5 growth, debt and money

8/9/2019 5 Growth, Debt and Money

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5. Money, Debt and Growth

1. Presence2. Givenness and Confidence3. Making Unalterable

4. Growth and Moneys Modern Origins5. Debt and Growth6. Recovery and Restraint7. Humanity as speculation

In this chapter we tackle the question of money. Each of us is familiar with it andbelieves that we would be able to achieve more if we had more of it. But what ismoney?

Money is a medium that makes flows visible. It signals the flows that, over thelong term, transfer goods from one generation to the next. Life is transferredfrom one to another generation, so all the material means of life by which ourbodies are sustained must move from older people to younger people. Moneyenables us to observe this flow, but it also disguises it. We have discussed whatone generation owes another; in this chapter we relate money to the issue of whoowes whom, and to the idea of growth.

1. PresenceEmbodimentA society depends on its acknowledgement of the debt between parents andchildren and between one generation and another. Without this sense ofobligation to a new generation, no new generation would appear and societywould come to an abrupt end. If we feel no gratitude to those who were generouswith us, we will not know how to be generous with one another. Without anunderstanding of what we owe to previous generations, we will begrudge leavinganything to future generations.

Face-to-face, person-to-personWe present things to one another. Perhaps the most fundamental gift that can begiven, is life. Your parents gave you life. Whatever you gave them would be aform of acknowledgement of that prior gift of theirs. Your gift would tell them thattheir offspring recognises the goodness of his life and is glad of the love thatcreated it. The most fundamental gift you can give your parents is a grandchild.When you present your first child to your father and mother you demonstratethat you are aware that you have received your existence from them and regardthat gift as good. By bringing generation one face to face with generation three,

you communicate that they have not wasted their effort and so you vindicatethem.

Grandparents, uncles, aunts, cousins, neighbours and friends come to payhomage to mother and baby, bringing clothes for the baby and so starting thetorrent of gifts that appear at all subsequent birthdays, the impracticablecharacter of which indicate the gratuitousness of the original arrival of new life.

The sheer bodiness of babies is the obvious thing about them. They cannot helpyou, so you have to help them, entirely. Their neediness encourages us to pickthem up and take them into our care, a gift impossible not to accept. Though allpersons may come as gifts, the gift of the newborn is not obscured by attempts

at reciprocity. Parents and friends must pick them up and lead them into all thecomplex forms of reciprocity by which they will learn to relate to others.

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Grandparents must turn up and be present to their grandchildren in order to passon to them knowledge of their origins, give them the familial basis of theiridentity and with it, assurance of their value. They give their grandchildren apast, a context and with it an identity; when those children know their originsthey can begin to bring their own particularity to bear in their encounters withothers. Decades later they can tell their incredulous grandchildren about their

own parents and so communicate a sense of intergenerational continuity. Suchprivate family sentimentality is the means by which any of us becomes a matureand public person. Through years of care and interaction children grow intogreater command of their bodies, and increasing ability to reciprocate and takeup their personhood as a public status. They learn how to inhabit their ownbodies as the instrument of their public personhood.

Over the long term all economic action must serve the upbringing of another newgeneration. All commerce is the slow transfer of property from the older, recedinggeneration to the younger, advancing generation. The exchange of commoditieshas to serve those who are directly involved in this work of first providing infantsand then supporting them whole they grow to maturity. The economy is about

turning children from mere bodies into adults in the course of two decades, inorder that these adults will so affirm one another in the market and public squarethat they will then be ready to repeat the process. The economy has no other endthan to serve this process of the procreation and formation of persons. The morethat this purpose is obscured, the greater is the disincentive to embark onprocreation. Nonetheless the torrent of manufactured goods can only have this asits end, for everything we do, the commodities that we purchase, all derive fromour parents gift of life to us, and serves to reflect that gift by this return gift.

The continuing presence of the traditionWe may bring a new generation into existence. We have all the permission thatwe need. By producing a new generation we honour our parents, their parents

and all our forebears. We hope that our children will do the same for us when weare gone, and that their children do the same for them. We make this more likelyif we remember our own forebears. If we decline to make this acknowledgementand pay this debt, no one will do for us. We have to assume that inter-generational debt will continue to be acknowledged and paid, or .

We have permission to bring a new life into existence. Our societys past gives usall the licence needed. That the past has resulted in this present is reason enoughfor us to work for a continuation and future. We may take that was as our own

shall. Life is part existent (is) and part to be sought (ought), part present andpart future. It is faith that holds together that was and this is and this shouldand will be. This connection and unity is not imposed, it but may be discovered,

with joy. Our past gives us the licence we need to enter relationship and dobusiness with one another. We may have sufficient confidence and motivation towork and bring new things into existence, and to go into the public square inorder to procure what we need and so we have an economy. An economydepends on such presumptions in order that there be continuity and stability;continuity is more fundamental than change or growth. At the basis of anyeconomy is the gift of life and its later thankful acknowledgement as a secondgeneration presents a first generation with a third, so that generations continueto come face to face with their forebears and successors and recognise and affirmthem in gladness.

Presence and co-presence

Every transaction is a meeting of persons. We see some transactions asencounters of two persons, others as encounters with many persons with whom itis impossible to come face-to-face. But even when there is no explicit meeting,

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impress you. If you are discerning enough you may be able to tell whether theyhave not been recompensed, so that unknown to me, my appearancecommunicates more about them than it does about me.

This is my body. Of course you have to be in the same room as me, or at leastsee a picture of me, in order to see it. My body is a function of the food I have

put into it, but I didn't produce any of this food myself, nor have I ever met anyof the people who produced it for me. Given that I eat so many kilos of meat ayear, you could estimate that I am the product of so many animals, so manyhundredweight of vegetable matter, transported to us by so many tons of fossilfuel. Yet, you have been brought up not to see these many animal or vegetableinputs when you see my body, but just to see me.

Every one of us is a material being, a creature of flesh, who requires inputs thathe is unable to source for himself. Imagine a peasant farmer. He regards hisanimals as the meat that will feed his family: when these animals are eaten theirbodies will become part of his body and that of his children. They are animalbodies now, but they will turn into human bodies by next year. As he looks at this

flock or herd he knows he is looking at the future of the bodies of his own people.And what is so for him is true for us too.

In order that your body remains healthy so that you remain alive, something likethe following events have to occur. A farmer takes his flock to market where theyare bought by the wholesaler; the slaughterman turns them into carcasses; thebutcher who turns these into packets of meat taken on by the distribution people,the freight transport people, who are supported by the insurers, thetransportation people and all who crew and service those craft and maintain thatnetwork, and all those who train them, and police and protect them. The meat ofthis sheep travelled from a hillside on the far side of the world to your platebecause a hundred people operated the machinery by which this meat was

packed in this box into this pallet, into this container and this trolley and onto thisdisplay shelf. We may not see them when we put this cut of meat into ourshopping trolley, but it is our evidence that this great host of people has done itswork. They have provided us with the edible products that we have to consume inorder to have a functioning body, and thus to continue be present before oneanother. Over a year our body is the product of thousands of people, supportedby hundreds of thousands of others. At every point we can ask whether thosepeople earned enough to keep their families and send their children to school.Our body is the synthesis of such agri-industrial processes, and thus we owe it tothose many people involved in those processes. But we can ask whether they arebuilt up by this process or exhausted and consumed by it? We do not knowwhether the food that has nourished and ultimately constitutes our bodies has

come from producers who have not been adequately recompensed for, whoseown bodies are not adequately nourished. We live with who knows what debts,our lifestyle sustained at what long-term cost. We may have been living at theirexpense.

Despite all this my body is absolutely crucial to you. For when you decide thatyou want to do business, with me, we have to meet. We decide to come together,so that your body and mine are in the same room. We want to grip one anothershand, look into one anothers eyes, and on the basis of a thousand tiny physicalcues, each can decide whether the other is reliable enough to do business with.We want to see, hear, touch and smell the physicality of the other man in orderto satisfy ourselves of the particularity of this event of transaction.

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Cues of intimacy such as facial communication, testimonial and non-verbal gestures bypassed the filter of reason. They are compelling evenwhen consciously disbelieved.1

When it is important enough, every transaction must be based in this person toperson meeting; at bottom, person to person meeting is all that every transaction

is. We know that particularity, and some of the time, the unique character of suchpersonal encounter cannot be faked. It has to be done properly.

