, they often had to acquire land to work from landlords, usually nobles, who were compensated for having to release ‘their’ peasants into economic freedom by acquiring the right to subdivide and sell the land, just like any other property. Most newly freed peasants lacked the capital to buy land from their former masters, so many became wage earners on farmsteads, now managed as agricultural enterprises by the old lords and new entrepreneurs. What once had been a personal, unchangeable and, as a general rule, highly asymmetrical relationship between landlord and ‘villein’ gave way to a ‘voluntary’ employment relation that the now formally equal parties entered into. Many peasants became ‘doubly free’ wage labourers (cf. Marx, 1906: 187f., 787): free from personal dependency, but also ‘free’ from owning any land or, more generally, means of production. Transformation into wage labour was not, however, merely the fate of large parts of the rural population; it was also a necessary condition for industrial manufacturing to be able to employ those workers who were no longer needed in agricultural production. The burgeoning industrial sector, in turn, could also be financed from capital that was ‘released’ from feudal land, which had previously not been saleable. The conversion of old estates into new real estate thus not only opened up more investment opportunities, but also mobilised more money. Many a noble landowner tried his hand at being a bourgeois investor.

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Still, the sale of land alone could not have satisfied the Industrial Revolution’s sheer hunger for capital. From the perspective of economic history, the nineteenth century was not just the century of the mass emancipation of the peasantry, but also of the widespread emergence of stock corporations and stock exchanges (Weber 1894/2000). Neither was really new – they had a prehistory dating back to the late Middle Ages – but in the nineteenth century they turned from marginal operations, relevant only to the merchant community, into institutions for financing a revolutionary social transformation.6 Stock companies bundled smaller investments into volumes that enabled, for instance, an entire continent to be criss-crossed by railways. Stock exchanges made it possible to combine investment with liquidity. Share certificates in a railway company could, in principle, be sold at any time, and this helped to attract more risk-conscious investors to the financing of business. But as important as the ‘democratisation’ of financial markets was to the financing of the Industrial Revolution, the possibilities for making loans and for private book money creation that the nineteenth century opened up were even more crucial (see Section 4.1). Here, and not in the flourishing of stock exchanges and corporations, was where the real transformation of money into a commodity took place. By issuing loans denominated in government money, but not covered by equivalent reserves (or savings) in government-issued money, banks became capable of making the types of investments that, as massive as they are risky, are necessary for financing the ‘carrying out of new combinations’ (Schumpeter 1936: 66) to revolutionise entire product ranges, trades, consumption patterns and even (or especially) the technological conditions of production. Strictly speaking, every investment needs prior financing, because only the anticipated future proceeds can cover the fixed expenditures already incurred for material inputs and labour, and finally create a profit – which, after all is the raison d’être of investing (Schumpeter 1936: 100–2, 106f.). This was even more true during the Industrial Revolution, which was essentially a gigantic investment project that, at least in hindsight, can be said to have paid off not just for 6.  One could object that the ‘tulip mania’ in the Netherlands in the seventeenth century and the speculative crises in France in the eighteenth century can already be considered macroeconomically disastrous stock market crises (see Garber 2000). While this is true, the reproduction of the economic system crucially did not become dependent on financial markets until the nineteenth century.

