by David Orrell
Transmoney
To summarize the story so far: money objects, like quantum particles, have two contradictory aspects. There is the abstract “heads” of virtual money, which the Greeks associated with the male principle, and the embodied, female-principle “tails” of physical wealth. Money gains its power by binding these two sides together, but the union is unstable and at times fractious. This is shown by the evolution of money, which can be viewed as a series of flip-flops between virtual and physical money, with one becoming dominant only to yield to the other. By necessity, this is a broad-strokes history that concentrates on mainstream Western currencies; however, we believe it is the one that best explains how the international finance system reached its current state. Today, currencies such as the dollar and pound, with their Federal Reserve and Old Lady of Threadneedle Street, are in a state of transition. They retain many of the trappings and pretensions of their old scarcity-based, gold standard versions, but in fact are completely virtual. They are male-principle virtual currencies dressed up as female-principle physical currencies—money in drag. Cybercurrencies, meanwhile, have shed their associations with either physical matter or government authority; and the head–tail duality has merged into a string of 0s and 1s. Like a coin flip in outer space, it no longer makes sense to say that one side is up.
The dual nature of money is profoundly connected to Greek ideas about gender; in particular, as Jack Weatherford notes, “from very early classical times, money showed a close relationship to the divine and to the female.”41 The goddess Juno Moneta, from whom the name derives, was the protector of women and family (moneta is from the Latin monere [to warn], because it was said that the honking of the sacred geese around the goddess’s temple in Rome warned the city of a night attack by the Gauls). The denarius was originally minted in her temple and bore her name and image. Interestingly, though, the gender aspect of money (which again refers to traditional designations based on Greek duality) appears to be out of phase with the rest of society, in that the use of what we have termed “female” currencies corresponds to periods when women were particularly oppressed. The role of money is therefore like a shadow version or negative reflection of social values.
The adoption of gold and silver as money, rather than ornaments for women, in ancient Greece took place at a point in history when patriarchy—and especially warfare—was in the ascendant.42 One of the slogans at the temple of Delphi was “Keep women under rule.” According to Xenophon, “It is better for a woman to stay inside the house, and not show herself at the door.” During the virtual currency period of the Middle Ages, particularly the twelfth and thirteenth centuries, the role of women in the economy expanded to include crafts such as spinning, baking, brewing, and so on, and the Virgin Mary was as important a symbolic figure in Christianity as was Jesus. Nearly all cathedrals built at the time, such as Notre-Dame in Paris, were dedicated to Mary. The switch to coin in the sixteenth century coincided with the peak number of witch hunts in Europe—an extraordinary period of repression that can be seen as a backlash against the growing power of women. Conversely, the birth of our latest version of “male” credit money in the early 1970s coincided with that of the women’s liberation movement.43
The psychology of money, it seems, has much to do with our attitude toward femininity. For example, it is often said that market behavior is driven by the twin emotions of greed and fear. These responses both shape and are programmed by our scarcity-based money system. But while they have been treated as normal by economists—the English economist Lionel Robbins even defined economics in 1935 as “the science of scarcity”—psychologists might argue that there is something else going on. In his book The Mystery of Money, Bernard Lietaer points out that this fear, which affects so much of our economic life, is related to our repression of the life-giving abundance of the feminine principle.44
Indeed, it is ironic that the bloodthirsty, hypermasculine conquistadors were driven by their obsession for a shiny metal that has traditionally been valued because it looks pretty on women. Or that perhaps the most famous financial crash in history, the Dutch tulip crisis, was about men betting on the price of flowers. Even the subprime crisis, in which the vast majority of financial players were male, had its roots in the domestic, traditionally female realm of people’s homes. Perhaps this inverse correspondence isn’t so surprising, since the desire to possess gold bears resemblance to the desire for sexual possession. (Gold is usually identified as a “hard” or “yang” currency, but this is based on the behavior of the people who use it rather than the money itself—we would argue that this softest of metals is yin, but has a way of bringing out the yang.)45 Viewed this way, the gold standard begins to seem related to a rather strict attitude toward female sexuality, which may explain its popularity among certain types of social conservatives—an extreme case being the Islamic State.46 The Grexit crisis in 2015 at times resembled a marital dispute, with advocates of the euro comparing its strict gold-inspired rules to the public declaration of wedding vows.47
The question of what gives money its value is therefore almost as mysterious as the question of what makes a person attractive or a marriage stable. Gold has value not because of its industrial uses, which are limited, or even its beauty, but because people think it will remain valuable. It is a statement about future attractiveness, based on extrapolation from the past, and the fact that supplies are finite. In our era of virtual money and cybercurrencies, perhaps the closest thing to gold is Bitcoin. The future supply of bitcoins, as discussed in chapter 9, is strictly limited to a cap of 21 million; for comparison, the total amount of mined gold in the world is estimated to be about 6 billion ounces. Like gold, bitcoins offer a degree of anonymity and are hard to trace. Of course, bitcoins exist only on computers, don’t have a track record stretching back millennia, and lack the pleasingly physical presence of gold—but at least they are easier to transport. Bitcoin is gold in a virtual world.
