Money in the making of world society: lessons from the euro crisis

By | June 8, 2012

Europe in the global economic crisis

I have been writing about the euro for a decade (Hart 2002, 2007a, 2012), always from a critical perspective, since I have long believed that a single currency cannot address the needs of a large and diverse region. Moreover, the European Union’s ambition to transcend national capitalism by becoming a federal power in the world economy was always compromised by yoking member states to a system whose logic harks back to the gold standard. The contradictions of this fixed exchange-rate regime, conceived of in the euphoria of the “free market’s victory” in the Cold War, were disguised by the long credit boom. Even the financial crisis brought about by the fall of Lehman Brothers in September 2008 was at first represented by Europe’s elites as largely an “Anglo-Saxon” problem. The Italian finance minister joked that his country’s banks were sound since their managers didn’t speak English! The French social model, which Sarkozy had been elected to reform, began to look more attractive overnight. The last three years have seen one failed half-measure after another as the region’s leaders consistently underestimated what was needed to fix the growing sovereign debt crisis in Southern Europe. Germany has become at once a lot stronger and more isolated in the process.

A brief sketch of the history of the global economic crisis is in order. The conversion of the whole world to free market capitalism (“neoliberal globalization”) in the early 1990s coincided with a digital revolution in communications. Wall Street took the lead in exploiting these new possibilities. After the dot com boom crashed in 2000, a regime of low interest rates fuelled speculation in property. American bankers discovered that there was more to be made from lending to people without any money (mortgages, credit card debt) than to people who have some, since higher interest rates could be charged and assets could be seized on default. This led to the invention of “sub-prime” mortgages, lending to borrowers who could not hope to repay, then packaging these debts with other sounder loans for sale in the capital markets with the highest credit ratings possible (Jorion 2007). The banks also insured against bad loans using new instruments such as “credit default swaps” and “collateral debt obligations” (Tett 2010). As the bubble picked up steam, leverage rates escalated; some banks and especially the insurance group, AIG, became wildly over-exposed. The expectation that the bubble would last for ever led to the use of computer models that had no place for a decline in housing prices.

After 2005, it became obvious to some American finance houses that they should sell on the risky paper they had accumulated. But who would buy what they wanted to “short” (Lewis 2010)? Enter Europe’s financial institutions. Wall Street was so absorbed with its own bubble that the European banks found that they had a reasonably clear field, after the Cold War ended, in the “emerging markets” of Eastern and Southern Europe, Latin America and Southeast Asia. Spanish banks alone were exposed in Latin America to more than double the amount of all Wall Street taken together. Austrian banks found a niche lending to countries like Hungary, sometimes encouraging mortgage loans to be repaid in hard currencies like the Japanese yen and the Swiss franc. The French and German banks lent recklessly to Southern Europe. But they also bought heavily into American sub-prime mortgage bonds in the last years before the crash. National government efforts since 2008 to determine the viability of their own banks have been little more than a cover up. The sovereign debt crisis in Greece, Portugal, Ireland, Spain and Italy escalated in this context. I had this banking problem in mind when I concluded a lecture on international development in early 2009 with a prediction that “in this economic crisis, of all the world’s regions, the major and permanent loser will be Europe”.

It feels odd to write about the euro (in June 2012) when each day’s news reveals a new threat to the currency’s future and ever more implausible proposals – for a banking and fiscal union with teeth, for example. Europeans now find themselves at the centre stage of the world economy, as they have not been since the 1930s (see for example this piece by Niall Ferguson and Nouriel Roubini in the Financial Times, 8th June 2012, “Berlin is ignoring the lessons of the 1930s”), with financial markets hanging on each negotiation or election and the American president worrying that his own re-election chances depend on the Germans saving the euro. I cannot second-guess such fast-breaking developments here. Indeed, the central problem is not even mainly one of credit and debt, but rather reflects a deep-seated shift in the world economy, with national and international political institutions now unable to influence a money circuit that has gone global. In what follows, I will seek to explain the euro crisis as a key element in the slow unravelling of the twentieth century’s dominant social form, national capitalism.

I am not an Anglo-Saxon Euro-sceptic, but rather a Europhile who has lived in Paris for 15 years. I have long considered the European Union to be the most hopeful political experiment around today. I take no pleasure in predicting Europe’s long and painful adjustment to a much diminished place in the world.  I do, however, take satisfaction from having understood some of the causes of Europe’s institutional predicament today. The point of my analysis is to inform a more realistic political debate. My analytical tools draw on the history of economic anthropology (Hann and Hart 2011), a discipline that should combine world history, ethnography and critique. Anthropologists are quick to disparage the economists’ impersonal models in favour of their own researches on the ground; but we have not found it easy to extend our arguments to the global level. Money is a suitable vehicle for such an exercise, since it mediates between the extremes of human experience and, as such, offers a much neglected means of communication. We have to renew the classical tradition in the light of our contemporary predicament. In outlining my vision of money’s role in the making of world society (Hart 2009a), I offer here a selective reading of writers such as Mauss, Polanyi, Marx and Simmel. Then I will place the euro crisis in the demise of national capitalism.

 

In the wake of market fundamentalism

We have lived in the last three decades through an explosion of money, markets and telecommunications and are now beginning to experience the consequences. Whatever else this hectic period of “globalization” brings, it represents a rapid extension of society to a more inclusive level than the twentieth-century norm which identified society with the nation-state. In order to live in the world together, we have to devise new ways of doing things for each other that go beyond our attempts to achieve local self-sufficiency. I call this historical process ‘commoditization’ (Hart 1982), the evolution of methods for making work social, so that it can circulate in the form of commodities. This essay is one such commodity. No payment is involved, but it was written with the aim of circulating in this form. So far in history commoditization has been closely linked to the extension of society by means of markets and money. But there are other means and they may become more important as a result of the digital revolution in communications.

