Money

by Felix Martin

  For as long as these ideas remained in their original context of the tribal ritual of sacrificial distribution, they remained nothing more than a relic of barbarism. But when mixed with the new technologies from the East and the new perspective on the world which they provoked, the catalysis was volcanic. For the notion of social value was an atomic concept in terms of which an objective social reality could be construed. And the idea of the equal worth of every member of the tribe was a social constant: a standard against which social value could be measured. At the heart of Greek society, in other words, was nothing other than a nascent concept of universal value and a standard against which to measure it, prêt-à-porter. Here was an answer to the question begged by the new perspective on society and the economy. Where the new understanding of physical reality had man, the observer of an objective universe, the new understanding of the social reality had the idea of the self, separate from society—an objective entity consisting of relationships measurable in a standard unit on the universal scale of economic value. It was a critical conceptual development—the missing link, on the intellectual level, in the invention of money.8

  Mesopotamia had for millennia possessed one of the three components of money—a system of accounting, based upon its discoveries of writing and numeracy. But the immense sophistication of Mesopotamia’s bureaucratic, command economy had no need of any universal concept of economic value. It required and had perfected a variety of limited-purpose concepts of value, each with its respective standard. It therefore did not develop the first component of money: a unit of abstract, universally applicable, economic value. Dark Age Greece, on the other hand, had a primitive concept of universal value and a standard by which to measure it. But the Greek Dark Ages knew neither literacy nor numeracy—let alone a system of accounting. They had, in nascent form, the first component of money, but lacked the second. Neither civilisation had all the ingredients for money on its own. But when the ultra-modern technologies of the East—literacy, numeracy, and accounting—were combined with the idea of a universal scale of value incubated in the barbaric West, the conceptual preconditions for money were at last in place.

  Athenian youths leading bulls to sacrifice, from the North frieze of the Parthenon: the most famous of all representations of one of Greek civilisation’s central rituals.

  (illustration credit 3.1)

  A RULE FOR ANARCHY

  It did not take long for these preconditions to produce practical results. The notion of a single, universally applicable concept of value evolved in the context of a political institution—the ritual of the sacrificial distribution—and it was in other social, religious, and legal contexts that it first began to be applied more widely. What had since time immemorial been ritual obligations, the relative worth of which it would not have crossed anyone’s mind to compare, began to be assessed in terms of the new measure of value—the monetary unit. Already in the early sixth century BC, inscriptions recording religious dedications at the temple of Hera on the island of Samos—the greatest Greek religious foundation of its day—had begun to proclaim their monetary value.9 At Athens at around the same time, the rewards granted by the state to victors at the pan-Hellenic athletic competitions began to be prescribed in monetary terms—100 drachmas for a champion at the Isthmian Games; 500 drachmas for a champion at the Olympics.10 Nor was the ingenious new concept of universal economic value colonising only official estimations of worth—it was catching on with private individuals as well. A quaint inscription on a metal belt from around 500 BC boasts that the fee its owner was paid for a contract as a public scribe was the tidy sum of 20 drachmas.11

  This spread of money’s first two components—the idea of a universally applicable unit of value and the practice of keeping accounts in it—reinforced the development of the third: the principle of decentralised negotiability. The new idea of universal economic value made possible the offsetting of obligations without reference to a centralised authority. And the new idea of an objective economic space created the confidence that this possibility would exist indefinitely. Markets require people to be able to negotiate a sale or agree a wage on their own, instead of feeding their preferences into a central authority in order to receive back a directive on how to act. But successful negotiation requires a common language—a shared idea of what words mean. For markets to function there needs to be a shared concept of value and standardised units in which to measure it. Not a shared idea of what particular goods or services are worth—that is where the haggling comes in—but a shared unit of economic value so that the haggling can take place at all. Without general agreement on what a dollar is, we could no more haggle in the marketplace over prices in dollars than we can talk to the birds and the bees.

  Now money was opening up a still more radical horizon: traditional social obligations could not only be valued on a universal scale, but transferred from one person to another. The miracle of money had an equally miraculous twin—the miracle of the market.12 And with the invention of coinage, a dream technology for recording and transferring monetary obligations from one person to another was born. The earliest known coins were minted in Lydia and Ionia, in present-day Turkey, in the early sixth century BC. But it was the city states of the Greek Aegean that seized upon coinage as the ideal means of representing the new concept of economic value, starting in the late sixth century BC. Its spread throughout the Greek world thereafter was rapid and pervasive: by around 480 BC, there were nearly a hundred mints operating in the Greek world.13

  The result was a further acceleration in the pace of monetisation. Everywhere, traditional social obligations were transformed into financial relationships. In Athens, traditional agricultural sharecroppers were converted into contractual tenants paying money rents. The so-called “liturgies”—the ancient, civic obligations of the thousand wealthiest inhabitants of the city to provide public services ranging from choruses for the theatre to ships for the navy—were now assessed in financial terms. By the last quarter of the fifth century BC, “not only military stipends, public and private wages, rents and commodity prices, but also social payments such as dowries … regularly appear as sums of cash.”14 The city states of classical Greece had become the first monetary societies.

