Back in the stone age, when I was a teenager, I had the good fortune of hanging out with a pretty eclectic group of people. Among this group were a certain subset who might be called spell- casters. These were individuals who, quite literally, cast spells to deal with the problems of everyday life: to get the girl, the promotion, or even just pay the bills. Hanging out with this crew didn’t score many points with the authorities at the conservative Catholic school I attended. Some, no doubt well meaning, busybody actually informed my parents that my soul was in danger. Had this person , or the school priests, who wished to save my soul, actually been able to step inside my mind, they wouldn’t have sought to sever my ties to the “devil worshipers”; they would have confiscated my copies of Carl Sagan’s Dragons of Eden and Cosmos, they would have burned my worn out paperback of Nietzsche’s Beyond Good and Evil, and forced me to read the Christian heavy hitters of Kierkegaard and Dostoevsky, the latter who I especially adored.
I was not a member of the spell- casters, I was more like their sceptic mascot. I really enjoyed sparring with them, and it may seem odd, but I think they felt the same. For both me, and for them our arguments were ways to clarify our own thinking, to chart our divergent spiritual paths. I don’t remember much of anything but the tenor of these discussions except for one, and it has stuck with me all of these years.
Once, I was asking one of the spell- casters to explain to me the physical mechanism for how they were supposedly able to influence others with their ritual mumbo-jumbo. Was it brain waves? Pheromones? What?
Without really hesitating he responded that“it was like money”.
He continued that “money was a talisman, that grants its holder power because others believe in its power” that he, as a spell-caster, really only had power over those who already believed he had power to begin with, that I, as a sceptic, was largely untouchable, in a way that those, such as the Church who believed in his magic, but just thought it came from a place of darkness, were not.
The idea stuck in my head… money was a talisman.
Years later I encountered this same idea in a totally different context in William Greider’s conspiratorial sounding: Secrets of the Temple, How the Federal Reserve Runs the Country. I have not been able to locate my old, no doubt, dust covered copy of Greider’s excellent book, and have not read it for perhaps a decade, but I will try to remember as best as I can, and will turn to Greider when I come to the issue of the Federal Reserve.
As far as money being a talisman, Greider, from what can I recall, repeated the same point as my spellcaster friend. Money had something of our primitive magical thinking behind it, we had to believe in it to make it real.
I came back to this idea in the context of this series of posts because it seemed to suggest something about the connection between our current economy and idolatry. I thought for sure I would be able to find all sorts of evidence for money having originated as a talisman- which, by the way, is different than what we would call a charm- say your lucky rabbit’s foot. A talisman is an amulet that covers certain powers, such as powers of seduction, or the power to attract wealth etc.
I was able to find anecdotal evidence that money came into the world as a talisman. Take the picture above. On the left is a picture of traditional Chinese coin (Tang Dynasty 7th and 8th centuries AD), and on the right is a traditional Chinese talisman. (Shang Dynasty 16th- 11th centuries BC). I, for one can’t tell the difference, but such does not an argument make.
Instead of finding surefire evidence that money had originated as a talisman, in my search, I discovered a fascinating story about the origins of money and debt themselves: David Graeber’s Debt the First 5,000 years, and it is from there that I think this inquiry should continue.
Graeber sets out to tell the history of debt, but this seems to require that he provide a history of money, for the two are inseparably combined. Like many other people, I had always imagined that money had emerged as an advance over systems of barter.
But, as long as we take the findings of economic anthropologists and economic historians into account, this idea appears to be a myth. According to Graeber not one anthropological or historical example of money emerging spontaneously from barter has been observed.
Historically, money seems to have first appeared in Ancient Sumer as a form of temple credit, allowing priests to keep accounts with the local population, and then evolved into a more general system of credit-money. Niall Ferguson, in his documentary, The Ascent of Money, has a cool scene (@9 min) in which he is holding one of these clay credit-money pieces in his hand. It’s inscription reads that the possessor of the tablet is owed so much grain by such-and-such. That “possessor” part is important because it implies that these tablets were transferable.