Theories of exchange tend to abstract the movement of markets from history by insisting on their “natural” ubiquity in human (and sometimes even animal) societies. In the extreme this becomes a kind of market fundamentalism that has had something of a free run of late, at least in the Anglophone countries. It is the foundation of neoliberal dogma, going back to Margaret Thatcher’s notorious claim that “there is no alternative” (TINA) to the free market, cousin to “there is no such thing as society”. The writers I cite below all believed that new human possibilities for association depend on recognizing the plurality of economic options that already exist in our societies.

The last two centuries have seen a strident debate between capitalist and socialist camps over whether markets are good or bad for society. The second draws on pre-industrial apologists for landed rule whose leading exponent was Aristotle. Karl Marx himself considered money to be indispensable to any complex economy and was radically opposed to the state in any form. But his followers, when they did not try to outlaw markets and money altogether, preferred to return them to the marginal position they occupied under agrarian civilization and were less hostile to the state, pre-industrial society’s enduring legacy for our world. Polanyi (1944) falls within this camp in that he acknowledged Aristotle as his master and considered “the self-regulating market” to have been the main cause of the twentieth-century’s horrors.

A less apocalyptic version of socialism in the tradition of Saint-Simon acknowledges the social damage done by unfettered markets (what Joseph Schumpeter called “creative destruction”), but would rather not lose the wealth they produce. Indeed all the leading capitalist societies at one stage signed up for Hegel’s (1821) idea that states should try to contain the inequality and social misery generated by markets. The emphasis has shifted over time between reliance on states and on markets for managing national economy, between social and liberal democracy. The general economic breakdown of the 1930s turned a large number of American economists away from celebrating the logic of markets towards contemplating their repair. This “institutional economics” persists as the notion that markets need self-conscious social intervention, if they are to serve the public interest. John Maynard Keynes (1936) produced the most impressive synthesis of liberalism and social democracy in the last century.

The market’s apologists likewise divide between some for whom it is a trans-historical machine for economic improvement best left to itself and those who acknowledge a role for enlightened public management of commerce. Classical liberals promoted markets as a means towards greater individual freedom against the arbitrary social inequality of the Old Regime. But the industrial revolution brought about a shift to urban commerce that made vast new populations of wage labourers rely on markets for food, housing and all their basic needs. Under these circumstances, in Britain in particular, society itself seemed to retreat from view, being replaced by an “economy” characterized by market contracts instead of domestic self-sufficiency. Others hold that society’s remaining defences are simply too weak to hold out against the rising tide of global money: you can’t buck “the markets”. Unregulated markets are engines of inequality, so this notion of markets as a natural force beyond social regulation serves also to legitimize wealth and even to make poverty seem deserved.

The challenge we face today, as the limits of market fundamentalism are revealed daily by yet more evidence of economic collapse, is to discover what is valuable in the extension of society by means of markets and money, while devising new institutional means of regulating their abuse.

 

Our moment in world history

According to writers as varied as John Locke (1690) and Karl Marx (1867), ours is an age of money, a transitional phase in the history of humanity. Seen in this light, capitalism’s historical mission is to bring cheap commodities to the masses and break down the insularity of traditional communities before being replaced by a more just society. It matters where we are in this process, but the answers given differ widely. When a third of humanity works in the fields with their hands and multitudes never made a phone call in their lives, my guess is that capitalism still has quite a way to go. The focus of my research is on the evolution of markets and money at a time when world society is being formed rapidly, at considerable risk to us all. Following Kant (2006), I prefer to call this “the new human universal” (Hart 2009b) rather than the normal term, globalization.

Magellan’s crew completed the first circumnavigation of the planet some thirty years after Columbus crossed the Atlantic. At much the same time, Bartolomé de las Casas denounced the racial inequality of Spain’s American empire in the name of human unity. We are living through another Magellan moment. In the second half of the twentieth century, humanity formed a world society – a single interactive social network – for the first time. This was symbolized when the 60s space race allowed us to see the earth from the outside or when the internet went public in the 90s, announcing the convergence of telephones, television and computers in a digital revolution of communications. Our world too is massively unequal and the voices for human unity are often drowned. Emergent world society is the new human universal – not an idea, but the fact of our shared occupation of the planet crying out for new principles of association. The task of building a global civil society for the twenty-first century, perhaps even a federal world government, is an urgent one. Money, instead of being denigrated for its exploitive power, should be recognized for its redemptive qualities, particularly as a mediator between persons and society. Money — and the markets it sustains – is itself a human universal, with the potential to be emancipated from the social engines of inequality that it currently serves (Hart 2000).

A lot hinges on where in the long process of human evolution we imagine the world is today. The Victorians believed that they stood at the pinnacle of civilization. I think of us as being like the first digging-stick operators, primitives stumbling into the invention of agriculture. In the late 90s, I asked myself what it is about our times that future generations will be interested in and settled on the rapid advances then being made in forming a single interactive network linking all humanity. This has two striking features: first, the network is a highly unequal market of buyers and sellers fuelled by a money circuit that has become progressively detached from production and politics; and second, it is driven by a digital revolution whose symbol is the internet, the network of networks. So my research since then has been concerned with how the forms of money and exchange are changing in the context of this communications revolution.