We can carry out great numbers of everyday transactions in the abbreviatedaccount, that is, with money and credit, only because at other times we takecare to perform the ritual of transaction in full, person-to-person. There can bemany retail transactions because there are larger wholesale transactions, andthere can be wholesale transactions because there are long-term contractsbetween persons, acting for corporations, who have secured their relationshipwith lots of expensive personal contact time. The food and other materialresources that sustain my body and make me a presentable person travel from allcorners of the world to reach me through hundreds of thousands of transactions,

each of which is based in a contract secured through the face to face encounter ofexecutives who crossed the world in order to meet. Although most transactionssimply involve the communication of data, we may deal with them as person toperson encounters.

2. Givenness and confidenceWe need to relate two apparent opposite things. We need to establish that aneconomic contract is simply a convention, and to establish that those conventionsthat we call contracts are absolutely reliable and as unyieldingly solid as anythingthing on earth. We need to show both that money is the function of peoplesrecognition and nothing more than that recognition. And we need to show thatour financial and judicial institutions are nonetheless unshakeable. Economic

reality is given, and it is given by us, or more specifically to us by our forebearsin the hope that we will pass it on in good shape to our own successors.

The fixedness of past eventWe want to get to know each other. We do so because we hope to gain from eachother the recognition that each of us needs, and which we can only source fromotherpersons. And through them we hope to gain the material means whichsupport our bodies and so make us present to one another.

We meet one another in the marketplace. Specifically, you and I have to meet inyour offices or mine. We have a big contract that we want to award to someoneand believe that you may be the right person for us. We see that you have the

right qualifications, we know your reputation, we are convinced that you are asignificant player and believe that business with you will be worth our while. Yetto give us greater confidence that you are worth this contract we need to knowwhat credit you have, and that means we need to know your credit history. Tellus more about your previous big projects, and who else you have done businesswith. Convince us that you are the right person to give this contract to. Give usan account of yourself again.

Exchanging accountsWe demand an account of each other for we want to know that the other personis worthy of our investment in him and we want evidence that he is going toinvest in this relationship too. We exchange accounts of ourselves, and of ourplace in our industry. Our business relationship is articulated by this exchange of

1 Offer The Challenge of Affluence p. 359

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The persons present at these ceremonies followed, with attention eitherpious or casual, the progress of a ritual elaborates by specialists in theart. They were not interested in the details; all they wanted was that itshould be a real ceremony... for rites essentially symbolise nothing, anymore than music does. They do not necessarily refer one back to a

different reality, to beliefs. They form a species of behaviour sui generisin which what matters is to do things ceremoniously, the detailsremaining arbitrary.3

The gesturing with these various props and tokens is intended is to create anarrative that will win and hold an audience to watch to see that the narrative issubsequently honoured. The audience bound by this narrative will be theguarantee of the contract. The paperwork and other ritual of the contract are themeans with which this community is gathered and the contract is written, wemight say, on the memory of the community that witnesses and judges itbinding. Contract and oath-taking is the means of enthralment by narrativeenlarged by the public gestures that require physical objects to serve as the

props which amplify our gestures and create the drama which establishes andsecures this new relationship which we have agreed upon. Physical things matter,for they remind us of our relationship and signal the existence of this relationshipto others.

Things in exchangeThere are three parties to every transaction. The third is made up the presentaudience. We hope that this audience is aware of the many earlier contractssecured by earlier audiences. Our ritual alludes to precedent and so the manypeople who have done things this way, and a satisfactory reference to precedentssecures the contract.

Things have places in relationships. We cement relationships by formal events,which are shaped by particular rituals in which specific objects are involved.When we may make use of plaques, fireworks, doves, tee-shirts or anythingelse that bears the company logo. We may give each other some executive toyagain with our company crest or livery as a formal gift; we might arrange ameeting in exotic location in which a whole panoply of in as the meeting of twotribes. But in the vast majority of transactions just three things are exchanged:the first is the good that is purchased, the second is the money with which it ispurchased and the third is the receipt that records that purchase.

Say you buy a book from me. You present the book you want to purchase at thecash desk, and offer some form of payment. Having rung the sale up on the cash

register, I offer you a receipt. We have these three things money, receipt andthe purchase itself. We should take the thing-like quality of the money andreceipt as seriously as the book itself. You leave with book and receipt. This bookentered my bookshop accompanied with paperwork, a despatch note and invoicefrom the distributor and publisher. When you give the book to your sister yousend it off to her along with a birthday card, so that she knows that the book isfrom you. Every commodity comes to us accompanied by the record of itsprovenance. Invoices, lading bills and all the other forms of record tell us whereeach thing is from, and are evidence that we got it legitimately and maylegitimately pass its ownership on. The receipt is part of the technology andpractices of record. But here is the new part so is the book. This book is part ofthe technology and practices of record. This book marks the years of your

3 Paul Veyne Bread and Circuses p. 317

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relationship with your sister. Even before that, itmarked your, fleeting,relationship with me, the book store owner.

Here I am offering you an account of our economic exchange that you areunlikely to have seen before. It is not only the receipt that records this relationalevent, but every single thing is employed by us to mark the relationships we

enter. Each thing is a record. It is so because some set of people understand it inthat way. The transaction and the relationship of which it was just one event, wasrecorded on both the ostensible records (receipt and all the other paperwork) andon the goods and gifts that are exchanged. This is so even if they are asimmediately necessary and instantly consumed as a bottle of water on a hot day.The transaction is written on the memory of the witnessing community, theexpert audience, defined by contract, itself defined by the apparatus of atradition.

The circulation of thingsBanknotes circulate, changing hands several times a day. Valuables circulatemore slowly. People buy odd, apparently valueless, things in car-boot sales and

sell them again years later. Social anthropologists are fascinated by suchcirculations. In the early twentieth century they were amazed by the traffic inyams and shells that spanned the archipelagos of the Pacific, a traffic which atfirst sight to be useless. Anthropologists understood that the yams were gifts inan economy of generosity between great men. But were these gifts, or were theytransactions? Was this merely play or was it business? Why side of the moderneconomic account should they appear on? Each yam was accompanied by arecital of the many hands it has passed through, from which it gains value. Itcomes with an oral record of its many who have been in possession of it, agenealogy of members of the Kula ring. Each yam functions as a travellinglogbook in which is recorded who received it from whom. The names of itsholders are not recorded on it, but travel alongside it as oral tradition, its value

rising as the details of its provenance lengthen. Each transfer is the occasion ofthe re-negotiation of a balance sheet of account between Big Men. The history, ofwhich our transaction is just the latest episode, is a continuum. Each event ofinteraction stands complete with its history, contained in the materiality of thiscommodity. Each thing is just a record of its provenance. It is for us to ensurethat that record remains readable, to us, and those who follow us. This is thepurpose of labels and our financial record-keeping. The yam is a credit-history. Itis an account of all the people through whose hands it has passed and so anaccount of the credit-worthiness of the man who holds it now. Many hugelyinfluential people have held this yam, and this combines to give us the status ofthe present holder. What goes for the yam also goes for the multifarious media ofaccount that we use in the modern economy. Few of these are so focussed and

embodied in any one artefact. We only see such forms of value-embodiment atthe top end of the market, provided by works of art. Each Picasso on the wall ofthe boardroom is a yam, or a banknote enlarged in order to communicate theprodigious worth of its holders.

Money as abbreviated identity-giving and account-renderingMoney is the means by which we give one another our approval. It is a mark ofpermission given. We give them licence to go on producing their account, as thisis exemplified by the wares they are selling. Looks and glances are all theconfirmation they need. As Pierre Bourdieu puts it: Our acts mean more than wedo. Our acts leave our intentions way behind.4 But these looks and glances musthave a ceremonial and ritual form, and these commodities and money together isthat form.