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entrepreneurs but also for the overwhelming majority of those classes who owned no share of the means of production. Private commercial loans and investment loans are even older instruments of financing than corporations and stock exchanges (Mitchell Innes 1913/2004). The ‘marriage’ of state money with private banking, which was crucial for the acceptance and spread of loans between private parties, took place in the seventeenth and eighteenth centuries (Ingham 2004: 107–33). The compromise struck by the English crown, which needed loans, with private English financiers, who gained the privilege to collectively issue a national currency backed by guarantee of His Majesty’s tax revenues from across the empire, was a groundbreaking innovation (Hutter 1993). In this way, the commodification of money preceded that of labour and land, and the major ‘financial revolution’ took place at least a century before the Industrial Revolution. It was the normalisation of the wage labour relationship and the technological breakthroughs of the nineteenth century that finally made use of the capital that, structurally speaking, already lay ready, leading to the universalisation of the market. Of course, this ‘only’ explains how an autonomous, money-based market could first come into being. Money also played an indirect but essential role in the differentiation of the other subsystems (i.e. besides the economy). The keyword is organisation. Organisations are a special form of social coordination. To simplify, we may say that they are a technique for using hierarchically arranged divisions of labour to attain goals specified by their leadership. But we must also note that, first, the leaders of any organisation cannot simply issue commands, since they depend on their subordinates following them without subverting or distorting the directives to too great an extent; and second, that organisational goals are often vague and indeterminate and must be adaptable in the face of changing ‘environmental’ conditions. Hence, defining organisations by their particular purpose and hierarchy is insufficient. A third important criterion for organisations is, therefore, membership (see Luhmann 1964; Kühl 2011). Membership means that, limited by certain stipulations (which, in turn, may be fairly indeterminate and malleable), such as a contract of employment or a party manifesto, individuals carry out instructions and tasks specified by their immediate superiors or by the organisation’s managers, tasks that may even remain unspecified until the time comes. Anyone who joins a sports team, for instance, but shows no interest in the team winning, will probably be kicked off. The game

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plan, the training strategy, and each player’s position and role is decided by the coach, not by the players themselves. Organisational membership entails a kind of general obedience, within the framework of formal rules of membership. Wherever there are membership rules – and, strictly speaking, one can only ever really speak of membership where there are such rules – there is a gap that needs to be bridged between the motivations of the members (or aspiring members) and the aim(s) of the organisation. An organisation is flexible to the extent that it succeeds in getting its members to carry out different performances, placing different demands on them as the circumstances require. Organisations are thus able to transform and to adapt without immediately losing their identity or changing their overall purpose. Take, for instance, the history of a corporation such as Nokia, which began as a rubber boot manufacturer and evolved into a telecommunications equipment producer. Or take the history of many centre-left parties, which began as revolutionary movements and eventually became pillars of the state, such as France’s Socialist Party or Germany’s Social Democrats (as well as, to a lesser extent, the UK Labour Party). Such stories are hardly uncommon and one might even go so far as to say that the specialisation and focus of organisations on objectives such as profit (companies) or political power (parties) stem from their relative openness, in the sense of their willingness to adapt to the vicissitudes of economic and political changes. Generally speaking, organisations are what enabled and drove the differentiation of society into functionally specialised subsystems. Of course, the economy consists not just of companies (and trade unions and associations), politics not just of political parties (and parliaments and government agencies), organised sports not just of clubs, the legal system not just of courts, and so on. But none of these subsystems could ever survive without these organisations bringing together people who are concerned with particular issues, such as the supply of goods (in the economy) or taking collectively binding decisions (in politics). Without membership-based organisations there could be no such thing as a functionally differentiated society. However, such organisations could not exist without money. There are two reasons for this. First, they can pursue their particular goal-orientations and make corresponding demands on their members only if their other needs – i.e. the needs of the organisation and those of the members – can be satisfied by means of money and the market. Only when organ-

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isations and their members can rely on being able to buy what they need in order to survive can they fully focus on one objective. Organisations must be able to source materials and acquire property rights and the services that they need in order to, in turn, ‘produce’ output, such as legal judgements, healthcare and knowledge. This also enables at least those organisations whose purpose is to perform ‘work’ – i.e. those which tell their members what to do, in contrast to interest-based organisations in which members associate around a common interest (Schimank 2000: 306–22) – to recruit their members as wage workers on the labour market. Second, money not only motivates wage labourers, in the broadest sense of the word, to work – by forcing them to take up work if they are destitute or by enticing them if they are sought-after specialists – but also, and more fundamentally, enables organisations to separate membership motivation from organisational purpose, which is indispensable for the formation and spread of organisations. Because I am paid and can use my salary to do anything (at least anything my salary can afford), I need not care about what the organisation is using me for. As long as their members are paid sufficiently well, organisations have no need to rely on these members doing anything for its own sake, for their own reasons, or simply out of the goodness of their hearts. In reality, of course, most people who can afford to do so will try to find jobs that not only provide financial compensation, but also suit their inclinations and abilities and are even fulfilling. The vast majority of academics, for instance, can be assumed to do their job for reasons other than financial gain. Many do it out of something like love of truth, or perhaps somewhat less dramatically, on account of the joy of acquiring and spreading knowledge. The prestige and recognition of their peers that accompanies the discovery of something new no doubt matters as well. Work organisations, too, depend upon acknowledging their members’ interests, just as interest-based organisations, above a certain size, can no longer rely solely on their members’ passion for volunteering, but must compensate them (usually with money). Still, money is an essential extra-organisational precondition for the formation of organisations, which in turn is a precondition for the emergence of functionally differentiated societies. These societies depend on money, both for their emergence and for their subsistence. The primacy of the economic system over other subsystems is especially evident where they encounter one another outright. There are three aspects that I would like to highlight, or rather three argu-