Money has acquired its apparent pre-eminence because the economy was being extended rapidly from a national to a global level without any of the social regulation that existed before or will likely follow eventually. Naturally, the specialists in money used their newfound freedom from the social democracy of the 1940s to 70s to loot the world in scandalous and damaging ways that we will have to repair, if we can. But, in addition to drawing people en masse into unsustainable credit schemes, they also began to put in place some of the institutional mechanisms that will be necessary if we wish to make the market work for all of us and not just for them. A lot of the wealth piled up in recent decades came from exploiting discrepancies (arbitrage) in a world market that was rationalized and made more unitary in the process. Capitalism clearly is instrumental in making world society. It is unlikely to be the basis for its stable functioning, but it does get us some of the way there. Future generations will be most interested in the new social and cultural forms we are making, probably not in the money as such.

 

Polanyi versus Smith

When Adam Smith first told the barter origin myth of money he claimed that the “wealth of nations” resulted from the slow working out of a deep-seated propensity in human nature, “to truck, barter and exchange one thing for another”. He went on:

It is common to all men, and to be found in no other race of animals, which seem to know neither this nor any other species of contracts … Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. Nobody ever saw one animal by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that (1961:17).

Smith acknowledged a degree of social complexity in the transactions: the idea of contract, private property (mine and yours) and equivalence (fairness), none of which could plausibly be traced to the non-human world. His latter-day successors have not shown similar modesty, routinely claiming that the markets of Wall Street today are animated by impulses that are not just eternally human, but shared at least with the primates. Traders are unusual people. They own things they neither made nor will use, but still claim the right to the value of their sale. They are willing to give up their goods in return for payment; and their customers then have the right to do what they like with them. This is so commonplace in our world that we think of it as eternal. It is in fact quite rare within the range of known human societies. What gives buyer and seller confidence that they each have exclusive rights to dispose of the commodity? The power of state law reinforces their contract and usually supports the money involved. They may operate as isolated individuals only because of the huge social apparatus backing their exchange.

Karl Polanyi’s stock is currently running high (Hann and Hart 2009). In The Great Transformation (1944) he traced the disaster of two world wars and the Great Depression to the installation of a “self-regulating market” in Britain during the nineteenth century, culminating in several decades of financial imperialism (Polanyi preferred to call it haute finance) underpinned by the gold standard, which came to an end in 1913-14. His critique was aimed both at the subversion of social institutions by market economy and at its ideological justification by the free market economics of the day. With this in mind, Polanyi inverted the liberal myth of money’s origin in barter:

The logic of the case is, indeed, almost the opposite of that underlying the classical doctrine. The orthodox teaching started from the individual’s propensity to barter; deduced from it the necessity of local markets, as well as of division of labour; and inferred, finally, the necessity of trade, eventually of foreign trade, including even long-distance trade. In the light of our present knowledge [Thurnwald, Malinowski, Mauss etc], we should almost reverse the sequence of the argument: the true starting point is long-distance trade, a result of the geographical location of goods and of the “division of labour” given by location.  Long-distance trade often engenders markets, an institution which involves acts of barter, and, if money is used, of buying and selling, thus, eventually, but by no means necessarily, offering to some individuals an occasion to indulge in their alleged propensity for bargaining and haggling (1944: 58).

Money and markets thus have their origin in the effort to extend society beyond its local core. Polanyi believed that money, like the sovereign states to which it was closely related, was often introduced from outside; and this was what made the institutional attempt to separate economy from politics and naturalise the market as something internal to society so subversive.

Polanyi distinguished between token and commodity forms of money. “Token money” was designed to facilitate domestic trade, “commodity money” foreign trade; but the two systems often came into conflict. Thus the gold standard sometimes exerted downward pressure on domestic prices, causing deflation that could only be alleviated by central banks expanding the money supply in various ways.  The tension between the internal and external dimensions of economy often led to serious disorganization of business (Polanyi 1944: 193-4). The liberal definition of money as just a medium of exchange obscured its function as a means of payment. Money was thus

…not a commodity, it was purchasing power; far from having utility itself, it was merely a counter embodying a quantified claim to things that could be purchased. Clearly, a society in which distribution depended on possession of such tokens of purchasing power was a construction entirely different from market economy (Ibid: 196).

In an  essay on the two sides of the coin (“heads or tails?”, Hart 1986), I argued following Polanyi that money is both a token of state authority and a commodity made by markets, at the same time an aspect of relations between persons and a thing detached from persons.  States and markets are combined in national capitalism, but policy swings erratically between the two extremes. David Graeber (2011) has drawn attention to similar long swings between money as virtual credit and as currency or bullion in the history of debt over the last five millennia.

In a later article, “Money objects and money uses”, Polanyi (1977: 97-121) approached money as a semantic system, like language and writing. His main point was that only modern money combines the functions of payment, standard, store and exchange and this gives it the capacity to sustain the set of functions through a limited number of “all-purpose” symbols. Primitive and archaic forms attach the separate functions to different symbolic objects which should therefore be considered to be “special-purpose” monies. Polanyi is arguing here against the primacy of money as a medium of exchange and for a multi-stranded model of its evolution. I will return to this later.