4Pierre Bourdieu Outline of a Theory of Practice p. 73

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When population were smaller and less mobile, people got to know eachother through participation in ceremonies, religious other otherwise, anddecided how much they could trust one another. Trust is not only a tenetof civil society but an investment that facilitates trade. People learn toestablish norms concerning contingencies, to settle feuds, and to enforce

contracts, skills that serve beyond a single transaction.5

The two parties exchange conviviality in the form of giving and receiving accountsof the world. Accounts are what is being exchanged. These accounts of the worldalso take an abbreviated form, so they appear in the two forms of telling (writing,the medium recognisable to the humanities), and of the abbreviated form,counting (the medium of finance recognisable to economics). The two parties to atransaction are swapping abbreviated accounts of the world. These accounts arenot being given by one side and kept by the other side, but accounting is an actperformed by two parties together. The numbering of the two parties is themodality of exchange and idiom of the hospitality of the firm.

Money is what persons do: it is just talk, but as talk it accounts for the greaterpart of the linguistic medium in which Western persons subsist. The concept of auniversal currency, and of exchange as a distinct and separate economic categoryrelates to the idea of equivalence and the management of particularity. Auniversal medium can only obliterate what is particular to each encounter. As theinstrument of this universal uniformity, money and the whole economy offinancial discourse represent a particular idiom of human behaving, an idiom thatunderstands all interaction as difference-reduction and control, and theenforcement of a single master idiom and economy.

The market is a continuous world-wide conversation and money is the languagein which it takes place. Though money represents a very constricted vocabulary,

which through repetition, allows us to communicate a great number of options sothat we do not need to repeat in full our account of the relationship between us.

In small contracts we dont need your full recitation of your business history togive us your value. We use figures, profit-and-loss accounts and balance sheets.

Because the greatest part of credit networks consisted of masses ofinformal sales credit, which were maintained by the continued liquidity ofsuch transactions, trust was considered the a crucial factor in buying andselling.6

We employ figures as a short-hand: they are an abridge the accounts we render

in speech. With it we indicate how wide is the range of repetition of therelationships defined by previous contracts. Thus most transactions involvetruncated exchange of accounts and valuations.

The purpose of keeping good accounts was not to see how muchcapital the merchant had at any one time but rather to maintain hisreputation for honesty and just dealing thus keeping chains of creditfluid. 7

5Reuven Brenner Labyrinths of Prosperity: Economic Follies, Democratic Remedies (AnnArbor: University of Michigan Press 1994) p. 1486Craig Muldrew The Economy of Obligation: The Culture of Credit and social relation inearly modern England (Palgrave Macmillan 1998) p. 1247Craig Muldrew The Economy of Obligation: The Culture of Credit and social relation inearly modern England(Palgrave Macmillan 1998) p. 128

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Money exists not simply in those forms which anyone can identify as financialtokens. Only a tiny proportion of money has any tangible existence, as coin andbanknotes. The majority of it exists as figures in financial statements, which onlythe numerate can interpret (M2, M3).

Accountancy practices (are) a rule-governed kind of writing that

tended to create what it purported to describe..8

Money appears as bonds and a vast variety of promises to pay that only appear infinancial reports and on balance sheets. The accountants have made theirdecisions, all of them controvertible, about which side of the balance sheet eachitem should appear, whether an asset or liability.Whether it is presented as theone or the other depends on the timing of financial reports, year ends andnegotiations with the tax authorities. The auditor affirms that this is a true andfair account of the finances of the company and the shareholders meeting votesto accept it as such.

Money appears in the events in which decisions are made which we call contracts.

There is nothing between the two contracting parties, but accounts rendered inwords, and rendered again in the figures that appear in financial reports. Thereare many forms of material and bodily interaction between us, but they are allshaped and controlled by words, and by the financial figures that are theirabbreviation; these words are shaped and controlled by ritual involving manyforms of material and bodily interaction. Not all communication between personstakes the form of speech. Our communication also has other forms ofembodiment that we will examine in Chapter Six.

Each economic agent, whether individual or firm, observes the market andregisters who is doing best. Each is able to follow the series of relationshipscreated by the most recent contracts. Each is glad to business with those who

have been in the limelight and hopes to connect themselves to those who havesecured the most visible recent contracts.

All financial reporting and market gossip is a continuous rendering of accounts. Itis not simply the liquidity recorded by a firms cash balances, nor solvencyrepresented by its lines of credit, nor the strength of its balance sheet and annualreport, but the whole cloud of gossip and rumour that twitches share pricesminute by minute. The whole market knows what that firm is worth for marketopinion is weighing this very question as long as the market is open.

Prices of stocks, bonds and currencies are averages of the individual views ofmarket participants, and which are revised constantly as long as trading is in

progress. Fundamentally, credit-lines exist in the head of every participant in thatmarket. The formal records are no more than tokens of what the market knows.Each member of that market can say who is up and who down. It is the task ofevery participant in that market to know who has not been doing well and thuswhose turn it is to prove themselves. The slackers credit is poor: everyone knowswho the slacker is currently, and waits for them to exert themselves anddemonstrate that they still have it in them to perform well.

A settled market is cosy for its members, but perhaps in the long-run, thosemembers as a whole make themselves forfeit their ability to respond when a setof more energetic market-makers burst in.

8Mary Poovey A History of the Modern Fact: Problems of Knowledge in the Sciences ofWealth and Society(Chicago 1998) p. 56

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A strong notion of reciprocity in exchanges and communal bonds ofneighbourliness co-existed with the free movement of prices. It wasthrough these numerous small, personal face-to-face acts of credit thatagents interacted within the market9

Thus each member has to balance the demands of patience and impatience. They

have to show some patience with the laggards, if they wish their fellows willpatient when their own performance lags. Yet they must be eager to distinguishthemselves from the laggards, and so insist that the laggard must lose his ratingif he cannot proves himself. He who cannot prove himself will drop down themarket to the point at which no one is interested in doing business with them;eventually it will be difficult for him to remain a member of the market at all.Thus every member of the market must strike the right balance betweenambling along safely, not pushing too hard against other market participants, andattempting an unsustainable rate of progress that brings a more serious testingfrom aroused rivals. A market is based in the trust shared by its members: aminimum of trust is required just so that business ticks over. Again, this what ishistorians notice when they examine the markets with the perspective of

centuries.

As households became more dependent on one another for theirsecurity through long chains of obligations, the combination ofcompetition and dependence meant that they increasingly had to try tofind a balance between hospitality, neighbourliness and charity on onehand, and thrift and profit on the other, because both were needed tokeep credit alive and maintain the financial security of the household and

commonwealth at one and the same time.10

You need to have good stable relationships in order to enable business, but youalso need to demonstrate your own virility.

3. Making unalterableAt centre of each transaction is a contract, a promise that must be kept. Thecontract may not be broken. But how can either of us be confident that the otherwill keep it? How can we trust one another? We have to spend enough time inone anothers presence for confidence to grow, and observing the procedures andperforming the ritual by which people become sure of one another.

The first form of trust is methodical. Founded on routine or tradition itderives from the repetition of actions which bring trades to a successfulconclusion.11

We need to concoct an event of slow and deliberate public account-rendering andagreement. We need a meeting in which each of us gives our account of ourpossible future relationship. After much negotiation, first by our juniors and thenface-to-face, we settle on a joint account which we have constructed togetherwith detailed reference to the canons of agreement, contract law, specified by theprecedent accumulated over years of profitable business built up by our industry.We have our lawyers and accountants working on it through the night. Our verbalagreement becomes a signed contract. We sign in a public event in which will

9Craig Muldrew The Economy of Obligation: The Culture of Credit and social

relation in early modern England (Palgrave Macmillan 1998) p.12410Craig Muldrew The Economy of Obligation: The Culture of Credit and socialrelation in early modern England (Palgrave Macmillan 1998) p. 15811Michel Aglietta Whence and Wither Money in The Future of Money(Organisation forEconomic Co-operation and Development - OECD) p. 35

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display our confidence in one another for the benefit of our investors. Ourseparate accounts of our identify in this moment converge to create this jointspeech-act. Together we make big public gestures that indicate how hard andunchanging our relationship with one another now is. The negotiated thenbecomes the non-negotiable.