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ments that I would like to present in support of this thesis (cf. Schimank 2009, Deutschmann 2009, Paul 2012: 231–42, Moriz 2016: 147–97). First, all other subsystems need funds in order to fulfil their functions. In essence, this is just another, more general way of stating that organisations (including interest-based ones) need ‘raw materials’, particularly labour, in order to produce output. For this they need money, usually more than they could get from ‘selling’ their services. In fact, many of the services they provide are not even for sale, or at least they should not be. Political decisions, scientific discoveries, judicial verdicts, works of art – all of these cost money, and insofar as the modern ideal of romantic love presupposes lovers being capable of independence, even declarations of love (say, by giving flowers or inviting one’s love interest to dinner) cost money. But neither does their quality hinge on the amount of money that went into generating them, nor can they themselves be monetised. Universities and hospitals are expensive to run, and even if they churn out patents and charge for treatment they usually still generate deficits and require some form of subsidy. Laws and regulations, such as zoning plans, may have far-reaching economic consequences but no specific price. Paintings can be sold for millions of pounds or dollars, but their aesthetic value scarcely depends on their material value. Even truth and love may cost money, but cannot be bought with it. No subsystem, except the economic one, could reproduce itself and perform the services expected of it without money generated outside flowing into it. Of course, the economic system also depends on other subsystems doing their ‘job’, such as the legal system for jurisprudence. Likewise, the healthcare system depends on science, which in turn depends on the education system. It is precisely these multiple, often mutual, interdependencies that have motivated arguments about the systems being ‘heterarchical’ or ‘co-equal’. But these claims blur the difference between the general monetary dependency of all subsystems and the point-specific, variable intercoupling of the other subsystems. As indispensable as the law may be for almost all aspects of modern society, unlike money the law is not constantly applied in the education system, science or marital relations. It is only called upon to act in cases of disruption. The same applies to scientific expertise. Undoubtedly, the results of research are important for politics, the economy and even sports. The production of goods and services can be improved with the help of science, as can collective decision making, sporting achievements and so on. But unlike money, science is not indispensable here. Many

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leading proponents of systems theory refuse to recognise this difference between systems (although Luhmann himself (1972, 1988: 322) at least gave the idea of the primacy of the economic system some thought). This may even be something we normatively want to endorse. But to deny the dominance of the economy over society simply rings false, empirically speaking. This refusal is mirrored in the problematic equivalence claimed for the different ‘symbolically generalised communication media’, such as power, love, truth and money, which brings us to my second argument. Although comparisons between money and language go far back (Achermann 1997), the idea of conceptualising power and influence as special languages, analogous to money, or ​​ as symbolically generalised interaction media, comes from Talcott Parsons (1963). Money, power and influence each enable, or simplify, particular chains of action. Someone who pays money wants to acquire something from someone, rather than to convince them. Those who exercise power can persuade others to do specific things, even without having to pay anything. To influence others is to make one’s motives their own. These media are symbolic in the sense that certain symbols, such as banknotes, rather than just concrete actions, can trigger further actions. They are generalised in that they claim general validity beyond any single particular interaction. They serve, on the one hand, to connect problem-specific actions, thus enabling the reproduction of social subsystems and, on the other hand, to enable the subsystems to serve one another. Thus, money allows both a separate economic sphere of circulation to be organised and system-transcending services to be ‘bought’. Luhmann (1976, 2012: 190–238) abstracted and expanded this concept of media. On the one hand, he sees symbolically generalised communication media, not just interaction media. What need to be coupled are not (merely) actions, but ‘communications’, that is, signals that are interpreted by third parties (‘recipients’ of communication) as intentional actions or observations. On the other hand, Luhmann extends and ‘desystematises’ the list of media. Aside from money and power, he takes law, truth, love, beauty and faith to be media – and this is not even a comprehensive list. In fact, a definitive list cannot be made, for it would be impossible to foresee or logically determine what communication media or cognitive codes will prevail in the future. Nobody could rule out, for instance, that in time we may (again) develop forms of communication that focus on honour or (pure) sexuality. What would