 

Mauss

Marcel Mauss’s position on markets and money (Hart 2007b) is an even more persuasive contribution to institutional economics than Polanyi’s. The Gift (1925) is an extended commentary on Durkheim’s (1893) argument that an advanced division of labour is sustained by “the non-contractual element in the contract”, a largely invisible body of state-made law, custom and belief that could not be reduced to abstract market principles. Mauss held that the attempt to create a free market for private contracts is utopian and just as unrealizable as its antithesis, a collective based solely on altruism. Human institutions everywhere are founded on the unity of individual and society, freedom and obligation, self-interest and concern for others. The pure types of selfish and generous economic action obscure the complex interplay between our individuality and belonging in subtle ways to others.

Mauss (1997) was highly critical of the Bolsheviks’ destruction of confidence in the expanded sense of sociability that sustained the market economy. In his view, markets and money were human universals whose principal function was the extension of society beyond the local sphere, even if they did not always take the impersonal form we are familiar with. This was why he disputed Malinowski’s (1921) assertion that kula valuables could not be considered to be money (Mauss 1990: 102n). Mauss advocated an economic movement from below, in the form of professional associations, co-operatives and mutual insurance, with the aim of achieving a consumer democracy (Fournier 2006). The significance for him of finding the archaic gift in contemporary capitalist societies was to refute the revolutionary eschatology of both right and left. Most of the possibilities for a human economy already co-exist in our world; so the task is to build new combinations with a different emphasis, not to repudiate a caricature of the market in the name of a radical alternative (Hart, Laville and Cattani 2010). Here Mauss follows Hegel — rather than Aristotle and Marx — in seeking the integration of institutions that have been variously dominant in history rather than representing them as mutually exclusive historical stages.

Mauss was interested in how we make society where it didn’t exist before. Hence we offer gifts on first dates or on diplomatic missions to foreign powers. How do we push the limits of society outwards? For him money and markets were intrinsic to this process. Hence giving personalized valuables could be considered to be an exchange of money objects if we operate with a broader definition than one based on impersonal currencies and focus rather on the function of their transfer, the extension of society beyond the local level. This helps to explain his claim that “the great economic revolutions are monetary in nature” (Fournier 2006: 212), meaning that they push us into unknown reaches of society and require new money forms and practices to bridge the gap. The combination of neoliberal globalization and the digital revolution has led to a rapid expansion of money, markets and telecommunications, all reinforcing each other in a process that has extended society beyond its national form, making it much more unequal and unstable in the process.

 

Commoditization and the dialectics of social abstraction

The third major influence has been Marx’s analysis of the historical relationship between people, machines and money in Capital. People ought to control machines and through them money, to be distributed in the general interest; but it is the other way round — money controls the machines and the people, with unequal and often socially disastrous results. Our political task is to reverse this situation. His book was a means to that end and he began it with the famous chapter on commodities which deserves our close attention, especially the opening section, “The two factors of a commodity: use-value and value (the substance of value and the magnitude of value)” (Marx 1970: 35-41).

Marx defines the commodity as a useful product of labour which, by means of social abstraction, is endowed with value in exchange. I earlier (Hart 1982) sought to improve on this definition, first by making the historical dialectic more explicit and then by taking up developments since Marx’s time. I recast the commodity as a process, “commoditization”, defined as “the progressive abstraction of social labour”. When we do things for each other in society, these services have to be detached from what we do for ourselves. This process of abstraction draws us into ever-widening circles of interdependence, the most inclusive of which are exchanges using money.

The commodity is progressively (but not necessarily in a historical sequence):

  1. Some useful thing external to the producer;
  2. Made social by becoming available to outsiders;
  3. Specialisation extends exchange to an inter-community level;
  4. Sometimes persons circulate, not things (e.g. marriage exchange);
  5. Products of socially divided labour are circulated by means of gift-exchange, barter or payment of rent;
  6. This may be elaborated as markets, exchange at negotiated rates;
  7. Then special- and general-purpose monies enter into the circuit of exchange;
  8. Money is the commodity crystallized as pure exchange value;
  9. Now money can take the form of capital to make profit;
  10. Eventually “industrial capital” employs human labour, as opposed to finance and merchant capital;
  11. Passing beyond Marx’s time, services come to outweigh goods in the world market (things are replaced by what people do for each other);
  12. Now commodities are often ideas and work for society may be wholly abstract, money is information flying around cyberspace as bits;
  13. The world market for money is dominated by derivatives – secondary contracts that gamble on the future prices of actual commodities;
  14. But people still do many things for themselves; make gifts; use old-fashioned cash; join computerized barter networks etc.

This is a just-so story; but it is based on Marx’s and it does illuminate a basic trend that he predicted, the apotheosis of capital as money exchanged for money in a pure form detached from what people do. It is consistent with Mauss’s argument that gift-exchange and market contracts rest on a shared logic of reciprocity; but not with the opposition between “gift economies” and “commodity economies” that animates so much anthropological discussion today.

In his introduction to Grundrisse (1973:100-108), Marx states that we must start from the concrete conditions of our moment in history and then draw some analytical abstractions from them. Some are content just to achieve abstract ideas; but for Marx the point is to insert these simplified abstractions back into their concrete starting-point. Yet he opens Capital with this abstract discourse on “commodities” and the three volumes never get to where he was aiming for in Grundrisse, “the world market and its crises”.

Both Marx (1970) and Simmel (1978: chapter 6) noticed that social abstraction through capitalist markets seemed to go along with intellectual abstraction as philosophy and science in ancient Athens, Renaissance Florence, England in the seventeenth century and, we might say, the USA in the twentieth. But we should not lose sight of the dialectics involved. The commodity remains something useful and in that use lies its concrete realization. Our method has somehow to reproduce this mutual determination of the abstract and the concrete.

