The Memory Bank

The collapse of national capitalism: a Sophoclean tragedy

February 22, 2012 by Keith Hart

The global economic crisis 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. Events since 2008 should be seen as the collapse of “national capitalism”, 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 and money derivatives were invented the following year. The idea of central bank money or legal tender is tenacious despite this development. As the need for international cooperation intensifies, the disconnect between economy and political institutions undermines effective solutions. The crisis of the eurozone in 2011-2012 may be understood best as a Sophoclean tragedy in which good intentions cannot remedy the consequences of past mistakes.

2011/12 is the political consequence of the financial crisis of 2007/8. There is still a tendency to see the crisis 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.

As a partial antidote to the daily news, I find it useful to attempt a historical periodization of the last two centuries or more, mainly to indicate that the present rupture in history opens up the prospect of several decades of turbulence.

1776-1815            An age of war and revolutions

1815-1848            The industrial revolution

1848-1873            Origins of national capitalism

1873-1914            First age of financial globalization

1914-1945            The second thirty years war

1945-1979            Les trente glorieuses of social democracy

1979-2008            Second age of financial globalization

2008-                     Another age of war and revolutions?

My aim is not to predict the inevitably dire outcome of the present global crisis, but to invite public debate at a more serious level that may help us to avoid such an outcome.

“National capitalism” is the synthesis of nation-states and industrial capitalism. Its main symbol has been national monopoly currency (legal tender or central bank money). It is the institutional attempt to manage money, markets and accumulation through central bureaucracy within a cultural community of national citizens. Its 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.

Governments then combined with large corporations to launch a bureaucratic revolution and mass production in the late 19^th century. The national system became general 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; but it 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.

Money expands the capacity of individuals to stabilise their own personal identity by holding something durable that embodies the desires and wealth of all the other members of society.  Its chief function is remembering (Hart 2000). 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 to imagine society in any other way. I identify here five ideal-types of community all represented by 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 one way of approaching national capitalism’s historical trajectory.

In my article on “heads or tails” (Hart 1986), I argued, following Polanyi (1944), 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 made a similar contrast between money as virtual credit and as currency or bullion to analyse the history of debt over the last five millennia.

Money is the principal means for us all to bridge the gap between everyday personal experience and a society whose wider reaches are impersonal (Hart 2009). According to Georg Simmel (1900), it is the concrete symbol of our human potential to make universal society. But we will first have to get past national capitalism as the twentieth’s century’s dominant social form.

In The Great Transformation (1944), Karl Polanyi listed money as a “fictitious commodity” whose exchange in the free market came close to buying and selling society itself. He held that money and markets originate in the effort to extend society beyond its local core; society has to become more inclusive since none is self-sufficient. “Token money” facilitates domestic trade, “commodity money” foreign trade; but conflict between internal and external dimensions often disrupts economy.

In a later article, “Money objects and money uses” (1964), he approached money as a semantic system, like writing. Only modern money combines the four functions of payment, standard, store and exchange in a limited number of “all-purpose” symbols. (This is not the same as “general-purpose money” which just means money can buy anything.) Primitive and archaic forms attached the separate uses to different symbolic objects or “special-purpose” monies.  Polanyi argued against the primacy of money as a medium of exchange and for a multi-stranded model of its evolution.  It is basically a means of payment or “purchasing power”.

Although this analysis was intended only to illuminate the history of money, Polanyi’s approach offers remarkable insight into the global economic crisis today. Our challenge is to conceive of society as 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) and “all-purpose money” has been breaking up for four decades now, since the US dollar went off gold in 1971 (Gregory 1997).

World economy has reverted since the break-up of the Bretton Woods system of fixed parity exchange rates to the plural pattern of competing currencies that was normal before the modern era. The crisis was precipitated by the creation of an offshore banking system which brought the informal economy to the heart of global finance (Shaxson 2011). It was also significantly a result of a separation of functions between different types of monetary instruments. Central bank control was eroded by a shift to money being issued in many forms by a global distributed network of corporations, not just governments and banks.

