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  MONEY

  MONEY

  5,000 YEARS OF DEBT AND POWER

  MICHEL AGLIETTA

  In collaboration with Pepita Ould Ahmed

  and Jean-François Ponsot

  Translated by David Broder

  This English-language edition first published by Verso 2018

  First published as La monnaie. Entre dettes et souveraineté

  © Odile Jacob 2016

  Translation © David Broder 2018

  All rights reserved

  The moral rights of the authors have been asserted

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  Verso

  UK: 6 Meard Street, London W1F 0EG

  US: 20 Jay Street, Suite 1010, Brooklyn, NY 11201

  versobooks.com

  Verso is the imprint of New Left Books

  ISBN-13: 978-1-78663-441-2

  ISBN-13: 978-1-78663-444-3 (US EBK)

  ISBN-13: 978-1-78663-443-6 (UK EBK)

  British Library Cataloguing in Publication Data

  A catalogue record for this book is available from the British Library

  Library of Congress Cataloging-in-Publication Data

  Names: Aglietta, Michel, author.

  Title: Money : 5,000 years of debt and power / Michel Aglietta.

  Other titles: Monnaie. English

  Description: Brooklyn : Verso, 2018.

  Identifiers: LCCN 2018024563 | ISBN 9781786634412 (hardback) | ISBN 9781786634443 (United States E Book) | ISBN 9781786634436 (United Kingdom E Book)

  Subjects: LCSH: Monetary policy. | Money – History. | Economic anthropology. | BISAC: POLITICAL SCIENCE / Economic Conditions. | SOCIAL SCIENCE / Anthropology / Cultural. | POLITICAL SCIENCE / History & Theory.

  Classification: LCC HG230.3 .A3913 2018 | DDC 332.4 – dc23

  LC record available at https://lccn.loc.gov/2018024563

  Typeset in Minion Pro by Hewer Text UK Ltd, Edinburgh

  Printed in the US by Maple Press

  VD1_1

  Contents

  Acknowledgements

  Introduction

  I.Money as a Relation of Social Belonging

  1Money Is the Foundation of Value

  2Logics of Debt and Forms of Sovereignty

  II.The Historical Trajectories of Money

  3From Ancient Empires to the Gold Standard

  4The Upheavals of the Twentieth Century

  III.Crises and Monetary Regulation

  5Monetary Crises in History

  6Monetary Regulation Under Capitalism

  IV.The Enigma of International Currency

  7International Currency Faced with the Test of History

  8Transitioning to a New International Monetary System

  Notes

  Bibliography

  Index

  Acknowledgements

  This book brings together thirty-five years of studies on money. I would like first of all to thank Pepita Ould Ahmed and Jean-François Ponsot for their partnership through this whole adventure. Their help, through our discussions and various drafts of the text, has been essential. I would also like to thank André Orléan and Catherine Blum for their attentive reading of the trickiest parts of the manuscript.

  Finally, I would like to thank Sophie de Salée, who formatted this voluminous and complex book with incomparable skill.

  The Institut caisse des dépôts pour la recherche en sciences sociales, directed by Isabelle Laudier, provided financial assistance for the writing of this book.

  Introduction

  In mid-September 2008, the financial crisis that had been sweeping across the Western world for more than a year reached its climax. The whole of the Western financial system was collapsing, with nothing to hold back the tide. At this critical moment, the most important figure on the planet was Ben Bernanke, chairman of the Federal Reserve. The dramatic decisions were taken over the weekend, when the financial markets were closed. This was itself symptomatic of the sudden loss of confidence in these markets. When a senator asked Bernanke what would happen if the central bank did not carry out its rescue package, he replied, ‘lf we don’t do this, we may not have an economy on Monday.’ Finance and the Western economy were saved by money.

  This reality contradicts the liberal doxa of financial efficiency. Following a quarter-century of financial liberalisation, this ideology today sweeps all before it. Of course, the knowledge that it provided was unable to foresee the global financial crisis. At its theoretical core, it ruled out the very possibility that any systemic crisis could develop. But, graver still, it was unable to learn from what had happened and to reform itself accordingly. The financial lobby was saved by the central banks. After that, the regulatory authorities, acting under G20 auspices, did timidly attempt to impose a few mini-reforms to avoid a repetition of what had just occurred. Yet the international financial lobby knows nothing of gratitude. It shamelessly sought to torpedo the new regulations, or to find some other way around them. The corrupt financial practices that had built up with the real estate speculation bubble would in fact take on much greater proportions after the crisis. These practices were facilitated by the collusion of the major international banks, who manipulated prices on the world’s two most important money markets: on the one hand, the LIBOR, or benchmark interest rate between banks, and on the other hand the dollar exchange market. Those responsible for these attacks on law and morality were immune from any criminal responsibility.