We rely on the products of abstraction to engage with others in highly concrete ways; and information-based trade in commodities and money allows us to interact with increasing specificity at great distances. Thus I once had a service contract for my website with a firm in Bangalore, India. I could talk to the webmaster there by internet telephone, while he showed me various design possibilities through our browsers– all in real time and at no cost. This is getting close to what we could do to if we were in the same room together. Working with a PC will be a lot less lonely in future. The digital revolution in communications is as radical as any in human history, comparable to the invention of agriculture.

 

Money in the human economy

To call the economy human (Hart 2008; Hart, Laville and Cattani 2010) is to insist on putting people first, making their thoughts, actions and lives our main concern. Such a focus should also be pragmatic: making economy personally meaningful to students or readers, relating it to ordinary people’s practical purposes. Humanity is a moral quality, implying that, if we want to be good, we should treat other persons, people like ourselves, kindly. Since theoretical abstraction is impersonal and leaves no room for morality, a human economy would have to pay attention to the personal realm of experience; but it would be a mistake to leave it there. Humanity is also a collective noun, meaning all the people who have existed or ever will. The human economy is inclusive, a perspective reinforced by the new human universal that is emergent world society.

Anthropologists and sociologists have long rejected the impersonal model of money and markets offered by mainstream economics. Zelizer (1994), for example, shows that people refuse to treat the cash in their possession as an undifferentiated thing, choosing rather to earmark it — reserving some for food bills, some as holiday savings and so on. Her examples generally come from areas that remain invisible to the economists’ gaze, such as domestic life. People everywhere personalize money, bending it to their own purposes through a variety of social instruments. This was the message too of Money and the morality of exchange (Parry and Bloch 1989). When money and markets are understood exclusively through impersonal models, awareness of this neglected dimension is surely significant. But the economy exists at more inclusive levels than the person, the family or local groups. This is made possible by the impersonality of money and markets, where economists remain largely unchallenged. Money, much as Durkheim (1912) argued for religion, is the principal means for us all to bridge the gap between everyday personal experience and a society whose wider reaches are impersonal (Hart 2011).

Money is often portrayed as a lifeless object separated from persons, whereas it is a creation of human beings, imbued with the collective spirit of the living and the dead. Money must be impersonal in order to connect individuals to the universe of their social relations. But people make everything personal, including their relations with society. This two-sided relationship is universal, but its incidence is highly variable (Hart 2007c). Money in capitalist societies stands for alienation, detachment, impersonal society, the outside; its origins lie beyond our control (the market). Relations marked by the absence of money are the model of personal integration and free association, of what we take to be familiar, the inside (home). This institutional dualism, forcing individuals to divide themselves every day, asks too much of us. People want to integrate division, to make some meaningful connection between their own subjectivity and society as an object. It helps that money, as well as being the means of separating public and domestic life, was always the main bridge between the two. It is both the principal source of our vulnerability in society and the main practical symbol allowing each of us to make an impersonal world meaningful.

The reality of markets is not just universal abstraction, but the mutual determination of the abstract and the concrete (Hart 2007c). If you have some money, there is almost no limit to what you can do with it, but, as soon as you buy something, the act of payment lends concrete finality to your choice. Money’s significance thus lies in the synthesis it promotes of impersonal abstraction and personal meaning, objectification and subjectivity, analytical reason and synthetic narrative. Its social power comes from the fluency of its mediation between infinite potential and finite determination. To turn our backs on markets and money in the name of collective as opposed to individual interests reproduces the bourgeois separation of self and society. It is not enough to emphasize the controls that people already impose on money and exchange as part of their personal practice. That is the everyday world as most of us know it. We also need ways of reaching the parts of the macro-economy that we don’t know, if we wish to avert the ruin they could bring down on us all. Perhaps this was what Simmel (1900) had in mind when he said that money is the concrete symbol of our human potential to make universal society.

The two great means of communication are language and money. Anthropologists have paid much attention to the first, which divides us more than it brings us together, but not to money whose potential for universal communication is more reliable. We cannot afford to neglect money’s potential for universal connection. It is high time for anthropologists to return to an earlier philosophical tradition, building on Kant’s (2006) example, but also on the neo-Kantianism of Durkheim (1912), Mauss (1925) and Simmel (1900). I have been driven to this conclusion by studying how money and markets extend society at our moment in history. Money constitutes the most tangible manifestation of the new human universal that is our shared occupation of the planet.

 

The collapse of national capitalism

The current crisis of world economy is not merely financial, a moment in the historical cycle of credit and debt. The removal of political controls over money in recent decades has led to a situation where politics is still mainly national, but the money circuit is global and lawless. The crisis should rather be seen as the collapse of the money system that the world lived by in the twentieth century. This has been unravelling since the US dollar went off gold in 1971, a new regime of floating currencies emerged and money derivatives were invented in 1972. As the need for international cooperation intensifies, the disconnect between economy and political institutions undermines effective solutions.

2011/12 is the political consequence of the financial crisis of 2007/8. There is still a tendency to see the potential disaster we are living through in economic rather than political terms. In this respect, neoliberalism’s detractors often reproduce the free market ideology they claim to oppose. The euro is by no means the only symptom of this crisis, but it may well be seen in retrospect as the decisive nail in the coffin of the world economy today. One way of approaching our moment in history is to ask not what is beginning, but what is ending. This is not straightforward.

