The role of finance in society has been under the microscope since the financial crisis of 2007-08. Since then, we have discovered that money can, under certain circumstances, seemingly be created out of nowhere. The bank bailouts of 2008-09 were not paid for out of taxes; somehow over £1.3tn in the UK was used to buy out bad debts to keep banks solvent. Yet at the same time money, in the form of credit, seems scarcer than ever for businesses and other organisations seeking loans from banks. How can money possess such divergent characteristics? Justin Lilley from Positive Money/Arian Cymru led our discussion on this topic on Tuesday 19 November, with an introduction from Chris Groves to some philosophical reflections on the nature of money, presenting it as at once utterly familiar and entirely strange.
Chris began with the account of the social role of money given by John Locke, who viewed money as, among other things, a cause of inequalities of power, stimulated by human pride and self-love.
The advent of money, he suggested, marked a crucial turning point in human history. For the first time, it was possible for people to accumulate surpluses, through buying and selling, that would not spoil. Food, wine or whatever other goods could be accumulated by any individual were subject to natural limits on how much could be useful to any person. Money obtained through exchanging goods one had acquired, however, could be accumulated without limit. The desire to have more and more money, for its own sake, was therefore a social evil.
The German sociologist Georg Simmel, by contrast, viewed money as a form of technology – and one that, in being used by human beings to transform the world around them, had the reciprocal effect of transforming them as well. Money, Simmel argued, came into its own with the growth of urban living in the 19th century. Metropolises like Paris, London and New York brought strangers into close proximity, primarily through commercial relationships. Money thus had a crucial role as a means of mediating these close yet distant relationships. In addition, it possessed specific properties – being divisible into precise quantities and so on – that enable it to be used as a means of comparison between disparate objects. Money thus serves as a way of extending calculative reasoning into areas of social life where it had not previously been employed.
Simmel’s near-contemporary, Karl Marx, saw money as a contradictory object, with two quite distinct aspects. On the one hand, it is a physical object with particular properties that enable it to become a commodity like others, bought and sold in the form of gold, silver or another reserve currency. On the other, it represents the exchange value of other objects. Stamped with its denomination (‘one pound’), it has an ideal as well as a material existence:
Real thalers have the same existence that the imagined gods have. Has a real thaler any existence except in the imagination, if only in the general or rather common imagination of man? Bring paper money into a country where this use of paper is unknown, and everyone will laugh at your subjective imagination. (Appendix, Doctoral Thesis, 1841)
This ideal aspect is what gives money its property as a ‘universal solvent’ – by translating the ‘use value’ of objects into the exchange value of commodities, money puts goods into circulation. It helps to dissolve existing social relationships and to reconstitute them as unequal relationships between those who control money as capital and those who sell their labour for wages in order to survive.
In addition, money takes on not only an ideal, ghostly aspect but also a kind of theological, divine one. It can act as a kind of Aristotelian ‘prime mover’:
Capital is money: Capital is commodities. … Because it is value, it has acquired the occult quality of being able to add value to itself. It brings forth living offspring, or, at the least, lays golden eggs. (Capital, Vol. 1 Ch. 4, 1867)
This theological aspect of money is reflected was reflected in Justin’s description of how money is made – ex nihilo, by banks creating loans, which they then record as assets. This is all that is required for money to exist, as the then Bank of England governor Mervyn King recently admitted. Money has evolved through various forms, including the ‘black money’ of the 1600s (the value of which gradually decayed over time, meaning that it had to be spent rather than hoarded), later forms of promissory notes, and the virtual money of the contemporary world. Only 3% of money in circulation has the physical form of cash – the rest is virtual currency. It is this virtual form of money that is brought into existence through the creation of loans by commercial banks.
From around 2000, and regulatory changes in the USA, the amount of private debt created through bank loans increased hugely. After the crisis of 2007-08, we have now reached a situation where old loans are being paid off quicker than new ones are being created, meaning that the amount of money in circulation has decreased. Alongside this phenomenon, bailouts given to banks have meant that private debt has been transferred to the public purse. The concentration of wealth in tax havens and on bank balance sheets that has resulted has created a rentier economy, one in which incomes for the wealthy are increasingly from rents collected on assets held rather than from other forms of economic activity. The resulting upward transfer of wealth is one that means areas like Wales (and West Wales in particular) suffer from having wealth (and talent) extracted by richer areas of the UK.
The priority, in such circumstances, Justin argued, is to take the power to create debt back under public control – as in the case of public banks, found in US states like North Dakota and more widely in other countries around the world, including China. The hoarding of money by banks desperate to rebuild their balance sheets makes it harder to finance sustainable technologies and other developments. Alternative currencies provide other means to create economic activity, but democratic control over money is vital to overcoming the current crisis, and a public bank for Wales (supported by Plaid Cymru among others) would help to rejuvenate the country.
In discussion, a variety of topics were raised, including the relationship between central and commercial banks. It was pointed out that charging interest also serves as a way of mitigating the risk of lending as well as being a source of rent-seeking – but at what point does the charging of interest reshape an economy into a rentier one? Would a public bank for Wales be accountable and transparent, or would it be politically directed in its lending, and lead to further fragmentation of the UK?
In the end, would reform of money creation be enough? The link between resources and money was brought into focus: given that market economies are based on seeking profit, can we be sure that money is the best way of allocating resources, and ensuring that environmental harm does not result from economic activity. Is there a basic disconnect between money and sustainability?