If you and I sign a major contract we will do so in the offices of the legal firm orthe bank that has arranged the financing. That firm of lawyers is backed by theauthority its peers and Bar Council and the whole panoply of the Inns of Courtand Appeal Courts, by which the judicial process communicates its absolutereliability to us. That bank is backed by the Bank of England, around which theheadquarters of the banks cluster in the City of London. This proximity makespossible their mutual oversight and adds to the authority of each other of them,and so to the ability of these institution to lend their authority across theeconomy through their branches. People come from all corners of the globe tohave their case heard in London because they reckon that here there is a betterquality of justice; contracts made here tend to last because they are well-made.This justice is secured by the long tradition represented by this close clustering of

legal and financial institutions. Each bank receives its authority from the wholecompany of banks, and it lends its authority to our contract, so that you and I areable to rely on this authority to finalise our contract. If our business is bigenough, we will negotiate and sign our contract in the City of London

Trust is economically quantifiable. It measurably affects both speed and cost,one way or the other. When trust is high, speed goes up and costs go down.12

When trust is missing we have to make expensive efforts to re-create it.Contracts depend on events in which persons come together in one place andtime. We rehearse and practise and make opportunities for such events. Life inthe City is made up of rounds of face-to-face meetings, and receptions, which areopportunities to meet without agenda, in which drinks will help us to all to

unwind enough to show our hand a little. We need to see the other mans bodylanguage, to drink in all the signals he emits, to decide on his sincerity throughby reading the signals given by a hundred muscles in his face that reveal that hecannot force his eyes into the same smile as his mouth, to feel how sweaty hispalm is. We will decide on the subliminal basis of these very physical and animalcharacteristics whether we trust him.

Trust... becomes incorporated into market practice through therepetition of business relationships. Its main infestations in this context,include keeping ones word in financial dealings, the existence of a clubmentality that creates mutual assurance, the acceptance of prudential

standards in organised markets. 13

So we meet in the City of London. Location is important because it indicates ourcommitment to the particular account of the past, as good and unalterable,represented by this location, and by these bodies making a unique event in thislocation. Let us make this point in more picturesque terms. Lets say that youand I want to make a contract. Each wants the other to appreciate its weight sothat it is unthinkable that they would break it, no matter how difficult economiccircumstances become. If we were children in the playground we would makeeach other swear on our mothers life, or pledge eternal alliance by mixing bloodsmears. Here in the modern economy we have similar solemn ways ofcommunicating the absolute taboo of breaking of defaulting on contracts. We

12Stephen Covey The Speed of Trust13Michel Aglietta Whence and Wither Money in The Future of Money

Organisation for conomic Co-operation and Development (OECD) p. 35

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make them swear on something precious, indeed on everything that is mostprecious. We marshal all the symbols of great preciousness, and make themswear on that. Together we gather around, with our top men all present, togetherdemonstrably and emphatically pointing out tokens of the solid and unyieldingnature of contract. We do so by placing our hands on dense symbols of our pasteconomic success. We grasp the past. What can we show one another, and make

one another defer to but the past?

Gold in the groundLet us say that we are in London, my town. Perhaps location will help us makethis contract. It is as though we are swearing on the Bank of England. The Bankis a metonym for all the banks and for the centuries-long history of successfulcontracts that has made these banks what they are. Beneath the Bank of Englandare vaults of gold. We could place sums of gold there, and offer to forfeit themshould we renege on our promise to one another. But of course we cannot raisesuch a sum of gold, and neither we nor anyone else can afford to place so muchwealth out of circulation. So notionally at least we place our hands on the goldthat is already in those vaults, and which is there as evidence of a vast number of

earlier successful contracts, made over centuries. We make our contract therebecause this particular place has this established record for creating productivecontracts.

Ancient man buried artefacts of great value. When he buried his king he did sowith all the panoply of his power, interring him with his sword and armour, andthus with the emblems of the military power by which he established politicalstability. His military power appears awesome, and thus it is highly crafted fromprecious metal, which more per ounce than we will earn in a lifetime. Did ancientsocieties worship at such burial sites? Or did they simply meet there to remindone another, and enforce on one another, the political stability that theyassociated with that king and the economic prosperity that stability enabled? Do

we have to decide between a religious and a political explanation? Perhaps theybrought their children here to this burial bound to tell them about this king, thatstability, and about the penalties for breaking the peace. They meet around thishoard of regal bones and belongings, concealed in the ground beneath them.This combination of proximity with inaccessibility adds to the aura ofirreversibility.

The king created a gold hoard and so took that gold out of circulation. Why did hebury weapons and other valuables? Swords make threat and fear visible. To putthis gold, jewellery or armour in the ground is not a waste. By this act, thatcreates this scarcity so that these swords and other items become more precious.By burying them, swords become more valuable as artefacts that display and

broadcast his reputation. Then they serve to embody the achievement of previousgenerations and they become the capital which his subjects bank on. The afterlifethat ancient people wished for their kings was surely the stability which that kingestablished should continue so that the economy which we personified shouldremain live and valid for them.

In primitive society, institutionalised by ritual and sacrifice, there is no realmoney because desires for being are focused not on things but directly on otherpersons and their conduct. In a second era the monarch or sovereign emergesas a more stable institutionalised representative of the sacred excluded/electedvictim: here money has a secondary status as reflecting the monarch and hissacred prerogatives. Finally in mercantile society, with the kind of long-distanceexchange relations explored by Braudel, money escapes the control of thesovereign and becomes in itself the primary embodiment of wealth.14

14Michel Aglietta Whence and Wither Money in The Future of Money(OECD).

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This potlatch amplifies this story. Ancient man did not worship his ancestors anymore than we worship ours. But we understand that doing things here in thislocality, around the physical tokens of this story the gold hoard we createwith all the magic that our performance can conjure a public event, that is anevent in which the public becomes convinced that this contract and relationship is

final and irreversible. The bank vault is a burial chamber; what has been buriedhere will not quickly be dug up. This treasure is valuable only because its burialmakes it, its buriers hope, irreversibly unavailable. Irreversibility is what we aretrying to achieve in our every contract, and it is the reason why we make thosecontracts that are important to us here, around the bank. What has been donehere will not be reversed, which is precisely what we intend for our contract too.It is the public creation of reserves, of capital. The gold is our aide-memoire,technology of memory that allows us to create these embodiments of socialcapital.15

It is the approval of the whole audience representing so much legal andfinancial expertise that now gathers round as finally we sign our contract, that

makes it a contract. It is final because this authoritative audience believes it is.The more nebulous contracts or covenants of the social and political realms haveto be regularly yearly reinforced, in a memory-refreshing operation, in whichthe whole saga is repeated.16 The tokens of kingly power were buried in longbarrows. Through centuries barrows gave way to palaces, basilicas andmausoleums, all the location which secures all our publicly made undertakings.Finally the long barrow developed into our central bank. To make the point morevividly still, we could say that our forebears act as witnesses to our contracts. Werequire their approval, and have to perform the correct and costly rituals toprocure it, in order that the level of trust remains high. We do not explicitlyrevere, much less worship, our forebears, but we do respect and observe whatthe achievement that emerged through them for it represents an accumulation of

social capital for us. It makes this City of London a good place for us to make ouroaths and contracts. That so much social capital is already accumulated, so muchcase law available, that we do not need to create the foundations of our societyand our economic contracting again. This accumulation of good practices allowsfor efficient repetition and represents a vast saving of energy.

Belief in symbols of sovereignty have yielded to conventional definitionsof the unit of account. Trust has shifted from a quasi-religious belieftowards the critical acceptance of the institutional capacity of controlling

the flows of money. 17

Money is credit tokens, that is tokens of public permission, and these tokens are

tokens of the existing stock of public permission. The people living in the BritishIsles became confident in their ability to make contracts that would hold. TheBritish have traded with one another successfully enough to have become a

15Michel Aglietta Whence and Wither Money in The Future of MoneyOrganisation for

Economic Co-operation and Development (OECD) p. 66 The electronic purse does nothave the edge over fiduciary money, since fiduciary money offers non-pecuniaryadvantages of liquidity, anonymity and security that the electronic purse does not have.16Using a unit of account sets up a relationship between each economic agent and a the

society of traders as a whole. It is not a contractual relationship between private agents.Providing a unit of account therefore amounts to providing a collective good. MichelAglietta Whence and Wither Money in The Future of Money Organisation for Economic

Co-operation and Development (OECD) p. 6617Michel Aglietta Whence and Wither Money in The Future of Money Organisation forEconomic Co-operation and Development (OECD) p. 45

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vibrant nation, and a growing economy. We trade on that large deposit ofconfidence and permission.