  It is difficult to overstate the social and cultural impact of this first, revolutionary experience of monetisation.15 The age of traditional society—of the unchallenged authority of the centralised economy and the immutable social hierarchy—was ending. The age of monetary society—of the market as the organising principle of trade, of prices as the instructions guiding human activity, of ambition, entrepreneurship, and innovation—had arrived. The old cosmology was dying, and with it the old idea of the just social order as its microcosm on earth. In its place was developing an objective idea of the economy in which social position was constrained only by the ability to accumulate money. Under the old regime, social position had been absolute: born a peasant, died a peasant; born a chieftain, died a chieftain. In the new world, everything was relative. The only real measure of a man’s worth was money—and the accumulation of money has no intrinsic limits. “Money! Money is the man!” was the famous aphorism of the Argive aristocrat Aristodemus, exclaimed with undying disgust at the degenerate new order of things when “he lost his wealth—and with it his friends.”16 Now that money determined social standing, birth, honour, and tradition counted for nothing. Lose your wealth, and you were nobody.

  Complaints from those with vested interests in traditional society were to be expected. Yet the genius of money was that it did not just appeal to an alternative set of vested interests—those of the lumpen peasantry who had drawn the short straw under the old regime. The great fear associated with the transgression of customary rules of conduct had always been that the result would be anarchy: the traditional social order claimed to represent the sole bulwark against civil breakdown and a war of all against all. The monetary enlightenment argued otherwise. On the political and economic level, mone
y promised something unprecedented: that it would combine social mobility with political stability. With money, society could have its cake and eat it too. The sterile constraints of an immutable and absolute social system could be jettisoned in favour of ambition, entrepreneurship, and social mobility: money would be the universal solvent that could dissolve all traditional obligations. Crucially, though, the society that resulted would not collapse into chaos. Because money, the concept of universal value, and the idea of an objective economic space, were founded upon the ancient institution of communal sacrifice; and as such upon the invisible but irresistible communality of mankind. And money made its miraculous promise to combine apparent opposites on the personal level as well. It catered to two fundamental aspects of human psychology: the desire for freedom and the desire for stability. The ethics of the traditional society had sacrificed the former on the altar of the latter. The new world of monetary society promised both.

  Money’s claim that its new way of organising society would not end in disaster, but would combine the power of social mobility and personal freedom with that of social stability and economic security, was startling enough. But there was a final implication of the new worldview that was even more astonishing: that the rule of money was not just efficacious, but just. For money claimed to fuse together both the short-term and the long-term “transactional orders”—to govern both the minutiae of getting and spending in the everyday and the profundities of social harmony for the ages. This was a truly revolutionary idea, quite alien to traditional theology and ethics: the notion that all of human conduct, from haggling over chickens in the marketplace to matters of state and the government of empires, could be best regulated by a single logic and a single social technology.17 As we shall see, the Greeks themselves were never reconciled to this counter-intuitive idea: it would take another two thousand years for the philosophers of the European Enlightenment to realise that feat. But monetary society staked the claim in practice anyway—and it was a claim no other social system had staked before.

  “THE GREAT QUESTION WHICH IN ALL AGES HAS DISTURBED MANKIND”

  The tensions created by the spread of monetary society and the imperialism of markets are deeply familiar to us today. The extent to which monetary thinking has become second nature, and the dominance of the concept of universal economic value, are remarkable—even frightening. It is no longer just the best seats in the theatre or on the aeroplane that have a price: in California it is now possible to pay to upgrade one’s prison cell.18 Illicit traffic in ivory and in carcasses of rhinos and elephants has been known for decades: today, one can buy a permit to shoot them legally—the right to kill an endangered black rhino goes for $250,000. A century ago, to enjoy citizenship of one of the world’s rich nations was to have “won first prize in the lottery of life.”19 Today, anybody can immigrate to the U.K., the U.S., and several other countries—as long as they bring enough money. And if a person cannot afford these desirables, he can sell advertising space on his forehead, put his health at risk as a human guinea pig in a new drug trial, or—a much more traditional way out of economic straits, though one no less alarming to the modern sensibility—hire himself out as a mercenary to one of the private military contractors at the sharp end of modern Western warfare. As the American philosopher Michael Sandel, who assembled this ghoulish litany, concluded: “There are some things that money can’t buy—but these days, not many.”20

  It is easy to believe that the invasion of this way of thinking and the uneasiness it causes in us are modern phenomena. It is just as tempting to believe that they are the result of the spread of the capitalist economic system. What our biography of money’s early years has taught us, however, is that they are not. Capitalism is indeed a modern phenomenon—a system that emerged in Europe in the sixteenth and seventeenth centuries, and which has come to dominate the world today. But beneath the relentless spread of the market mentality and the overweening dominance of the idea of universal economic value lies something much older, and much more deeply ingrained in the way our societies work: the social technology of money. And the tensions and dissonances that we feel today are not new at all: they have flexed and echoed down the centuries ever since money’s first invention, more than two and a half thousand years ago, on the shores of the Greek Aegean.