What is ending is “national capitalism”, the synthesis of nation-states and industrial capitalism (Hart 2009a). Its main symbol has been national monopoly currency (legal tender policed by a central bank). It was the institutional attempt to manage money, markets and accumulation through central bureaucracy within a cultural community of national citizens. It was never the only active principle in world political economy: regional federations, empires and globalization are at least as old or much older.

National capitalism’s origins lay in a series of linked revolutions of the 1860s/early 70s based on a new alliance between capitalists and the military landlord class.  These ranged from the American civil war and Japan’s Meiji restoration to Italian and German unification, Russia’s abolition of serfdom, the French Third Republic and Britain’s second Reform Act. In all this, Marx (1867) published Capital and a revolution in transport and communications (steamships, continental railways and the telegraph) took place. These new governments launched a bureaucratic revolution in the late nineteenth century and then sponsored large corporations in a drive towards mass production. The national system became generalised after the First World War when states turned inward to manage their economies in war and depression. Its apogee was the social democracy built after 1945, what the French call les trente glorieuses.

People learn to understand each other as members of communities and money is an important vehicle for this. They share meanings as a way of achieving their practical purposes together. Nation-states have been so successful in a relatively short time that it is hard for us to imagine society in any other way. Five different types of community come together in the nation-state:

  •  political community: a link to the world and a source of law at home
  •  community of place: territorial boundaries of land and sea
  •  imagined or virtual community: the constructed cultural identity of citizens
  •  community of interest: subjectively and objectively shared purposes in trade and war
  •  monetary community: common use of a national monopoly currency

The rise and fall of single currencies is therefore one way of approaching national capitalism’s historical trajectory.

Money is the principal means for us all to bridge the gap between everyday personal experience and a society whose wider reaches are impersonal. At present national politics and media frame economic questions in such relentlessly parochial terms that we find it hard to think about the human predicament as a whole. But money is already global in scope and the need to overcome these limitations is urgent. My fear is that only a major war and all the losses it would bring will concentrate our minds once more on fixing the world we live in.

Mainstream economics says more about what money does than what it is. Its main function is held to be as a medium of exchange, a more efficient lubricant of markets than barter. Another school emphasizes money’s function as a means of payment, especially of taxes to the government and hence on “purchasing power”. It is also a standard of value or unit of account, with the focus again on government’s role in establishing the legal conditions for trade; while John Locke (1690) conceived of money as a store of wealth, a new form of property that allowed the accumulation of riches to escape from the limitations of natural economy.

As we have seen, Polanyi (1977) argued that only modern money combines the four functions (payment, standard, store and exchange) in a few “all-purpose” symbols, national currency. Although his analysis was intended only to illuminate the history of money, Polanyi’s approach offers profound insight into the causes of today’s global economic crisis. Our challenge is to conceive of society once more as something plural rather than singular, as a federated network rather than as a centralized hierarchy, the nation-state. The era of national monopoly currencies is very recent (from the 1850s); it took the United States, for example, half a century to secure an uncontested monopoly for “greenbacks” (Zelizer 1994); and “all-purpose money” has been breaking up for four decades now, since the US dollar was de-pegged from gold (Dembinski and Perritaz 2000).

Since the break-up of the Bretton Woods system of fixed parity exchange rates, world economy has reverted to the plural pattern of competing currencies that was normal before central banks learned how to control national economies in the second half of the nineteenth century through the bank rate, for example. One aspect of the crisis is that the international rule system imposed after the Second World War was systematically subverted by the creation of an offshore banking system which brought the informal economy to the heart of global finance (Shaxson 2011). The separation of functions between different types of monetary instruments was also crucial to money’s great escape from the rules of the Keynesian consensus. Central bank control was eroded by a shift to money being issued in multiple forms by a global distributed network of corporations, not just governments and banks.

Some brief examples must serve to indicate the momentous changes that have overtaken money in the last few decades. In Switzerland today, euros are commonly accepted in shops alongside the national currency. If you pay with a card, you can often choose the unit of account (Swiss franc, euro, pound sterling, US dollar). But only francs are acceptable for payment of local taxes. Are national currencies a store of wealth? Hardly — they have all been radically depreciated and may even disappear; hence the flight to gold. But gold could turn out to be the biggest asset bubble of them all. As for real estate, the collapse of subprime mortgages got us into the present mess. And we have not even touched on what credit default swaps and collateral debt obligations are used for or who issues them. The shadow banking system — hedge funds, money market funds and structured investment vehicles that lie beyond state regulation – is literally out of control.

Simmel (1900) considered money’s twin anchors to be its physical substance (coins, paper etc.) and the social institutions supporting the community of its users. He predicted that the first would wither away, making the second more visible. Radical cheapening of the cost of transferring information as a result of the digital revolution in communications has been transforming money and exchange for two decades now (Hart 2000), confirming Simmel’s prophecy. But globalization has made national society seem a lot less self-sufficient than it did a century ago. Lower costs of transferring information introduce new conditions for engagement with the impersonal economy. The formation of world society is driven by money, markets and telecommunications. Single currencies have given way to the separation of functions between different types of monetary instruments. Central bank control has eroded by a shift to money being issued in many forms by a global distributed network of corporations, not just governments and banks.

This process of social extension beyond national boundaries is fraught with danger, much as the kula ring was (Malinowski 1922). We need to extend systems of social rights to the global level before the contradictions of the market system collapse into world war. But local political organization resists such a move. This dialectic of globalization is very ancient. Ours is becoming a multi-polar world whose plurality of associations and convergent income distribution resembles the medieval period more than anything since.