  Yet, more seriously for the advancement of our understanding, the academic world that spreads the good word of finance has remained unperturbed in the face of the cataclysm. Finance is still assumed to be efficient. This ‘truth’ is taught in the departments of finance of all the major universities and business schools, with a haughty disregard for any doubts that the financial cataclysm must surely have aroused in any researcher enamoured of scientific methods. Alas! The dogma of the efficiency of finance has triumphed in economic policy. So, in Europe, where the inability to contain the Greek crisis has caused a protracted economic quagmire, so-called ‘orthodox’ economic policies blame the labour market for the continent’s inability to return to the path of growth. This imperfect labour market, which in fact has nothing to do with the crisis, is held to be the cause of all our post-crisis ills. Finance, for its part, is once again imagined to be blameless.

  Worse still, it is now barely possible to pursue an academic career without wedding yourself to this same credo. This is particularly the case in France. There, a warning from a single economist – one decorated with a Nobel prize, it is true – was enough to make the government abandon its decision to diversify the field by creating a department designed to put economics back into society.

  This intellectual poison is a serious matter indeed, in an era in which our inability to rediscover the course of progress can be felt everywhere. This is particularly the case in finance. Indeed, as was announced in a press conference on 21 September 2015 by the governor of the Bank of England, Mark Carney – who knows what he is talking about, London being home to the world’s largest financial trading floor – the rhetoric of the financial lobby and the financial theory that supports and justifies it rests on three lies.

  The first lie is that if finance is entirely free, globalised and unregulated, it will develop instruments to insure against risks (derivative products), rendering impossible the spread and intensification of the blaze. After two decades of stable inflation and financial liberalisation, the financial community, the media, and the political establishment loved to proclaim that systemic crisis had now become impossible (‘this time it’s different’). But the impossible did happen. This owed not to some external mega-event but rather to the fact that speculation had eroded from within any sense of reason and any barrier to the appeal of greed. T
his first lie is also the basis for the other two.

  The second, then, is the claim that financial markets spontaneously find their own equilibrium. This lie concedes that the markets can be thrown off their equilibrium by shocks. But it is also imagined that these shocks are external to the markets’ own logic. Market actors are wise enough to note any divergences; it is in their interest to act in a way that reduces breaches. After all, such actors have an apparently infallible compass: namely, knowledge of the ‘fundamental’ values of the financial securities traded on the markets, which is to say the ‘true’ long-term values of companies. This same compass allowed Milton Friedman to claim that the only speculation that can be successful is that which restores equilibrium: speculation that brings a return to the fundamental value whenever the market price departs from it. Yet, ever since the birth of market finance in the thirteenth century, the whole history of finance has been punctuated by bubbles of speculation that end up bursting and causing the debts that financed them to implode. With the return to financial liberalisation in the 1980s, the most devastating crises have been real estate crises. Indeed, real estate assets are the biggest single element of private wealth, and financing these assets requires taking on debts. Real estate is founded on ground rent, which is income from a non-produced asset – the soil. For this reason, it has no equilibrium price, and thus no fundamental value. The same is true of all non-reproducible natural resources. The competition to appropriate these resources brings only a rise in rent, whose sole limit is buyers’ monetary capacities. The financial dynamics of the real estate sector are moved, therefore, by the logic of momentum – by the spiral of interacting rises in credit and prices – and not by the return to some predetermined equilibrium price. Eventually, there will come a point at which such momentum is reversed. Yet given that both the climax and timing of this turning point are radically unpredictable, the actors who feed the bubble in real estate values have an interest in holding onto their positions indefinitely. This only ends when their fictitious and self-generated values implode, followed by a state of ‘every man for himself’.

  The third lie is that financial markets are moral. This lie claims that the markets’ functioning is itself transparent, whatever the ethics of individual market actors. The markets’ functioning should bring any deviant practices out into the open, so that the social interest will always be safeguarded. It follows, according to this ideology, that the only thing able to perturb the markets in a lasting way is inflation, since inflation is created by the state. This claim would be laughable if it were not so tragic. The biggest financial crises, including the one whose effects we are still shouldering today, have taken place during periods of low inflation, which have encouraged financial risk-taking. We have already mentioned the large-scale, organised corruption that has come to light since the crisis. These corrupt practices contravene the notion that the market disciplines its actors. For the markets to work in society’s interests, what is needed is an institutional framework that is itself a public good: one imposed by political will, and which is intrinsically linked to money.

  PUTTING MONEY BACK AT THE HEART OF THE ECONOMY

  Once we have acknowledged these three financial lies, we must, at a minimum, take a rather more critical approach. Yet such an approach must also delve into the fundamentals of what is known as economic science, or in other words, the theory of value. For it provides the foundations in which each of the three lies takes root. These foundations are not innocent, for they contribute to an intellectual project that has been ongoing for more than three centuries – and one, moreover, that was originally known as the ‘natural order’. This project consists in the total separation of economics from the rest of society. The so-called economic science that drives this project has no link with the disciplines known as the social sciences. It is a theory of pure economics whose unifying concept is that of the market. And it displays one essential characteristic: it downplays the significance of money.