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matter would be not only that the recipients of the communication, but also the ‘broadcasters’ could deploy clearly established binary schemes to convey, for instance, the signal ‘I am only interested in sex, and it would be nice if you wanted to engage with me precisely for this reason’, while the addressee could freely refuse the offer without rejecting the idea of the offer as such. To the extent that such a form of communication evolved, sexuality would become just another social subsystem, being neither part of romantic love nor a commodity to be purchased (cf. Lewandowski 2004). Communication media thus predate and enable differentiation, rather than being added on to pre-existing functional systems in order to improve their operations. In this way, Luhmann’s media theory captures how, at least in the case of the economy, money precedes the development of markets and thus the spread of a distinctly economic logic. At the same time, due to its abstraction of the concept of media to the point that it signifies a mere means of communication, it fails to recognise the distinguishing features of money that set it apart from other communication media. For Luhmann, media are symbolically generalised not because they require unequivocally identifiable symbols such as banknotes, but because they link actors – or, in fact, communications – instead of separating them ‘diabolically’ (see Luhmann 1988: 230–71). Their special achievement is to make it likelier that a particular communication – that is, a particular interpretation of a given social situation – will be accepted or shared by others. They help to persuade others to see things as we see them. Communication media are interpretive standards that have seductive power. They can be rejected, but they ‘want’ to be accepted. Power is Ego’s effort to make Alter dance to his tune, to which Alter submits out of fear of being punished by Ego. Truth is an observation or statement by Ego, which Alter affirms because Ego is aware that others would also agree. Love means Ego adapts his actions to Alter’s desires, because fulfilling them – or more precisely, bringing Alter pleasure – brings Ego joy. Money, too, is an offer of communication, a signal of the desire to acquire something, to motivate another person to voluntarily (but not selflessly) hand over something or perform a task. Ego pulls out his wallet and Alter knows immediately what is happening: communication has taken place. Alter does not need to sell Ego the object Ego desires, but Alter is not likely to reject the offer, for in return Alter will obtain general purchasing power.

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Yet, in spite of any communication-theoretical similarities between these cases, there are two extraordinarily important differences between the media in question. First, money, unlike power, truth or love, is actually transferred. It changes hands. One can (and even must) acquire it. What one person has, another no longer does. Power, truth and love, on the other hand, are relational. One cannot own truth or love. Even power is not something one could carry around in one’s pocket. It only realises itself in a relationship between (at least two) actors. Second, all media – including money – contribute to the ‘reduction of complexity’, as they simplify, or rather standardise, what could in principle be very diverse and rarely harmonious ways in which actors relate to one another. Media make what would, in principle, be unlikely acts of communication more likely. On the other hand, unlike power, love and truth, which restrict the freedom of others – one must do what the holder of power demands; a lover may demand a great deal but they can only demand this from one particular person; truth makes us see what others see, rather than letting our own imagination wander – money not only leaves the freedom of the payee intact, but even increases it. Whoever has money can do more; they can, essentially, do anything. In other words, money is more fungible than the other media. One can always use it and therefore is always in need of it. Its use has comparatively few preconditions, apart from having to learn to think in terms of a money of account and be familiar with how to use a particular currency, a money proper. This is why money ‘beats’ all other media, and it is why the system that produces and regenerates it has primacy over all others. Beyond the fact that all systems need to be funded and that money, as a medium, has this extraordinary level of generality, the third argument for the economy’s dominance is the growth imperative, which radiates outward onto the ‘rest’ of society. Of course, other subsystems also have a logic or innate tendency towards expansion. For instance, in the legal system the codification into law of previously extra-legal matters does more than merely create clarity where previously there was ambiguity, it also and at the same time creates new occasions to apply the legal process for resolving disputes, which again activates the legal system. Nor is scientific progress the mere resolution of a finite set of open questions. On the contrary, new insights always lead – whether deliberately or accidentally – to new questions that were previously unasked and perhaps not yet even imaginable. The legal system increases the demand for jurisprudence by distinguishing legality from illegality, justice from injustice.