Simmel’s prophecy has been realised to a remarkable degree, as the digital revolution promotes electronic transfers (Dembinski and Perritaz 2000). But if the essence of money is its use in a community with shared social institutions, national capitalism has lost its grip on reality. We must therefore move from singular (national) to plural (federal) conceptions of society. The infrastructure of money has already become decentralized and global. A return to the national solutions of the 1930s or to a Keynesian regime of managed exchange rates and capital flows is bound to fail. Where are the levers of democratic power to be located, now that globalization has exposed the limitations of national economic management? The cultural logic of national capitalism leads the political classes who got us into this mess to repeat the same mistakes. Politics is a dialogue of the deaf, between those who deny the need for any political regulation of markets and others who remain trapped in the outmoded model of state money.

The idea of world society is still perceived by most people as at best a utopian fantasy or at worst a threat to us all. We need to build an infrastructure of money adequate to humanity’s common needs. This agenda seems impossibly remote right now. One move in such a direction goes by the name of “alter-globalization” (Pleyers 2010). The idea of a “human economy“(Hart, Laville and Cattani 2010) offers a bridge to that movement. “Economy” is putting ones house in order in a world shaped increasingly by markets (Hann and Hart 2011). Social units of widely varying scale may be said to have one. Economy is pulled inwards to secure local guarantees of a community’s rights and interests; and outwards to make good local supply by engaging with outsiders through the medium of money and markets of various sorts, not just our own (Mauss 1925).

 

The euro crisis

An editorial in Libération, of 1st January 2002, celebrated the launch of the euro as a revival of the spirit of the Roman Empire under the heading “Rubicon”:

La marche de César sur Rome fut l’acte fondateur d’une Pax romana qui étendit son empire plusieurs siècles durant d’un bout à l’autre de l’Europe, garantissant au continent prospérité et civilisation. Les Européens n’ont jamais tout à fait perdu le souvenir de cet âge d’or….L’euro, véritable icône de l’Union européenne, est une nouvelle réincarnation de l’éternel projet d’unité d’un vieux continent hanté par sa longue histoire de conflits sanglants… (p. 3)

Whatever we may think of Rome’s political system, the promise of overcoming the fragmentation of European sovereignty inherited from feudalism did indeed seem at first to be the huge symbolic prize conferred by monetary union. But Julius Caesar made his bid for power with an army. The euro was launched on a premise that politics, rather than being a precondition of economic integration, would follow the logic of free markets. This neoliberal fantasy still grips Europe’s political leadership and the euro crisis is its result.

At the same time, I published “a tale of two currencies” (Hart 2002), comparing the euro with the Argentinian peso which was then in disarray. The Argentinian default has since been celebrated as a success, with annual growth rates of 8% common in the following decade. Distressed national economies like Greece might be encouraged by this precedent, even if they are not a major food exporter in a commodities boom. Here is an excerpt from that article:

The euro’s management is likely to be less democratically accountable to the public even than its national precursors. The twelve central bank governors of the participating countries represent what is in effect a league of states. The euro may not be a national currency, but it does aim to be a federal state currency, like the dollar. The essence of state money is that currency of little or no worth is offered to a people by the government in payment for real goods and services, as the sole legal means of exchange within the territory and with the obligation to pay taxes on all transactions using it. Central banks jealously guard the national monopoly, policing the banks who actually issue most of the money and restricting circulation of rival currencies to narrow spheres of exchange.

The legacy of Maastricht is that the economic destiny of 300 million Europeans is now tied to the fortunes of a single currency whose management cannot possibly meet their varied needs and interests. The euro is in principle a throwback to the Bretton Woods era of fixed parity exchange rates, at least for the participating countries, and it does not take much imagination to figure out that the deflationary consequences for some parts of the European economy could be unpleasant. The constituent governments of Euroland will come under pressure from their own people for more flexible instruments of economic management. The euro cannot do the job all by itself.

The euro involves only a limited break with the territorial principle. Its logic is still that of a central bank monopoly within an expanded territory. There are other democratic possibilities. We can make our own money rather than pay for the privilege of receiving it from our rulers. Europeans may not yet be reduced to the desperate measures of the Argentinians, but we too have some way to go before we can afford to rest content with the money forms at our disposal. (Hart 2002:21)

The monetary crisis that has overwhelmed the eurozone of late needs to be seen in this context. The apparent triumph of the free market at the end of the Cold War in 1989/90 induced two huge political blunders, both of them based on the premise that society should be shaped by market economy rather than the other way round. Radical privatization of Soviet bloc public economies ignored the common history of politics, law and social custom that shored up market economies in the West, thereby delivering the economy into the hands of gangsters and oligarchs. And the European single currency was supposed to provide the social glue for political union without first developing effective fiscal institutions or economic convergence between North and South.

The big mistake was to replace national currencies with the euro. An alternative proposal, the hard ecu, would have floated politically managed national currencies alongside a low-inflation European central bank currency. Countries that didn’t join the euro, like Britain and Switzerland, have in practice enjoyed the privilege of this plural option. Eurozone countries cannot devalue and so must reduce their debts through deflation — or default. The euro was invented after money was already breaking up into multiple forms and functions. The Americans centralized their currency after a civil war; the Europeans centralized theirs as a means of achieving political union.

The infrastructure of money has already become decentralized and global. Where are the levers of democratic power to be located, now that globalization has exposed the limitations of national economic management? The cultural logic of national capitalism leads the political classes who got us into this mess to repeat the same mistakes. Politics is a dialogue of the deaf, between those who deny the need for any political regulation of markets and others who remain trapped in the outmoded model of state money.