Each time the inhabitants of these islands contract with one another a little isadded to the total sum of British stock. A over the centuries a big mound of it hasaccumulated. Each pound sterling is a chunk of that large hill of that confidence

that we take as the permission we seek. Each coin is a piece of this hill. That hillis made up of the accumulated events in which the rule of law have beenhonoured and publicly vindicated, and the unity of this people has been honouredand secured against threat. The hill is always leaching and crumbling as there arelosses of confidence, and as enterprises and hopes fail to succeed, but so far thehill seems to be holding. If it is not growing, it has not noticeably diminished.

Each coin is the history of all previous generations of our society. Imagine that inevery transaction one of us gives the other a little stock of coins, of the metalrefined from the ore of that mountain. Each time we buy and sell, we pay or arepaid, as one of us passes these little metal discs mined from that hill, so theother. These tokens pass from one pair of hands to another. The two of us

exchange by passing through our hands this miniature version of the sacred hillthat is the accumulated past of the British nation.

Money is the whole body of Western history, broken up into manageable chunks.We refer one another to that history by passing these coins around. A coin is thehistory-and-achievement of all previous generations of our society, in handyform. Money is valid as long as it is refreshed by continued reference to thatwhole tradition. In the long term we have to hope that we are not merelyconsuming and depleting that heap of capital, but also renewing and replacingwhat we consume and so leaving this pile of capital as big for our successors aswe found it.

In each transaction we call to witness the whole company of the British, past,present and future. Each of us wants the other hand to regard this act of ours asjust as unalterable as that hill and the coin is solid. What want the other man tosee the future as solid in the same way that the past, this accumulated past thatstands as the hill of British achievement. The unalterable and therefore reliablenature of the contract refers to and depends on the solidity of the affirmationgiven by traders to traders in this place, and the solidity of that gold and thiscurrency is a metonym for it. The accumulation of successful human conventionsecures our transaction, and those conventions are, we insist, as unchanging andnon-negotiable as our history or as the earth itself.

We trading on the good name of a country, and so on the confidence that its

history will continue to give us an equally settled and prosperous future. In thenext chapter I will suggest that this passing of the metal of the British hill fromhand to hand is a token of our unalterably, non-negotiable setting on earth. Theunyielding givenness of the world is both here before us, and we impose thisrecognition of it on one another and so it is constituted by us.18

18The account I have sketched here combines the two concepts of metallism and

cartelists. Charles A.E. Goodhart Two Concepts of Money in Geoffrey K. InghamConcepts of Money(Edward Elgar 2005) p. 441 There has been a continuing debatebetween those who argue that the use of currency was based essentially on the power ofthe issuing authority (cartalists) - ie that currency becomes money primarily because thecoins (or monetary instruments more widely) are struck with the insignia of sovereignty,and not so much because they happen to be gold, silver and copper, (or later of paper)

and those who argue that the value of the backing of that currency, (Metallists). A conjointdebate exists between those who have argued that money evolved as a private sector,market-oriented, response to overcome the transaction costs inherent in barter, (let us call

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A society is sound to the extent that it knows that not everything can be dug upand cashed in. Though our fixed capital lies deep in the ground of our past, it isnot unproductive and we cannot render it productive by digging it up. It is not amineral ore that can be extracted until it is exhausted but a reservoir that mustalways be there and be allowed to fill again so that it will always be there for us

to draw on. It will fill again as long as a healthy society generates the socialcapital that trickles back down to that aquifer. This reservoir supplies our societyand economy with the great mass of deep commonalities and motives that mustbe assumed but which cannot be made explicit, and which we can sum up as

trust. But we cannot put a price on the resource represented by this reservoir.For what is tacit and implicit is the basis on which other values can be madeexplicit, and so allows us to put a price on them. Economic transactions dependon us, our initiative, motivation and perseverance, and so they are soft; andthey depend a vast accumulation of successful past economic event which, sinceit is past, is unchanging and hard.

The aim of all economic transacting is continuation. We act in the hope that there

will be transactions and an economy in the future. Both materiality andconvention, the hard and the soft, are required; there may be change andgrowth but there must be continuity and stability. Every transaction is based on abalance between sameness and difference; too much difference, whether wecall it change or growth, puts continuity into doubt. A curious conceptualanomaly creates a bias that promotes difference over sameness, at thefoundation of modern economics, which means that it gives poor description ofactual macro-economic changes. All other things being equal, a thing remainsthe same: something changes only when it is affected by something else. It istherefore normal that things stay as they are, and it is a departure from the normwhen they change. Next we must sketch the deep connections in theirrelationship between money and change. Then we will be able to ask whether the

assumption that growth must be a normal feature of our economy makes oureconomy unstable.

4. Growth and Moneys modern originsThe driving narrative of modernity is growth. But it has cast off the thought thatpersons can grow and that they may freely take on any course of formation bywhich they could do so. Growth means only not personal growth but merelymaterialgrowth, a rising standard of living. We have to compare two accounts ofgrowth, one of which relates to an account of persons, while the other isunrelated to persons, and within this second account, that is offered by moderneconomics, in which money and growth are deeply connected, at the level oflogic.

What is growth? In Chapter Three we compared two accounts of man as aneconomic agent. On the one hand he was a public being, who acted before hispeers, and on the other he was a private being who acted without an audience.The moral philosophers who affirmed this account of man as private and solitaryinsisted that man was already mature. This man did not need to grow because healready was all that he possibly could be. He stood at the summit of perfection,and the only limit on him was formed by those who did not see this so. Accordingto these thinkers, the individual man could grow by allowing his own innatecharacter to emerge from within him, as simply as a seedling unfurls out of itsseed pod, almost without inputs. For this growth, such an individual did not need

them Mengerians), and those who again argue that the State has generally played acentral role in the evolution and use of money (Cartalists).

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ourselves considered as bodies (needs and wants, and so the demand side of theeconomy) and ourselves considered aspersons.

Modern economists are the heirs and successors of the modern champions ofautonomy and so of the expansive period of European and American empires,that lasted from the seventeenth to twentieth centuries.20 For them economics

can only be about growth, and material growth. Such growth is related to thegrowth of money. So we must turn next to the creation of money.

Governments and banks

Where does money come from? Here is a thumb-nail sketch. Wealthy mencorresponded and did business with one another by letter, and expect that thebearer of the letter would amplify and interpret what the letter contained when hereached its recipient. Money is a form of letter. The wealthy wrote letters ofintroduction which the bearer could present as they travelled to other noblehouses. Such a letter functioned as a passport through foreign territory and astheir introduction to polite society. Within a great house such letters functioned achit or requisition slip, instructing the kitchen or stores to provide whatever its

bearer required. 21 A letter of recommendation, became letters of credit, and aletter of credit became a cheques which could be drawn on that mans resources,and by extension on those resources held for him, or lent to him, by his banker.22

Such letters functioned as money, or to put it another way, money is our termfor the sort of letter that functions as a passport or requisition slip. Money is aform of writing.

Every kind of monetary token also relied on some kind of writing toenable it to serve the three functions that money had to perform, thiswriting might be as simple as the inscription on the face of coin, wherethe writing typically shared the space with images; or it might becomplex and not confined to the monetary instrument at all.23

But as Mary Poovery points out, money has become so familiar that its writinghas seemed to disappear and it has seemed to lose its history as (various formsof) writing.24

In the British Isles only parliament had the authority to raise taxes from thecountry, and practically, its members has the ability to do so. A king whodetermined to avoid parliament could perhaps meet his obligations for a while byborrowing from his own aristocracy, or from the City of London or from bankers.He might consider it better to borrow from, and be in hock to, those outside thepolitical nation, without military power or dynastic claims of their own, such asthe Church, Jews, Lombards, Dutch. Since they could not so easily enforce the

payment, these could be defaulted on in extremis, and carry the blame for20See Scott B. Macdonald and Albert L. GastmanA History of Credit and Power in theWestern World(New Brunswick; Transaction 2001) p. 127-51. John Brewer The Sinewsof Power: War, Money and the English State 1688-1783 (NY Alfred Knopf 1989) pp. 185-89; Andrews Kenneth Trade Plunder and Settlement: Maritime Enterprise and theGenesis of the British Empire 1480-1630 (CUP 1984)21Valenze Deborah The Social Life of Money in the English Past (Cambridge University

Press 2006) p. 49 They also learned to approach the act of exchange with an eye to boththe past and future values of certain items, understanding that in some case the store ofwealth represented by money might change over time22Bruce Carruthers City of Capitalpp. 127-31.