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Knowledge and truth are not simply replaced with better knowledge or new truths. On the contrary, new forms of knowledge arise alongside the old ones, and existing truths become more complicated. In this sense, the process of knowledge generation is structurally infinite. In this respect, the perception of a continual juridification of society or scientisation of life is as correct as the diagnosis of an ongoing economisation of the social. However, while the (monetary) economy is predestined to grow in the material dimension, the shape of its growth induces a permanent reconsideration and adjustment of habits in the social dimension. The law, too, may affect ever more things, but the economy lays hold even of nature. The sciences, too, can shake and shatter certainties, but their new discoveries only affect people’s worldview in exceptional cases. The economy, by contrast, makes accepting change and adjusting to it an everyday fact of life. But why does the economy need to grow and where does its potential for ‘revolutionising society’ come from? At least two structural reasons for the growth imperative are worth discussing: competition and interest.7 Competition is by no means a form of behaviour created by markets or the monetary economy, but they have contributed significantly to its spread. Formally, competition – in contrast to direct combat between two opponents, for instance a struggle to physically subjugate one’s adversary or take something from him – is an act of striving for a goal set by a third party in a non-violent and rule-conforming way (Simmel 1908/1988: 323–49). The goal may be to win a prize, break a record, better one’s previous score, defeat an opposing team or curry favour with an anonymous consumer public with material desires in need of fulfilment. It is obvious that the competition mechanism has expanded its reach and generality through the marketisation of the economy. As the supply of populations with goods and even the reproduction of society becomes dependent upon the market, producers and traders have to adjust not just their pricing, but also what they produce and offer in the first place in light of the preferences and capacities of their customers. Such is the civilising potential of a market, or monetary, economy. But it also makes money increasingly a prerequisite for participation in economic and, eventually, social life. Having money is the entry requirement into the market and, to the 7.  Other motives include the overall still strong attraction of material wealth and the ‘power’ that money has to pique the imagination and desire of even the most satiated classes (Deutschmann 1998). But as significant as these motives may be, they are at the level of ideas, whereas I am focusing here on structural pressures.

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extent that even the non-economic subsystems may often only be accessible by means of money, it becomes the key medium of inclusion within functionally differentiated societies. But upstream, so to speak, prior to the ownership of money is its acquisition. The capacity to pay constantly needs to be (re)produced. For most people this means performing wage labour. But it is not enough for them to simply offer up their labour power. Rather, providers of wage labour need to possess and supply exactly those qualities that the market demands. They, too, compete to satisfy the needs of customers, in this case employers. And unless they can or want to offer their wares for less than their competitors in the labour market do, they need to be (or to become) better than them. Because the threat of price declines or the loss of desirability of one’s own labour power constantly looms, people must seek new opportunities to increase its value, to earn as much as possible, not just in order to fulfil previously unfulfilled desires, but also to make provisions for an uncertain future. Paradoxically, it is precisely their (quite justified) worries about economic and social decline that drive individuals to outcompete one another. Like entrepreneurs in a business, they invest in themselves – or ought to, practically rather than normatively speaking – not only, or not primarily, in order to earn more, but rather to keep up with their competitors. For the competition never sleeps. The market is not a zero-sum game in which one has to lose what another gains, but a positive-sum game in which total utility grows, a game from which, at least if the starting capital is reasonably evenly distributed, the majority of players may be expected to benefit. But that does not mean that everyone benefits, let alone that they benefit to a similar extent. The game only ‘works’ because it also produces losers. Or, more precisely, because it produces losers it forces players to remain on their toes and to seek ever new opportunities to pass the test. One driver behind the invention of an endless array of new products, the improvement (and cheapening) of existing ones, the expansion of supply and the sheer innovativeness of capitalism is the ubiquity of competition in the market, which brings an incentive and compulsion to insure oneself against the ever present peril of one day finding oneself without money. A second reason for the growth imperative, which does not cause competition as such but certainly intensifies it, is interest. Interest (as seen in Section 3.1) is a surcharge added to the nominal value of a sum of money that is lent within, or created by, a credit relationship, in return