It is obvious enough that member states of the eurozone have been denied the option of devaluation as a means of reducing national debt. In an eery echo of the 1930s, when Britain left the gold standard before mainland Europe and had a more lenient depression, the UK this time also took early advantage of a massive devaluation, while countries of the Eurozone could only deflate or default. The lessons of the 1930s and knowledge of Keynes’s (1936) remedies make it hard to understand why austerity policies are being universally pursued when they can only intensify the depression. The economist, Paul Krugman (2012), argues forcefully that a Keynesian approach would end the current depression. If he is right at the level of economic theory, he still has no political explanation for why Europe’s rulers are doing the opposite. All the evidence points to the dominant interest in this crisis being finance; and since politicians are addicted to money, it is hardly surprising that their policies favour the banks at the expense of the bulk of the electorate. The fact is that very few people benefited from the credit boom and those few will sacrifice the interests of the rest of us in order to retain their power. By this interpretation, austerity is good for disciplining the masses and keeping them cowed, certainly better than expanding demand and regulating capital flows. It is up to us to show them they are wrong to think so.

“Economy” has multiple meanings, but the idea of putting ones house in order in a world shaped increasingly by markets combines several of them. In this conception, economy is pulled inwards to secure local guarantees of a community’s rights and interests; and outwards to make good local supply by engaging with outsiders through the medium of money and markets of various sorts, not just our own.  The trick is to manage this dialectic of internal and external forces effectively.

The key problem with the eurozone is the democratic deficit which leads governments to be accountable to haute finance (Polanyi 1944) rather than to their own people, as they generally were during the decades of social democracy after 1945. Examples of alternative trajectories are not hard to find. Iceland suffered more than most from the financial crisis because three banks yoked their small island economy to the credit bubble (Lewis 2011). A new government, incidentally dominated by women, refused British and Dutch pressure to repay bad debts incurred in those countries; let the banks fail; limited household debt to a proportion of their existing assets; and put the former prime minister and the bankers on trial. The result is that their economy is now growing at 3% a year (compared with less than 1% in the eurozone) and the country’s sovereign debt rating has been raised, with the approval of the IMF. David Graeber (2011) has won widespread attention in the United States and Europe for his argument that a wholesale cancellation of debts for the masses is needed now on the model of the ancient jubilee. The small Baltic states have also shown that that the deflationary route has possibilities. Latvia, whose head of government instituted savage austerity, was re-elected and still wants to join the euro, is a prime example. Throughout the twentieth century, the Scandinavian countries and Switzerland showed that democratically accountable political elites could ensure among the highest rates of economic growth in the world.

I have tried to show here that the economic stalemate in the eurozone has political sources and could be resolved if the terms of public debate acknowledged contemporary social realities. It is unlikely however that the ruling elites who brought the crisis about will introduce effective solutions, since their prime responsibility is to save their own skins and those of their financial backers. To the idea of economic crisis and its antidotes, we must add in 2011-12 the possibility of political revolution. Europe has become the main focus once more of a world revolution. The European Union was a bold political experiment that had some prospect of making regional federation the next stage in the making of world society. But its monetarist premises never allowed for the expression of economic democracy.

The euro crisis pushes Europe’s rulers inexorably along a path of social polarisation, between a corporate bureaucracy and a population rapidly being stripped of the political, legal and economic powers we won after 1945. The whole story is a Greek tragedy in both the ancient and contemporary senses, where even the best intentions can no longer remedy the consequences of past mistakes. Just as it was always a mistake to imagine that a single currency would lead to political union, so too attempts to prevent the crisis from unravelling now persist in trying to fix the euro when the problem is the political union itself.  Europe’s rulers have grown so accustomed to hiding behind an economic fiction masquerading as democracy that they have no political solutions. Most politicians are not interested in transnational politics since it means losing some of their power and that is unthinkable. Finance gets national politicians elected and gives them power once they are in office; nothing else intrudes on their complicity. The European Union itself, designed as it was to address global economic problems through a regional federation, will inevitably be sacrificed and the euro with it. The resulting disaster may eventually generate the conditions for a genuine reconfiguration of world power of the sort that occurred after 1945.

 

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3 thoughts on “Money in the making of world society: lessons from the euro crisis

  1. Pingback: Keith Hart and Online Anthropology | Anthropology Report

  2. John Rogers

    Hello Keith and all, you may want to check out the story of regional currencies as blossoming parallel currencies in our new book “People Money – the Promise of Regional Currencies”, the first English edition of Margrit Kennedy’s and Bernard Lietaer’s 2004 book “Regionalwaehrungen”, published by Triarchy Press in England: http://www.triarchypress.com/pages/Regional-Currencies-People-Money.htm

    The book contains 16 profiles of current local currency systems from around the world, based on interviews with local organisers.

    “In theory, there is no difference between theory and practice; in practice, there is.” Yogi Berra, baseball coach

    1. keith Post author

      I am very glad to host this plug for your important new book, John, and I look forward to reading it soon. The article posted here deliberately avoids dealing with alternative money forms, since what to do next seemed secondary to nailing what’s wrong with the present system. You may want to keep tabs on a new Paris seminar about single and plural currencies to be launched by Jerome Blanc and Bruno Theret on 4th July. This seminar, in the long tradition of predecessors that gave us La monnaie souveraine and La monnaie devoilee par ses crises, is expected to go on for years.

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