  The fundamental theorems of financial efficiency are theorems of an economy without money. Money is either ignored entirely or it is grafted onto a predetermined system of efficient prices said to guide economic actions. In the second case, money is assumed to be neutral. While some would add that it is only really neutral in the long term, as we see in Part I, this caveat changes nothing about the essential proposition of the theory of value: the market totally and exclusively coordinates economic exchange. This coordination owes nothing to social relations and nothing to the political arena. And yet, debates on the nature of money and its role in the overall movement of the economy date back to the origins of modern economic thinking in the sixteenth century. The opposition between a notion of money as a particular commodity – as a simple appendage in an economy coordinated by the market – and money as an institutional system that binds the economy together traverses economic thinking. This book seeks to give full expression to this second tradition, which allows us to insert economics into its properly social context.

  As members of society, we daily experience the interconnection of the economic and the social, especially through the haunting omnipresence of money. We can only be astonished, then, when a theory that purports to explain social behaviour simply neglects the question of money. But we must dig deeper. Money is an essentially political animal. It is not by chance that a theory that exalts the market as the exclusive principle of economic coordination excludes money. Indeed, it is precisely through this exclusion that it can establish the ideology of a ‘pure’ economy separate from the political sphere. Conversely, if we consider the economy as a subset of social relations, then we need a political economy founded on money. Here, money is the mode of coordination of economic acts. However, the manner in which this coordination operates does not make equilibrium the alpha and omega of economic understanding. On the contrary, we have to think of economics in terms of resilience, fields of viability, crises, and forks in the road. Coordination by money makes crises possible as an endogenous characteristic of its own regulation. This coordination refutes the three lies about finance. It makes it impossible for economic theory to deny its political element, because money is itself political. The question is thus posed: why is money seen as legitimate, in the practices of those who use it? What is the source of confidence in money? These questions call firstly for a theoretical response, which is examined in Part I of this book.

  THE HISTORICAL DEVELOPMENT OF MONEY AS A CONDITION OF ECONOMIC REGULATION

  Money is not an immutable object. It is an institutional system that develops across history. This point is of primary importance to any monetary conception of the economy, because the transformation of money influences the way it acts on the economy. If money is a mode – or series of modes – of economic coordination, these modes themselves have historical characteristics. It follows from this that any empirical investigation into the monetary modes of economic coordination must be based on data that span the course of history. The metamorphoses of money interact with the transformations of political systems, and this very interaction enables us to verify our hypotheses on money as a mode of economic coordination.

  The second part of the book ventures, then, into the extended longue durée. Anthropologists teach us that money has existed at least since human populations first became sedentary and the division of labour first appeared. Further, money acquired the capacity to express value in the form familiar to us today – that is, it defined a space of equivalence called accounting – once the state had centralised sovereignty over its members. The invention of writing and the invention of money as a unit of accounting go hand-in-hand. Starting out from this basis, we search here for an interpretative thread that provides, in very broad terms, an overview of the historical trajectory of money. In so doing, we ground our study in the most salient lessons of historical research.

  Our analysis follows two interconnected lines of interpretation: first, the historical links between money and debt, and therefore
between money and finance; second, the historical links between money and sovereignty. In following these threads, the preponderance of the political over the economic will become visible, as will the ongoing tensions between financiers and sovereigns, and their transformations across historical periods. We will pursue an investigation of the dynamic interdependence between monetary doctrines and political forms of sovereignty. We will emphasise how different forms of democratic sovereignty in Europe shape conceptions of monetary governance. At a more fundamental level, we will examine the way political and cultural differences between nations take root in different interpretations of citizenship – for money, as a social contract, indeed plays a part in citizenship. Taking account of these differences offers another perspective on Europe’s present difficulties, as well as on the reasons why Britain distanced itself from the euro. In our investigation of the current malaise of democracy, we will also take a look into the future, to examine the virtual currencies that appear to escape from sovereignty and the local currencies that signal its fresh transformation.

  MONETARY CRISES IN HISTORY, THEIR LINKS WITH FINANCIAL CRISES, AND THE POLITICAL MEANS OF AVERTING THEM

  In Part III, we show that monetary crises have been observed by contemporary historians ever since money first acquired a fiduciary character in Asia Minor and Greece in the sixth century BC Appearing in this same period were monetary policies, or rather decisions taken by a sovereign power, which sought to reconcile the state’s financial needs with the concern to maintain confidence in money. Insofar as money is the general mode of economic coordination in societies cohered by states, it has an ambivalent character. On the one hand, it is a system of rules and norms established for the purposes of realising economic coordination by way of payments; on the other hand, it is a privately appropriable (concrete or abstract) object that we call liquidity.