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for conferring the practical use value of money (i.e. its liquidity). Anyone borrowing a sum of money from a bank, for whatever consumption-, investment- or need-driven reason, promises to repay the money plus interest. If a debtor has no continual cash flow to facilitate the repayment of the loan and interest, he must either use the loan in such a way as to make the investment pay off (for his creditor as well, or actually first and foremost). Otherwise, if he is spending rather than investing the loaned money the debtor must work (more) so as to not only cover his own living expenses but also refinance his deficit. Interest thus necessitates additional labour. Or rather, because working hours can only be extended up to a certain point and overtime work is often not in demand, it necessitates productivity increases and innovation. The same principle applies to credit-financed, or indeed – inasmuch as all money originates from credit relationships (see Section 4.1) – all, investments. If the additional amount for the contracted interest payments is not to be financed from the further growth of the total loan amount – that is, if (asset) inflation is to be avoided – then the amount of money in circulation at any given time will always exceed the total value of goods and services. It will have to be covered by the production (and successful sale) of new goods after the fact. It is thus, ultimately, human labour, or more generally human creativity alone, that can redeem promises to pay interest (Deutschmann 1998). The constant, systematic search for ever new ways to transform labour, especially intellectual labour, into new commodities by no means stems only from an innate human urge to explore and innovate, but also from a specifically economic or, more precisely, monetary compulsion. Where there is interest, there must be growth. The alternative is economic, or rather monetary, crises, in which the contraction of loans triggers real economic stagnation (see Section 4.2). To renounce interest altogether is, by contrast, a compelling idea, which has been propounded by ‘free money’ and ‘natural economic order’ theorists (Gesell 1920; Suhr 1989; Kennedy 1988). However, what they fail to recognise is that interest is not a tariff imposed by wicked capitalists to forcibly extract value from honest market participants, but an expression of money’s innate ability, as the most liquid asset, to command its own premium. The enormous productivity and innovative power of the modern monetary economy (as well as its susceptibility to crises) is not simply a reflection of the superiority of the market over alternative forms of economic governance, but also, if not primarily, the result of the growth imperative brought into

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the world and imposed by interest. Indeed, inasmuch as any developed market owes its existence to the prior (or at least external) invention of money as its medium, and since to acquire it one must generate a surplus, the market reflects less the desire of actors to engage in mutually advantageous exchange and more their efforts to undo their previously acquired debts. The price we pay for this dynamic – that is, for the primacy of money and the economy in our functionally differentiated society – is the continual drawdown and usually irreversible transformation of the natural basis of our existence, as well as the compulsion to accept the subsuming of the non-monetarily coded aspects of our lives to the economy’s logic of valuation and exploitation. Paradoxically, this even extends to aspects of our lives that were only made possible by money in the first place. Both the problems linked to environmental destruction and the economisation of the social could ultimately lead to the self-destruction, or at least the dedifferentiation, of society as we know it. Yet, knowing what we know about the vast potential for innovation that monetary economies have, which we will have to rely on to solve – or at least delay the need for a solution to – these problems, it would be ill-advised to aim to abolish, rather than further differentiate the monetary system (cf. Sections 4.2 and 4.3). And even if we did, we could hardly deter hundreds of millions of people living in Asia and Africa, for whom the capitalist way of life appears desirable, from entering and bringing new lifeblood to the system. The enormous ecological and social consequences will have to be managed.