23Mary Poovey Genres of the Credit Economy: Mediating Value in Eighteenth and

Nineteenth Century Britain (Chicago 2008) p. 59.24Mary Poovey Genres of the Credit Economy: Mediating Value in Eighteenth andNineteenth Century Britain (Chicago 2008) p. 3

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difficult economic times. All money was understood as a form of promissory note:the note is as good as its issuer, and the other agents in the market who acceptit. Each seller critically examined the payment he was offered not merely in termsof its quantity, whether the sum offered was enough in its nominal value, but alsoits quality.25 No one assumed that all money was the same, for there was nosingle authority that took on the responsibility for ensuring moneys uniformity. 26

Money and government

Where does money come from? Money is created by states. The governmentcreates money and it does so by fiat, that is, simply by declaring that this ismoney. It rules out attempts to make anything else serve as money and somakes its money sole valid currency.

Government is simply is our communal and national agreement to trade with oneanother and uphold the conditions justice in which we may do so. No nation,and no national government, has to buy or borrow money; it has the authority toissue its own money, for there is no source with more authority that the consentof the whole people which that government serves. The government is dedicated

to the service of the whole society and can provide for that society whateverrange of public services they require. It declares that such-and-such is legaltender, and it thereby bring money into existence, for the whole people and ontheir behalf. That money is intended to facilitate the transactions that they willwant to enter. Money is a metric, like other weights and measures. A governmentcan provide this particular metric just as it provides us with laws and a legalsystem that enforces them. It can declare that certain weights and measures arelegal, and others are not. The historical origins of our form of money is as aspecific measure of weight of precious metal.

Governments create money by minting coins and printing paper currency. Thesegive us the small denominations in which to make many small transactions. On a

larger scale government makes money by making entries in its own national bankaccount, and most money exists only as the numbers recorded in bank ledgers.The money that the state produces is money because the population agrees thatit is so, and this money will be tried by the international money markets. Someeconomies use other reserve currencies for international trade and perhaps ifthey find own local currency inadequate also use foreign currencies for domesticexchanges. It is the affirmation of these economic agents, given by their use of it,that makes it money. There are always many things in circulation that act likemoney; most of them are ephemeral, like coupons, vouchers, store cards,cigarettes and bottles of whiskey. Any firm, or community or indeed individualmay issue their own coupons and have some success in getting them acceptedand a circulation of them established. But since the government does not accept

25Mary Poovey Genres of the Credit Economy: Mediating Value in Eighteenth and

Nineteenth Century Britain (Chicago 2008) p. 58-9 Forced to adapt to the presence ofmultiple kinds of coin of uncertain worth, early modern Britons developed great virtuosityin exchange relations that enabled them to evaluate a great variety of coins by weight,

chink, color, thickness and to decide when and how to deploy better and less good coinsand to determine which coins should be hoarded and which ones paid away.26Mary Poovey Genres of the Credit Economy: Mediating Value in Eighteenth and

Nineteenth Century Britain (Chicago 2008) p. 162 As long as competing kinds of papercredit circulated, and as long as no one not even the Bank of England took responsiblefrom controlling the nations currency, paper money remained controversial. No creditmoney could be taken from granted in other words because every banknote was as subjectto evaluation in relation to notes of competing banks as every bill of exchange always

was all notes would compete with each other and would remain objects of culturalscrutiny.

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such scrip for the payment of taxes, it does not have the sanction of law thatmakes it legal tender.State and banksBank-issued money as failure of government authorityBut this is not yet an adequate account of where our money comes from. For themajority of our money is notmade by government fiat. Granted, governments do

mint coin and print bank notes, but these represent only 3% of the moneypresently in circulation in the UK. If government-created money is just a tinyfraction of the money in circulation, where does the rest appear from? All therest is debt, used as money. Most of what we employ as money is debt, albeitthat when it passes through our hands it is indistinguishable from non-debtmoney. How did this come about?

Those in power in any government can be expected to know that the wholepeople, and traditions of the people, is the source of their authority togovernment, and that they therefore have the authority to issue by fiat theenough money to enable trade in that nation. But what if those in power do notcomprehend that this authority is theirs to exercise, and do not have the

confidence to issue fiat money? As they became more impressed by the authorityof bankers, and their confidence in their representative powers fell, so theyallowed the proportion of government-issued money to fall, throughout theeighteenth and nineteenth centuries, until it stands as its present negligibleproportion. But national governments did not maintain the level of fiat money,but allowed banker-issued money to take its place.27

Instead of issuing it, our governments allow other bodies to issue money, whichthe government then borrows from them. So it is that most of our money is notissued by governments, but by other institutions, banks, which over timegovernments have allowed to take on that role until they effectively hold this astheir right. By default and over centuries governments have conceded this right

to them. They condone this arrangement because this money comes back tothem as taxes. Central banks are not branches of government: the Bank ofEngland operates under royal charter, while the American Federal Reserve Bankis owned by the banks themselves: both are able to resist accountability to theirlegislatures.

Individual persons take out loans from banks in order to invest in theirenterprises. It is the job of the bank to identify those who will make goodproductive use of this money. It is there to select real entrepreneurs who willidentify new commercial opportunities, make new productive capacity and createnew industries, technologies and jobs, from those who will not. It is their job toseparate the long-termers from the short-termers, the investors from the

speculators. The central bank out-sources this job to the banks, for on it reliesthe quality of money. For it we issue money, through loans, to those who willmake no productive use of it the economy will be worth less rather than more.Money is issued in order to enable future transactions, but it could turn out thatwe have more money, but less economic activity and thus less real wealth, thanwe anticipated. All money is seed money: it has to be properly placed in theeconomy in order to create the growth that it is intended to manifest. Badly-placed money will not deliver the looked for quantity of transactions. The moneythat was created to enable the large number of transactions of a growingeconomy will only very inefficiently enable the smaller number of transactions ofa shrinking economy. Too much money and too few transactions will causedislocations of resources that will make that economy smaller yet.

27 Ellen Hodgson Brown Web of Debt

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To make a good money supply is not merely a matter of the central bank decidinghow much money the economy needs for the coming period. It is also aboutevery bank deciding which of the applicants for funds who come before them aremost likely to be a good investment. Which of these borrowers is likely to be agood economic multiplier because they understand that this money is seedmoney? They have to exercise their judgment and to decide that this applicant is

feckless but this one competent and responsible. They have to distinguishbetween investment that is productive and which is going to be spent onconsumption. Money represents a judgment on the future character of theeconomy. It is not just the one central decision by the central bank, but themyriad decisions of banks and other investors that keeps the money supplyhealthy. Money is not simply constituted by the decision of one central authority,but of many, many decisions by different agencies, exercising their representativefunction across the market, and ultimately it is constituted by the market as awhole. This means that it is not simply a technical decision, but a decision aboutcharacter and deserts and so a moral decision.

Anyone who takes out a mortgage brings new money into existence. Despite our

conviction that we are borrowing money from the bank, the amount of your loanwas not given to you by the bank, for it did not exist until you went into the bank.The bank entered a covenant with you by which you are putting money into theeconomy. You spend money, for example, paying the seller of the house you nowbuy, and buying the services of the suppliers and tradesmen who refurbish it foryou. As you pay them, they are able to pay others, and the money that has beenbrought into existence by your mortgage spreads through the economy,indistinguishable from any other money. You and your bank have brought thismoney itself existence together, for each bank is licensed by the central bank toexercise this function of issuing money against the surety of your future labourand the asset that is your house.