  If money was such a powerful invention—such a revolutionary force for the transformation of society and the economy—the next question is obvious. It is one posed with brilliant clarity by the father of English political philosophy John Locke, in his First Treatise of Government:

  The great question which in all ages has disturbed mankind, and brought on them the greatest part of those mischiefs which have ruined cities, depopulated countries, and disordered the peace of the world, has been, not whether there be power in the world, nor whence it came, but who should have it.21

  It is to the perennial battle over who controls money that we therefore turn next.

  4 The Monetary Maquis

  FINANCIAL SOVEREIGNTY AND MONETARY INSURRECTION

  In December 2001, the economic crisis that had been brewing in Argentina for over three years came to a head. The country had pegged the value of its peso to the U.S. dollar for over a decade under a so-called “currency board” arrangement that had delivered unprecedented stability and prosperity for much of the 1990s. But when Brazil devalued its currency in January 1999, Argentina was suddenly priced out of its largest export market and its economy tipped into recession. As the world’s craving for the United States’ new economy drove the U.S. dollar higher and higher over the next two years, it took the Argentine peso with it—heaping yet more misery on an economy that with its reliance on the production of agricultural commodities looked decidedly old. By the middle of 2001, the country had been in recession for almost three years and its public finances were unravelling despite several attempted austerity programmes. Argentina’s much-vaunted fixed exchange rate had become a severe obstacle to its international competitiveness, and both the public and the financial markets began to suspect that it could not hold. In April 2002 they were proved correct, when the sixth Economy Minister in a year announced the end of the currency board. Within weeks, the exchange rate had collapsed from 1 to 4 pesos to the U.S. dollar, and Argentina had defaulted on its external debts, entering an exile from the international capital markets that continues to this day.

  The government’s strenuous efforts to stave off this catastrophic outcome had meant that Argentina’s monetary and financial system had been in dire straits for months leading up to the crisis. A year previously, Domingo Cavallo—the father of the currency board arrangement, the man who had single-handedly delivered Argentina from its troubled history of inflation and instability—had been recalled to the government to galvanise popular support and regain the confidence of the markets. Over the summer, he had committed unwaveringly to the maintenance of the dollar peg. The consequence had been that as the economy had continued to shrink and the banks become yet more distressed, private capital had continued to flee the country and pesos had become more and more scarce. On 2 December 2001, the beginnings of a full-scale run on the banking system had forced Cavallo to make the most embarrassing of announcements. To preserve the liquidity of the banks, a strict limit was imposed on the amount of cash that depositors could withdraw from their accounts. It was a desperate measure that provoked extraordinary popular resentment. Cavallo’s so-called “corralito” (“little enclosure”) succeeded in preventing the imminent collapse of the banking system—but at the cost of causing an immediate and acute shortage of peso liquidity.

  The Argentinian public’s response to the sudden drought of money was no less entrepreneurial than that of the Irish had been thirty years before. Where the state would not oblige, substitute moneys sprang up spontaneously. Provinces, cities, and even supermarket chains started to issue their own IOUs, which rapidly began to circulate as money—in open defiance of the government’s attempts to keep liquidity ti
ght to support the peso. By March 2002, such privately issued notes made up nearly a third of all the money in the country.1 A report in the Financial Times painted an evocative picture of the situation:

  As they finish their tea and croissants, two elegantly dressed ladies at a Buenos Aires cafe ask their waiter how they might pay. As if reciting the day’s menu from memory, the waiter gives them several options: pesos, lecops, patacones (but only Series I) and all classes of tickets luncheon vouchers that circulate widely at restaurants and supermarkets in the city.2

  The monetary authorities were mortified. But embarrassing as it might be for the Governor of the Central Bank of Argentina to witness his friends paying for their breakfast with patacones signed by officials of the province of Buenos Aires, at least they were liabilities of some level of government. And at least they were still denominated in the national unit of account. There was, however, worse to come. By July, nearly one in ten of the adult population was discovered to be using the Crédito—a mutual credit money issued by local exchange clubs on its own, independent standard.3 Even the peso’s much-reduced role as the natural denomination for financial contracts was fading away. A significant part of the Argentine economy was now operating using a glorified swap shop.