Most central bankers (former and current) would hesitate to describe bitcoins as real money. Alan Greenspan recently described the entire Bitcoin phenomenon as a “bubble.” The People’s Bank of China concurred that it isn’t a currency with “real meaning” and backed up that statement by banning financial companies from making Bitcoin transactions. But central banks don’t like gold much either, vastly preferring paper notes with their own messages and numbers stamped on them. The main problem with modern currencies is not that they are insufficiently “real” but that they are not true to their own nature.
For fiat “let there be cash” currencies, an important part of their “meaning” is the story that surrounds them. The U.S. dollar, the British pound, the euro, the yuan, all carry with them, and are supported by, associations about their countries and their economic systems. And as always, power is at the heart of the matter, because money’s validity—which is always fragile and liable to evaporate—relies on the authority of its issuers. Conversely, the ability to coin a region’s dominant currency is itself a source of great power. If money is the thing that imposes number on the world, then the first question is “Whose numbers, and in what units?” That is the topic we turn to next.
6
The Money Power
What is it that causes most conflict at every level of social interaction, from the family, to the village, up to the management of the city, the state or international organizations? It is the control of money. … Who gets to spend it and under what constraints.
SUSAN STRANGE, “WHAT THEORY? THE THEORY IN MAD MONEY”
Money is the crowbar of power.
FRIEDRICH NIETZSCHE, THUS SPOKE ZARATHUSTRA
If money were just an intermediary for barter, then messy issues such as power and politics wouldn’t come into the analysis. But this chapter shows that power and money are entwined at every stage—and particularly at the moment when currency is issued. Money does not exist in some abstract space, removed from the concerns of the world, but is highly political. We explo
re the complex relationship between money and power, show why the two seem so inseparable, and consider the dynamics between major currencies as they face off against one another on the world economic stage.
After being awarded a Nobel Prize in 1921 for his work on the basic properties of radiation, which he carried out at McGill University with Ernest Rutherford, the English chemist Frederick Soddy decided to switch fields. From then on, he devoted himself to economics, his theories of money, and the need for what he called a “radical restructuring of global monetary relationships.” One of the first to foresee the development of nuclear weapons, he was motivated by his belief that only such a restructuring could prevent their eventual use. In his book Wealth, Virtual Wealth, and Debt (written three years before the Wall Street crash), Soddy argued that many economic problems of the sort that lead to social conflict—including crashes—are created by the confusion between real wealth and virtual wealth, by which he meant bank money.
Real wealth, according to Soddy, can be calculated by adding up the values of objects. To use one of his examples, a farmer might have two pigs, which is twice as good as having one pig. Paper money, in contrast, has no value in itself, but only represents a debt, so it is a negative quantity that does not exist in the real world. As Soddy patiently explained, “The positive physical quantity, two pigs, is something anyone may see with their own eyes. It is impossible to see minus two pigs. The least number of pigs that can be physically dealt with is zero.”1
According to Soddy, “The Virtual Wealth of a community is not a physical but an imaginary negative wealth quantity. It does not obey the laws of conservation, but is of psychological origin.” What we consider to be wealth, in other words, is actually a kind of fragile group illusion that can be shattered at any time. Soddy argued that, under fractional reserve banking, the stock of virtual wealth balloons with time and soon exceeds real wealth. During a crisis, people want to swap virtual wealth for the real thing and cash in their chips; but because virtual wealth is bigger than the real wealth, this can’t happen. In the absence of inflation, the only remedy is wealth destruction through stock market collapses, housing crashes, bankruptcies, foreclosures, bond defaults, forced taxation, and so on, possibly leading to social unrest or worse.
Soddy’s concerns about the instability of the financial system and the societal risks of collapse were not welcomed or recognized by economists who saw him as a crank, but were borne out by the Great Depression, the rise of Nazism in Germany, World War II, and the use he had foreseen of nuclear weapons. And the tension between virtual and real wealth, which as discussed in chapter 2 is not just a symptom of an unbalanced economy but is intrinsic to all forms of money, has not eased since. In 2014, according to a study by the McKinsey Global Institute, global debt reached the heady heights of $199 trillion, up by $57 trillion in the seven years following the most recent crisis.2 For perspective, that is almost three times the total capitalization of the world’s stock markets, or twenty-five times the value of the world’s above-ground gold supply. The Chinese “growth miracle” has been fueled by a quadrupling of debt since 2007, half of it related to real estate.
But what debt gives, it can later take away, and the ability to borrow our way forward seems to be coming to an end. As financial manager Bill Gross notes, we “issued one giant credit card for the past 30 years. Now the bill is coming due.”3 According to the IMF’s Global Financial Stability Reports, ultra-loose monetary policy following the crisis has encouraged excessive risk taking and the rapid credit growth that caused the collapse in first place.4 Is the power of money once again going to blow up in our face?