In Graeber’s tale, this credit money was supplanted by coinage with the rise of empires. He sees the dual-evolution of coinage and the state this way: the state needed to pay its new professional soldiers in some way, and money was an ingenious way they could do so. The state created coins, gave them to its soldiers, and then asked for them “back”, not from the soldiers, but as a tax on its merchants and farmers. These merchants and farmers were thus compelled to accept payment for their goods from soldiers in the the form of the state’s coins. The state had created its own perpetual motion machine- for war.
Many people on the right today, at least in America, seem to associate “hard-money”, that is money backed by gold, with a weak state. Graeber thinks the relationship actually worked the other way around. Hard- money is the surest sign of a strong state, and the vector through which the state imposes taxes. Eras of hard-money are also incredibly violent, after all, they signal that large armies are marching around. They tend as well to be eras of mass slavery- classical, African. The two major hard-money eras, in the West, Graeber thinks, were those between the birth and fall of the Roman Empire, and the period from the early 1400s to the mid-20th century.
Hard-money has a rival in the form of credit-money, and the two tend to oscillate over great arcs of history and over a very wide historical expanse. The great period of credit-money was from the fall of the Roman Empire until the early 1400s, and its most important developments took place outside of the West. Both China, and the Islamic World, had thriving, credit-based economies for much of this era. The Islamic World, especially, developed a rich market-based economy that was largely free from government interference, and many of the financial innovations that later made their way to Europe were begun here.
Periods of credit-money have a tendency to also become eras of debt, and this debt can sometimes be horribly de-humanizing. As the father of two daughters, the idea of the “bride-price” struck me on a particularly visceral level. In certain eras and places daughters became “collateral” for loans. This was actually the standard by which the dark age Irish judged something’s worth, by the abstract value of not just another human being, but your very own child.
The answer that credit-based societies have come up with for the problem of debt is essentially to ban interest on loans, especially high rates of interest, or usury. Graeber sees no anti-commerce logic to these bans on charging interest. Muslim society, for instance, has been, and is, an extremely commerce based society that, even to this day, largely looks askance at interest bearing loans.
The Catholic Church, having taken Aristotle seriously, held that interests bearing loans had something unnatural about them. Money, in ages where it is based on credit and not coin, was seen as a social convention, nothing more, and nothing less. Charging interest on a “mere idea” seemed to the Medievals to be asking something lifeless to generate itself, to have “money beget money” in the same way life begat life.
The credit-money era of the Middle Ages did not so much end as became a hybrid-era of both credit-money and cold hard cash, and it was this hybrid quality which I think Graeber is suggesting helped give rise to capitalism, which really was something new under the sun.
A barbarian like Hernando Cortez was literally insatiable for the gold of the Americas, and it’s this insatiable quality which was somewhat new. Why did Cortez not rest free and easy on a caribbean island after he had won the lion’s share of the biggest of the biggest gold booty in history- the riches of Tenochtitlan? Graeber suggest it was because he was in debt up to his eyeballs with interest bearing loans he could never hope to repay- even though he had conquered one of the greatest empires on the globe.
It was this idea of being designed for limitless growth that was new, something that came into being most clearly a half a century after the death of Cortez with the creation of the Dutch East India Company. This company was a public-private partnership whose mission was the domination of the spice trade, which paid its soldiers in gold coins, and was built from loans- in the form of shares- that could never be repaid but required the outlay of “dividends” to the stockholders. Issuing more stock for supplies for imperial expeditions, meant more dividends would have to be paid, and therefore the gain of more control over the spice trade secured- a control that was largely “bought” by the force of arms.
Here I am going to step aside from Graeber, and lean on what I can remember from William Greider’s Secrets of the Temple, for while Graeber is great on economic history up until the slave trade, his take on contemporary history is a little thin and I think Greider can fill in that gap.
Since the 1700s, we seem to have been slowly moving back towards the idea that money is a social convention. Since then we have oscillated between hard-money (paper backed by gold) and soft-money (paper based on credit) with every era of hard-money seeming to end in a deflationary crisis as money dries up, goods plummet in value, and loans become unbearable, followed by an era of soft- money, in which credit chases its’ own tail, goods become too expensive to buy, and manic asset bubbles emerge, some large enough to take down whole economies.