We can put this another way. When you go to a bank for a mortgage, the bankgives you permission to issue IOUs, in just the way it is given authority to issueIOUs by the central bank. These IOUs will appear as pounds sterling, in allrespects indistinguishable from all other money in circulation, except that youowe the bank interest on them. The pounds in circulation are IOUs issued jointlyby individual mortgagees and their banks. When you borrow money by taking outa mortgage, it is as if you yourself become a bank, lending to everyone fromwhom you make purchases. You are passing on to them your IOUs, granted thestatus of pounds by the bank, and for everyone downstream of you, your IOUswill be hard currency. As soon as we take any of these pounds from the cashmachine, they appear as the banknotes issued (or guaranteed) by the Bank ofEngland, with all the panoply of the familiar portraits and features that identify

this as the national currency of the sovereign nation. For you, however, they willbe debt bondage, the commitment to produce 200% of the amount of yourmortgage over the next twenty-five years. The loans taken out by individuals andcorporations are the currency that serves a whole economy by financing everytransaction in it.

People bring money into being as they take on debt. By taking on debts moneycomes into existence. When you pay off that mortgage and no longer owe thebank, that money has gone out of existence and the total money in circulationhas shrunk correspondingly. It is only the appearance of more people coming toborrow that prevents the total amount of money from diminishing. If people didnot take on new debts, there would not be enough money to enable transactionsto take place. We all rely on other people to go into debt in order that we havethe money by which we can buy and sell. The whole economy, and every agentin it, needs this money and rely on people to go into debt. Yet we put the onus of

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its creation on the one individual: transaction costs are invisibly transferred tothose who are in debt. As long as money is created by one particular section ofthe community, the banks, and so reckoned to belong to them (our mortgageappears as an asset on their balance sheet) money comes with this spin thatskews all subsequent economic relationships. Once started, that captivity canonly spread. An asymmetry, that creates an entirely unnecessary status

differentials everywhere in the economy. It inserts a differential into everyrelationship that need not be there. This has the effect of separating the economyinto creditors, at the top, and debtors at the bottom. Whether we consider it ascredit or debt, it polarises.

The state that does not acknowledge its own sources does not know its ownauthority. The source of its authority is the whole people, past and future asmuch as present; it has a mandate to issue money for the whole economy, notonly present but future. The state that does not acknowledge that it receives itsauthority from the whole people does not serve that whole people equally. Thereis no need for governments to seek take their authority from the banking industryor any other oligopoly.28 But government is content with the way things are,

perhaps because those at the top of governments are unable to believe that theycan create by the fiat the money by which they themselves should be paid. Byrelinquishing to banks the power to create money, banks take on adisproportionate power that distorts the economy. Perhaps we should chargemembers of government with not governing with enough confidence.

Surely there is another way? Indeed, there are many. There are manymovements for money reform, particularly when, as now, the existing systemcomes into crisis.29 We do not need to issue money in the form of debt. Moneycan simply be issued by fiat. Each state can issue fiat money. There are forms ofmoney and its issuance which do not involve central banks. Perhaps we do notneed a fractional reserve banking system at all. We need a clearing system, or

many such systems. We do not need the currency of one country, the UnitedStates to function as international currency, with the effect of keeping the US inyawning deficit. We could see the emergence of a global currency, in whichinternational trade could be carried out. Indeed currencies could be tradedwithout the involvement of states defending their currencies, in the same waythat shares are traded now.

5. Debt and growthWe have seen that money is related to debt. Now we must relate debt to growth.The modern origins of money in debt have resulted in repeated crises, but thoughthere have been national and international collapses, the global economy hassurvived. It has been possible for debt money to continue to grow because the

world economy grew. It did so because Europeans discovered new territories,regularly finding that the horizon was further away than they had believed. Theworld was bigger than their forebears had known and much emptier than theirown continent. For Europeans the world appeared to be expanding.

Europeans sailed across the Atlantic and took possession of the vast lands ofnorth and south America, discovering the resources that enables the growth ofthe population and that powered the greater prosperity of those populations. Theimperial age the period of the East India Company and Hudson Bay Company was the result of this territorial expansion and discovery of new resources andtrading partners. The age of the open frontier and of empires is the founding

28Ellen Brown The Web of Debt29

Bernard Lietauer The Future of Money, James Robertson; Greco, Douthwaite.

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period for Modernity. The economic mechanism that the champions of theautonomous economy required this open frontier, these new material resourcesand markets, and made it the foundation of its self-understanding. Moderneconomics is premised on this expansion. Modernity is inseparable from growth.

In earlier centuries, growth was indeed possible. There were repeated national

and international crises and collapses, which impoverished a proportion of thepopulation, but nonetheless these were intermissions in the growth. There arealways crises in capitalism, but these are essentially corrections, and they arebigger and more painful when we attempt to prevent them. Our question must bewhether it is still possible to run a system in which there must be constantgrowth.Debt and interestWe are all in debt. But we are in debt to one another. Surely we could simplywrite off our debts to one another? Not quite. For we not only owe the capital butalso the interest we have undertaken to pay on it. The debit and credit sides ofthe global economy do not equal one. Modern economics works on the

assumption that if we got rid of money our economic exchanges would continueas before without it. The requirement of interest payment means that this is notso. 30

We owe interest. Each of us has to pay back more than we borrowed, whichmeans that each of us has to come up with more money than we borrowed. Wehave to work to find that money. By lending we set someone to work, and whenwe all lend to and borrow from one another, we drive everyone to work. Becausethey have to pay interest in additional to the capital, the worlds borrowers haveto find more money than presently exists.

The total debt is the same as the total credit, but the total debt plus the interest

that sum is greater than all the money in existence. In order that all capitalrepayments and interest payments can be made, the amount of money inexistence has to grow. Since money is (very largely) the same as debt, thismeans that the total amount of debt owed has to continue to grow in order thatwe call all meet our present re-payments. There has to be growth in the totalamount of money, and we have to increase our supply of money by new debt inorder to pay off this interest.

What is the work that we drive one another to do? Our work must consist ininducing other people to take on new debts. We are all engaged in encouragingother people to borrow in order to put more money into the economy and raisedemand so that we can all come up with the money to meet the interest

payments on our own loans. The chief work of the modern economic agent is toexpand the money supply.

There is not yet enough money in circulation to pay everybody off, along withinterest. But we can only bring more money into circulation by creating newdebts. We all need to make sales in order to pay off our own debts so we hurry tosecure new sales. It is not enough for everybody to trade with one another at thepresent rate. There has to be economic growth in order to generate the moneywith which we are going to meet the interest payments on our present borrowing.There is an imperative to keep growing the economy irrespective of human needor environmental consequences in order to stimulate sufficient new borrowing toput enough money into circulation

30 Steve Keen Debunking Economics

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When we create money as debt we are assuming that the economy as a wholewill expand. All the balance sheets that represent the present state of theeconomy, can only be justified on the basis that the future economy will bebigger. The economy has to get bigger in order to repay the loans that appear asassets on other peoples balance sheets. More resources have to be found andconsumed to create this bigger economy, and this is so even though the world

itself is not going to get any bigger. If the future economy is not bigger, our loanswill not be repaid, we are making claims about our assets that are not true andthe present economy is already bankrupt.

If we make less this year than last we are all in trouble because we have to makeour interest payments. If we start missing payments because we can't findenough business because there is less money in circulation, we will have to find asignificantly greater sum in the following period and so will quickly be in muchdeeper debt. Interest is compound, so our debt can spiral beyond our ability topay. Eventually we can no longer disguise from one another that the money weare owed will never be repaid, the assets disappear from our balance sheets. Theeconomy is not in equilibrium, but in a perpetual state of overreach, toppling

forward into the future. When it suddenly becomes clear that that future issmaller than we all said it would be, we have a crash.31

Inflation and deflation

The way that we define money means that we are hurling ourselves against thelimits of a finite world. Debt and compound interest commits us to trade faster.Without the need to make repayments on our debt we would be satisfied withachieving fewer transactions. We would have less need to pressure others tomake formal acknowledgement of each service we render them, by paying usindividually for them. More of our accounting could remain informal. We wouldnot be looking for new ways to bill one another for services that used to beunderstood, and which involved no invoice.