Stable Money
The economy is infused with power relationships. As Norbert Häring and Niall Douglas wrote in their book Economists and the Powerful, there is “the power to abuse informational advantage, the power to give or withhold credit, the power to charge customers more than it costs you to produce, and the power to change the institutional setting to your advantage. There is the power of the corporate elite to manipulate their own pay and to cook the books, the power of rating agencies to issue self-fulfilling prophecies, the power of governments to manipulate the yardsticks that voters are offered to judge their economic policies.”5
It may therefore be surprising that “all these types of power, which were important in bringing about the global financial crisis, are defined away by standard assumptions of most mainstream economic models. These models feature perfect competition, efficient financial markets, full information and eternal equilibrium.” The economists M. Neil Browne and J. Kevin Quinn have similarly noted what they call the “almost complete absence of power from the toolkit employed by mainstream economists.” In a survey they performed of sixteen introductory textbooks, they found a total of zero pages dealing with topics directly related to power.6 We explore this curious power vacuum at the heart of economics—which is matched by an equal lack of interest in money—in chapter 7. But here we consider what Soddy identified as the greatest form of economic power: the power to issue money.
Money objects such as coins are created by an authority forcing a stamp onto a physical thing and calling it money. The power that binds the virtual with the real, and thus attaches numbers to the world, is therefore the power of the authority. The stamp on coins and the decorations on banknotes has always served as an impressive display of power and order—from the lion on the coins in ancient Lydia to the profiles of Roman emperors to the images of saints on medieval coins to the all-seeing eye on U.S. dollar bills (box 6.1).
Box 6.1
The Eye of Providence
The idea that the economy is inherently rational is captured by the all-seeing “eye of providence” that adorns the back of every bill. As Joseph Campbell noted, the United States was “the first nation that was ever established on the basis of reason instead of simply warfare,” and the iconography of the bill showed how “the mind of man, cleansed of secondary and merely temporal concerns, beholds with the radiance of a cleansed mirror a reflection of the rational mind of God.”* The design element was originally proposed in 1776 by the Swiss-born Pierre Eugene du Simitiere and was incorporated in 1782. Simitiere also came up with the idea for the U.S. motto E pluribus unum (Out of Many, One).
According to Iain McGilchrist, schizophrenic subjects also “often depict a detached observing eye in their paintings.”† He sees this as evidence for the dominance of left-brained, objectifying thinking in such patients.
Somewhat worryingly in the age of Internet surveillance, the all-seeing eye was also adopted by the U.S. government’s Information Awareness Office, which promised to track threats to national security by achieving something they called “total information awareness.” The office was set up in 2002 but was defunded the next year. However, it is a warning that the tech-utopian vision of cybercurrencies, discussed in chapter 9, could easily turn into a dystopia, wherein every transaction is electronically tracked by an all-seeing, one-eyed state (though it would be an eye-opener if the books of governments and corporations became similarly visible).
*Joseph Campbell and Bill Moyers, The Power of Myth (New York: Doubleday, 1988), 31.
†Iain McGilchrist, The Master and His Emissary: The Divided Brain and the Making of the Western World (New Haven, Conn.: Yale University Press, 2009), 224.
Under the fractional reserve system, the power to issue money is largely delegated to private banks. Soddy saw the power of this private banking system as a direct challenge to the state. As he wrote in The Role of Money:
The “money power” which has been able to overshadow ostensibly responsible government, is not the power of the merely ultra-rich, but is nothing more nor less than a new technique designed to create and destroy money by adding and withdrawing figures in bank ledgers, without the slightest concern for the interests of the community or the real rôle that money ought to perform therein. … To allow it to become a source of revenues to private issuers is to create, first, a secret and
illicit arm of the government and, last, a rival power strong enough ultimately to overthrow all other forms of government.7
Soddy was hardly alone in issuing such warnings. As mentioned in chapter 5, American politicians, including Abraham Lincoln, had long railed against the strength of the “money power.” However, the money power has remained remarkably robust—even as the economy itself has been through wrenching changes.
When the Federal Reserve was founded, it was with the collaboration of American and European families of financiers, primarily the Morgans, Rockefellers, Kuhns, Loebs, and Warburgs.8 At the time, the top representatives of the House of Morgan (a predecessor of JPMorgan Chase and Morgan Stanley), the First National Bank of New York (now part of Citibank), and the National City Bank of New York (acting in the Rockefellers’ interests, now also part of Citibank) occupied 341 directorships in 112 corporations with resources exceeding the assessed value of all property in the 22 states and territories west of the Mississippi River.9 While some of the names have changed in the past 100 years, the underlying power structure—and particularly the concentration of power in the world economy—has not. An analysis of 43,000 transnational corporations undertaken by a trio of complex systems theorists at the Swiss Federal Institute of Technology showed that 1 percent of the companies were able to control 40 percent of the network. This small group consisted mostly of financial institutions such as Barclays Bank, JP Morgan Chase, Merrill Lynch, and Goldman Sachs.
Note that the stability of the power structure does not translate into stability of the economy. The data set, which dated to 2007, included Lehman Brothers, which was ranked at number 34; and its collapse the next year, along with the subsequent domino effect that destabilized the global financial industry, graphically illustrated how complex and interdependent the system is. Thus, calls to break up those institutions deemed “too big to fail” were understandable. Instead though, the crisis—like many before—yielded the opposite result.10