The problem is simple to state, and incredibly hard to solve. If money is a convention then we can make as little of it or as much of it as we want, but neither choice is without huge consequences. Print too little, and the economy literally seizes up, like a car engine running without oil. Print too much, and everything rises in value, people find themselves drunk on inflating asset prices, and the whole balloon eventually bursts.
Governments tried to control the inflationary potential of paper money by pegging it to a high level of gold. The problem here is that this money was often way too hard, especially for debt holding farmers. William Jennings Bryan’s “Cross of Gold” speech was essentially a cry to east coast bankers to soften the value of the dollar and therefore ease the debt burden of Midwestern farmers.
After the Great Depression, capitalist countries tried to steer a middle course with the value of the new global currency- the dollar- pegged to gold under the Bretton Woods system, but with governments following an inflationary policy of high spending even in good times. In the early 1970s this system blew apart: Nixon abandoned the gold peg, and inflation took off like a rocket. This only ended when the central banks, most notably the US Federal Reserve was given real control over the value of the currency, and they took the side of hard-money, only this time it wasn’t based on gold, but on strictly limiting the supply of money itself.
In 1980-81 the chairman of the Federal Reserve, Paul Volcker, essentially convinced the markets that their inflationary expectations regarding the US currency were no longer true, by hanging a sword of Damocles over the American economy’s head. Whenever the American economy grew so fast as to cause inflation the FED would slam on the brakes of money creation and raise interests rates as high as they needed to go to constrict the money supply and squeeze out inflation- even if this lead to rates of unemployment touching 8 percent.
In terms of taming inflation, this certainly worked. In terms of American living standards- not so much. The strong dollar helped push high paying factory jobs overseas. Volcker, and his successor Alan Greenspan effectively ended the rise in American wages by keeping wage inflation, which had previously ran ahead of price inflation being linked to COLAS in labor contracts, under strict control.
Greider’s work leaves us off in the 1990s, but it is easy to pick up the story from there.
During the same time American wages stagnated, the financial innovations and speculation that were discussed in my post on the quants proceeded apace. The “net-worth” of the middle class became tied not to income, which was frozen in time, but to assets- the value of their homes, and their stock-portfolios, both of which seemed to expand towards the stars. Eventually the staid deposit-banks themselves wanted in on the action- the road to systemic collapse. For many, including the quants, the best way to make money, it seemed, was to have “money beget money”, in the Medieval phrasing, or, to use our modern flavorless terminology- “financialization.”
The graph below captures the transformation:
We know where that led.
Whether or not it needed to be done to save the economy, it makes perfect sense that the FED, which had spent a generation fighting for hard-money despite its costs on the working class and poor, would totally reverse course and move towards soft money; it was saving itself. Opponents of the FED on the right have it only half correct- the problem with the FED isn’t that it aims at weakening the currency, the problem, it seems, is that the FED will only definitively do this when the interests of its primary constituency- the financial sector itself- is at stake, and not, it seems, for any broader public interest.
All this, by the most circuitous route imaginable leads me back to the spell-casters with whom I began this post. These were working class kids, and they really were just kids, even if they were living independently, who were living near Bethlehem, Pennsylvania- a place that a generation before had possessed one of the most vibrant steel industries in the world. By the early 1990s the industry and its hard- but- certain road to the middle class was gone. These kids had no hope of college and made their living working in warehouses moving around goods made overseas, or in malls selling the same, both bought with strong American dollars.
How surprising is it then, that with a hard- but- certain road closed, they would turn to a seemingly easy, yet probabilistic one? The worldview of the spell-casters seems to resemble the fantasies and nightmares of the quants, in the same way Graeber writes of tribal peoples who projected the world of their Western conquerors into strange nightmares of warlocks and zombies. The spell-casters had their Aleister Crowley, and the quants had their Alpha. Both were trying to load the dice in their favor, for to not win the game was to look out onto a future of bleakness.