The system which employs debt as money, and requires growth to pay theinterest on that debt, inevitably faces crises. Compound interest means that debtgrows faster than the real economy ever can. Productivity may growgeometrically, but debt grows exponentially. When we fail to make ourrepayment, our debt climbs steeply, and finally vertically. People cannot pay whatthey owe, and thus there are defaults. As a result of the way that we definemoney by this relation to debt, interest and growth, gap between geometrical andexponential growth means that money periodically goes into crisis. Will the globaleconomy meet a crisis it cannot overcome?

When nations cannot meet their national debt interest payments, they create

more money and run inflation. Inflation is not caused by too much money but bythe lack of permanent stable money stock and our reliance on debt-money. 32

Inflation is the result of the two sides of the economy consumers andproducers, wages and prices in permanent conflict because of a lack ofpurchasing power. The result of debt-money is that there is under-payment, andso not enough money in the economy, so individuals do not have enough moneyto enter exchanges, and thus cannot buy even basic needs.33 It is often assumedthat inflation has to be brought down by taking money out of the system, butwhen this is done a sudden shortage of money is created, there is a drop in thenumber of transactions, which is disastrous for those at the bottom. Once people

31 Chris Martenson32Richard Rowbotham (292)33Amartya Sen

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drop out of the economy, it may not be easy for them to get in again later, sodeflation may cause a permanent loss of demand.

Inflation is a great de-motivator. It saps away savings and so dispossesses thosewho have worked, so that those who have worked have no greater reward thanthose who have not, and are unable either to look after themselves or have

anything left over for anyone else. Inflation destroys the independent self-subsistent individual and family and draws people into closer dependence ongovernment.

We are eager to earn money in order to provide for our old age. Ourdetermination to accumulate a capital sum represents our fear that whoever isprepared to look after us when we are old, will demand more than we can pay.We said that the money supply has grown much more rapidly than is warrantedby growth in the real economy. This inflation of the money stock reflects the factthat there are already more old savers than young borrowers. But more thanthat, it reflect the fear of the majority of those savers that, despite their savingand virtue, and despite their successful speculation, they still do not have enough

money to ensure that that they will be looked after in their old age. Moneyexpresses our fear of the gap between retirement and lifes end.

The long growth of the money supply in Western economies and boom in thefinancial services are the result of this fear that each of us feels that we needmore money in order to pay for our retirement and old age care. We need moremoney than we are able to save from our earnings. The years ahead each of uswill need a family about us again to wipe our chin without charging us for it, butwe have long since allowed that family to break up as an economic entity. It isnot there to provide inter-generational care. The distended financial services andballooned money supply are here because the family is not.

The driver of the capital marketThe capital markets are about the efficient, that is the best, allocation ofresources, so that resources go to those who can make best use of them, andbest use means the use that will generate most new economic growth, so that itacts as seed money, getting the highest multiplier, so the whole economy isbigger as a result. We want returns that led to more returns that lead to stillmore returns that is what we are looking for. We need the capital markets toserve the productive economy by providing the best allocation of resources to itsvarious industries. It is the job of financiers to assess which seem likeliest tosurge ahead and to put money there. But they are having the reverse effect. Thecapital markets are attracting money away from long-term investment inproductive industries, taking money out of production and into the reservoir of

money that is guessing where to go next and of course it goes where it thinkthat all other money will go next.

It would be most efficient if we simply assigned money from the wealthier to theleast well off, for the least well-off will always we better spenders, that is, moreproductive, spenders than the wealthy. For the first few pounds you spend, onessentials, have a greater multiplier effect than the last few pounds. But money isgoing to the richer, who put it into speculation into asset prices, that is, they arepushing up the prices of commodities thereby making it more difficult for thosenot well-off to put those commodities or assets into production, to make produce(multiplier effect) use of them

Fear, greed and speculation

We have said that each of us is driven by anxiety to make themselves secure sothat they can afford the care that they need. There are no natural limits to this

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need for care, of course, so . the market is driven by those who have achievedleast serenity in the face of their own mortality. The angry and desperate are thefront of every market. The game is to plunge into every game and market justbefore the majority plunge in behind them and to get out again before they stopplunging in. Some market-makers manage to create rushes into particularstocks and sectors, just by getting into them, and just by talking certain areas

up. So the market is a competition to talk certain areas up (ramping up theprice), without revealing that you are in those areas and trying to get out again.The market is like a crowd of children rushing across the playground. As long asyou are in just ahead of the average more often than not, you are winning. Youare trying to spook others out of the game you are not in, and into the game youare in, in order to dump your shares on them, meanwhile others are trying tospook the market you are in, and you are weighing up whether it is worth holdingyour nerve or whether you should take a loss and get out before the positiondeteriorates. The old game of selling and talking down a stock, in order to buy itagain when the price has dropped, is accelerated by automated dealing; here theinstitutions with the greatest data-processing power are fastest, able to identifyand complete trades in fractions of a second, benefit at the expense of all others

by selling and re-buying your shares in that stock at a lower price.

The market sometimes reduces the feverishness of a myriad individual emotions,alternating between confidence and caution. At other times, the market amplifiesthe sum of the individual experiences and exacerbates our individual panic.But there is always an inner circle, the tapeworm that eats away at the bodypolitic from within, as one commentator refers to it.34 The bigger, full-time,investors or players are winning at the expense of the small investors, sellingthem stocks that they are moving out of, or repeatedly moving in and out of,pushing the price down. The insiders are milking the outsiders, the smarter aregulling and fleecing the fools, and perhaps it has always been that way. But wesee a new burst of such activity, in particular which we see that the very biggest

players have captured the state and are engaged in its pillage, we should say so.If we are seeing an inexorable concentration of control over real wealth, thiswould result in a significant loss of economic motivation.35 In particular it is forChristians to put these questions.

6. Recovery and restraintWe have created a vast excess of money over actual economic growth. Thoughone bubble appeared to burst in the financial crisis of 2008, our leading banksand central banks have been preventing the deflation that should have occurred.Governments have been created new money and preventing any majorcorrection. The healthy thing would be to let market which is the assembly of

mankind decide values. If a bank or corporation or indeed whole nation isbankrupt, the market should be allowed to discover this and re- value its stock.It is good to let this happen, it is damaging as long as we delay this correction,and this correction is in the long term inevitable.

Stock market crashes might seem to make us poorer and so be thought to beavoided at all costs. But they are only apparently so. We have lost money, butthat money was long-term social capital cashed in by the many individualsseeking to distance themselves from their inherited contexts. When the money isgone we have to return to that more primitive economic form, the domestichousehold. We are all still stuck in a much large bubble, that will persist for aslong as we do not value two factors at their replacement value at least. One of

34Solari35 Catherine Fitts Solari

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these factors is the entity that reproduces and motivates the next generation ofeconomic agents, the family. The other is energy.

We said in chapter 3 that the long-term functioning of the economy depends on abasis level of national unity, endangered by excessive disparities of wealth. Acrash may be a revelation of essentials that enables us to discover that is

permanently valuable. Perhaps what we took to be our economic prosperity is notthe result of our own productivity, but simply a credit-created delusion. If itdisappears, perhaps we will be much poorer, or perhaps we will only discover thatwe have been living a long way above our real, earned and sustainable standardof living. JS Mill points out that a crash is not the destruction of value, but therevelation that value has already been corroded away. After all, when we lose allour money, do we not become more directly and personally dependent on oneanother again? Don't we go back to our families and eat humble pie? Perhaps wemight experience this discovery of our economic reality not as poverty but simplyas a relief.

We have seen that since money is brought into existence by loans on which

interest is paid, the number of relationships in which one side must recognise theservice of the other in the explicit currency that we know as money. The economydenominated by money grows as we opt out of the specific relationships offamily, household, local and national communities and industry, and into theabstract, distant and global relationships.

But first there is another factor to consider, the limits of the material world. Couldit be that the real bubble has not yet burst? Could it perhaps be that little of thegrowth that we have experienced in the last fifty years will turn out to be real andsustainable? Perhaps we are all riding a super-bubble.36 Is there a much biggercorrection ahead?

The limits and sustainability of growthWe have not addressed the issue of how this near-exponential growth in globalcapital relates to the finite resources. Can the economy grow when some basicnatural resources, chiefly fossil fuels, not only do not grow, indeed actuallydeplete? Can we continue to have growth in a finite world?

We said that the modern con

5 growth, debt and money

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