The digital revolution in communications has been transforming money and exchange for two decades now (Hart 2000). Radical cheapening of the cost of transferring information introduces new conditions for engagement with the impersonal economy. The formation of world society is driven by money, markets and telecommunications.

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.

This is the context for understanding the monetary crisis that has overwhelmed the eurozone of late. The apparent triumph of the free market at the end of the Cold war in 1989/90 induced two huge political blunders. 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 to gangsters and tycoons. 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, 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 came 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.

If Polanyi’s ghost is haunting us now, so too is Georg Simmel’s. One of money’s anchors, according to him (Simmel 1900), was its physical substance (metals, paper etc). He believed that this would wither away, revealing more clearly money’s functionality (the ends to which it is put and its technical organization). Money’s essence is what people use it for in society. It always introduces a third party to bilateral exchange — the community that shares its use. Virtual money would make that social foundation of money more explicit.

Simmel’s prophecy has been realised to a remarkable degree, as the digital revolution accelerates and cheapens 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 central bank 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 idea of a human economy relies less on abstractions than on what people are doing already, with the aim of imparting a new emphasis, combination and direction to their efforts. A preliminary definition of its assumptions would include the following:

• Aim for a pragmatic economics that people can understand and use
• Economy is made and remade by human beings
• A focus on complex institutional particulars
• A more holistic conception of everyone’s needs and interests
• Address humanity as a whole and the world society we are making

Three things count in our societies  as they are increasingly emancipated from a territorial base — people, machines and money, in that order. But money buys the machines that control the people. Our political task – and I believe it was Marx’s too – is to reverse that order of priority, not to help people escape from machines and money, but to encourage them to develop themselves through machines and money.

To the idea of economic crisis and its antidotes, we must now add in 2011-12 that of political revolution. Revolutions are fed by digital contrasts with what has gone before, but the human economy is built on analogue processes. Europe has become the main focus once more of a world revolution. The euro crisis is a Sophoclean tragedy in which good intentions cannot remedy the consequences of past mistakes. Now if ever a synoptic vision of humanity’s plight is vital, if we are to save ourselves from a disaster that our institutions prevent us from even seeing, never mind avoiding.

References

Dembinski, P. and C. Perritaz 2000. Towards the break-up of money: when reality driven by information technology outshines Simmel’s vision. Foresight 2: 483–97.

Graeber, D. 2011. Debt: the first 5,000 years. New York: Melville House.

Gregory, C. 1997. Savage money: the anthropology and politics of commodity exchange. Amsterdam: Harwood.

Hann, C. and K. Hart 2011. Economic anthropology: history, ethnography, critique. Cambridge: Polity.

Hart, K. 1986. Heads or tails? Two sides of the coin. Man 21: 637–56.

Hart, K. 2000. The memory bank: money in an unequal world. London: Profile; republished as: 2001. Money in an unequal world. New York: Texere.

Hart, K. 2009. Money in the making of world society. In C. Hann and K. Hart (eds) Market and society: The great transformation today. Cambridge: Cambridge University Press.

Hart, K., J. Laville and A.D. Cattani (eds) 2010. The human economy: a citizen’s guide. Cambridge: Polity.

Malinowski, B. 1961 (1922). Argonauts of the Western Pacific. New York: Dutton.

Mauss, M. 1990 (1925) The Gift : Form and reason for exchange in archaic societies. London : Routledge.

Pleyers, G. 2010. Alter-globalization: becoming actors in a global world. Cambridge: Polity.

Polanyi, K. 2001 (1944). The great transformation: the political and economic origins of our times. Boston: Beacon.

Polanyi, K. 1977 (1964). Money objects and money uses. In K. Polanyi, The Livelihood of Man. New York: Academic Press.

Shaxson, N. 2011. Treasure Islands: Tax havens and the men who stole the world. London: Bodley Head.

Simmel, G. 1978 (1900). The Philosophy of Money. London: Routledge.

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