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Index

Aglietta, Michel 17 Aristoteles 2, 7–8, 48, 122 banks 69–76 Becker, Gary 9, 125 Bentham, Jeremy 15 Berger, Peter L. 60 Blumenberg, Hans 128 Bohannan, Paul 29–31 Bourdieu, Pierre 133 capital 69 capitalism 35, 45, 74, 100, 102, 118, 124, 145 central banks 108–21 central bank independence 115, 117–19 financialised capitalism 74, 117 functions of 111–12 chartalism 32–4, 40, 50–1, 54, 89 Coleman, James 9 collateral 29–30, 34–5, 39, 46, 74–5, 85–8, 102 competition 144–5 confidence, trust 24, 47, 49, 54, 56, 66–7, 72–3, 80, 82, 89, 96–7 Cook, Robert 49–50 credit vii, 33, 45–6, 63–4, 67, 70, 72, 75–6, 83, 86, 88, 90–1, 99–102, 105, 108–12, 115, 145–6 crisis global financial crisis (2007ff.) 74–5, 87, 98–100, 109–10 Great Depression (1929ff.) 63, 98, 110 currency 23–4, 31–2, 43, 67–8, 86, 90–6, 103–8, 110, 112–14, 137, 143 currency competition 91, 94, 100, 107, 110, 118 Greek currency 48 social currency 34, 36, 39, 46, 48

debt vii, 5, 28–9, 31–4, 36, 45–6, 50, 63, 67, 71, 73, 75–6, 79, 80, 83, 85–8, 101, 103, 106, 109–10, 115–16, 119–20, 122, 146–7 deflation 76, 83, 86, 90, 96, 100–1, 108, 119 democracy 47, 87, 90, 113–14, 116, 118 –121 desire 17–24 division of labour 2–3, 9, 11, 25–6, 41 Dostoevsky, Fyodor M. 18 double contingency 20–1 Douglas, Mary 60 efficient market hypothesis (EMH) 79–81, 83 Eisenstadt, Shmuel N. 132 equivalence 13–14, 27, 29, 40, 55, 129–30, 141 equilibrium theory 15, 19 exchange of women 27–30, 35–6, 44, 48 Fisher, Irving 76, 98, 100 Franklin, Benjamin 63 Friedman, Milton 111, 113 fundamental analysis 80 future 62–6, 68, 77–8, 81–2, 127 Gehlen, Arnold 60 Gesell, Silvio 146 gift exchange 5, 27–9, 31, 44, 46, 51, 53, 124 Girard, René 18–22 gold 11, 31, 49, 89–91 gold standard 91, 112–13 Gossen, Herman H. 15 Graeber David 33–9, 46 Greenspan, Alan 102 Grierson, Philip 39–40, 126

index  .  163 growth 27, 32, 48, 63, 68, 72, 78, 83, 86, 97, 100, 102–3, 105–7, 112–15 growth imperative 143–6

Habermas, Jürgen 131 Hayek, Friedrich A. von 79, 87, 91, 105 Homans, George C. 9 Homer 40, 54–5 homo economicus vii, 17, 125 homo imitans 19 honour, honour society 10, 30, 37–8, 40, 53–4, 67, 141 inflation 86, 90, 92, 96, 99, 101–2, 113–19, 146 interest (rate) 43, 45, 64–6, 68–9, 73–6, 85, 100, 102–4, 112, 116, 120–1 base rate 75, 85, 102 interest rate policy 112 monetary theory of 65 negative interest rate 96, 104, 107 Jevons, William 4, 10, 14

Keynes, John M. 33, 63–6, 81 Keynesianism 63–4, 113 Knapp, Georg 31–3, 40 Kopytoff, Igor 29 Koselleck, Reinhart 62 Kuhn, Thomas S. 7 Laum, Bernhard 40, 53–5 Lévi-Strauss, Claude 6, 29 liquidity liquidity paradox vii, 68–9, 76 liquidity premium / preference 66, 68, 73–4, 76, 83, 101 Locke, John 2 Luckmann, Thomas 60 Luhmann, Niklas 20, 124, 131, 133–4, 137, 141–2 Luther, Martin 122 market 4–6, 14–17, 43, 47–8 dependency on markets 59–60

Marx, Karl 10, 12–14, 17, 29, 33, 122–6, 129, 135 Marxism 12–14, 17, 122–6, 129, 132, 134–5 Mauss, Marcel 27, 67 Mead, George H. 20 Menger, Carl 4, 10, 14, 16, 22, 67 Minsky, Hyman P. 74–5, 81 Mitchell Innes, Alfred 33, 137 Monetary Authority 102, 105–6, 108 monetisation 29, 30, 37, 63, 122, 130, 140 money ambivalence of (freedom / constraint) viii, 2, 130–1 book money 85, 87–9, 98–9, 101, 104–5, 110, 136 cash 8, 43, 64, 85, 87–8, 98, 146 ceremonial money 28–30, 34 free money 146 functions of   means of exchange vii, 1–2, 6, 8, 16–17, 23, 28–32, 34, 43, 47–8, 51, 53, 57, 95, 107   means of payment 6, 29, 31–4, 47, 57, 95, 110   measure / standard of value vii, 1, 4, 17, 23–4, 31, 33–4, 38, 40, 46–8, 54, 67, 94, 131   store of wealth, value 1, 31, 33, 45, 107 libertarian money reformers 89–91 monetary economy 7, 68, 131, 144, 146–7 monetary order, system vii-viii, 43, 54, 68, 86–7, 90, 93, 101–3, 107–9, 117–18, 147 monetary society vii, 124 monetary union 115, 121 money creation vii, 87–9, 93, 98, 100–1, 136 money of account 14, 16, 33–4, 38, 40, 43, 46, 48, 54–5, 110, 143 money proper 33–4, 38, 42, 47, 53–4, 143 money supply 86, 88–9, 94, 96, 99, 101–2, 105–8, 112

164 

.  money and society

theories of   means of exchange theory of 2, 25, 33   means of payment theory of 25, 32–3   mimetic theory of 17–19, 21–4   ordoliberal theory of 87, 89–90   property theory of 34 Weregild 39–40, 53 Müntzer, Thomas 122 Nakamoto, Satoshi 93 need 15, 17–20, 22, 62, 124–5, 128 neoclassical economics 7, 11, 14, 66 organisation 137–40 Orléan, André 15, 17–18 Pareto-optimality 16 Pareto, Vilfredo 16 Parsons, Talcott 20, 141 Paul, Ron 91 payment 25, 28, 36–7, 39, 45, 50–1, 53–4, 59, 129 penalty, monetary punishment 53, 57, 94, 129 Plessner, Helmuth 128 Polanyi, Karl 6, 135 Potlatch 67 prices 1, 4, 9, 11–14, 16, 19, 33, 37–40, 43, 59, 64–5, 70, 75–83, 86, 95–6, 99, 102, 118–21, 129, 131, 145 profit 68, 70, 72–3, 76–8, 111 rational choice theory 3 rationality myth 117–18 revenge 39, 129 Ricardo, David 10, 12 risk 70–1, 73–4, 76, 78–9, 84, 103 Robbins, Lionel 9 sacrifice, victim 21–3, 40–1, 44, 53–7 Samuelson, Paul A. 3 Sandel, Michael J. 9, 29, 125 Satoshi 93 scapegoating 21

Schumpeter, Joseph A. 10, 12, 136 securities bonds 70–1, 77, 86, 102, 115, 121 derivatives 77–8, 100 funds 71–2, 80, 98, 103, 105 shares, stocks 70–2, 75–8, 81–2, 100, 103, 105, 115 short selling 78 spot exchange, forward exchange / futures (trading) 77–9 Sennett, Richard 127 Shackle, George L.S. 62 Simmel, Georg 18, 29, 39, 54, 61, 66, 68, 124–5, 127, 144 slave trade 35, 38, 40 Smith, Adam 2–3, 10–13 social inequality 46, 132–4 speculation 24, 77, 79, 81, 83, 87, 95–6, 98, 100, 103, 107, 110 stock exchanges 69, 70, 72–3, 136–7 surplus value 44, 67, 79 taxes 31–2, 50, 94, 101–2, 106, 109 term transformation 73, 76–7, 103 uncertainty 62–3, 65–6, 78, 128 utility 10–11, 14–16, 19, 22, 145 value labour theory of value 11–12 nominal, material value 49, 53 use value / exchange value 11 token, value-representing symbol 4, 47, 53 violence 20–1, 33–4, 36–40, 46, 51, 53–4, 129 volatility 79 wage labour 37, 59, 122, 135, 137, 139, 145 Walras, Léon 10, 14–17 Walzer, Michael 131 wealth 2, 5, 8, 10–11, 22, 44–5, 49, 51–2, 57, 61, 63, 67–8, 71, 101, 107, 116, 144 Weber, Max 9, 50, 77, 136 writing (system) 39, 41–2, 45

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