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Conservatives Versus Wildcats
A Sociology of Financial Conflict
By Simone Polillo Stanford University Press
Copyright © 2013 Board of Trustees of the Leland Stanford Junior University
All rights reserved.
ISBN: 978-0-8047-8509-9
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CHAPTER 1
Money, Banks, and Creditworthiness Three Myths?
THREE FUNDAMENTAL ASSUMPTIONS characterize scholarly understandings of money, banks, and creditworthiness, and in what follows I will, perhaps a bit irreverently, refer to them as myths. The first myth depicts money as a neutral means of accounting for value—as a fungible instrument that serves to establish commensurability among qualitatively different commodities. The second myth depicts banks as institutions of intermediation; it sees them as responsible for the allocation and distribution of scarce financial resources (capital), so that banks intermediate between savers and spenders. Finally, the myth of creditworthiness as objective assessment understands the criteria by which borrowers are granted credit to be a function of the traits of the borrower: the better these criteria capture such underlying traits, the better the odds that the financial obligation will be met in the future.
Understanding the nature of these myths, I claim, is essential for understanding the conflictual nature of finance. There are three reasons: (1) money can reflect both a logic of inclusion and one of exclusion; it is both fungible and incommensurable. (2) Banks do not move resources, but create financial claims whose circulation they strive to restrict to certain circuits. (3) The criteria whereby creditworthiness is adjudicated serve not to capture some objective trait in the borrower, but to create collective identities to which both bankers and their clients must commit. By committing, they can continue exploiting opportunities and restricting access to advantages to their own status group. Therefore, money, credit, and creditworthiness are always contested, with certain bankers striving to reinforce the boundaries drawn around each phenomenon, while other bankers strive to transgress those boundaries. The myths of fungible money, of banks as institutions of intermediation, and of creditworthiness as objective assessment, are categories of practice rather than analytical categories; they emerge in the course of financial struggle to abet the political projects of conflicting banking groups. This makes conflict central to the nature of finance in the capitalist process, and recurrent claims to inclusion and exclusion intrinsic to financial exchange. This chapter investigates the nature of each myth in some depth.
The Myth of Fungible Money
A new sociological literature, emerging over the past twenty years, explores whether money is a set of financial and monetary instruments that are only potentially commensurable with one another, or an abstract system of accounting for value that generates equivalences and commensurability through the quantification of value. Here I will claim that the first claim is more accurate than the second. Money takes specific forms, which then signal something about their possessor to other financial players: they signal membership in financial communities variably characterized by exclusivity and control. As a consequence, specifically, the possessors of specific financial instruments gain access to particular financial experiences, as well as to common identities that commit them to collective enterprises. In order to understand the importance of this claim we must begin by questioning the fungible status of money.
What I call the myth of fungible money derives from a large, mostly polemical literature, dating back to the writings of Karl Marx and Georg Simmel, that identifies in money the power of transcending any and all social boundaries that individuals may erect to contain its spread—and the spread of commercialization and cold calculation that money brings with it. Non olet, money does not smell (1921: 124), as Marx put it, referring to Roman emperor Vespasian's quip upon imposing a tax on public lavatories: for Marx, money is a "universal equivalent," deriving its power precisely from its detachment from commodities, rather than from its origins, no matter how undignified they might be.
Simmel joins Marx in thinking of money as anonymous and depersonalized. But he pushes the idea of the transformative power of money in a different direction from Marx, to argue that money is freedom, a free dom that entails a high cost: "[M]odern man is free, free because he can sell everything, and free because he can buy everything.... [T]hrough money, man is no longer enslaved in things, so on the other hand is the content of his Ego, motivation and determination so much identical with concrete possessions that the constant selling and exchanging of them—even the mere fact that they are saleable—often means a selling and uprooting of personal values" (Simmel 1990: 404).
With money comes modernity (Poggi 1993), and in particular, detachment from more traditional sources of authority and identity. A similar theme is later also developed by anthropologists witnessing the transition to market economies in non-Western societies, where, with the advent of colonialism and capitalism, "special monies" were allegedly being replaced by generalized monies (Bohannan 1959). The idea that money is "special" conveys how the different kinds of monetary tokens that pre-existed the market economy circulated in restricted spheres of exchange—characterized by specific obligations and loyalties, and never by a market logic of free exchange. The advent of modern money, by virtue of its neutrality to values and social attachments, is understood as a break in those circuits, signaling the beginning of an era of generalized, market-based exchange (Polanyi 1944; Parry and Bloch 1989).
Marx and Simmel, and later economic anthropologists, in short, make fundamental contributions to a tradition of thinking of money as a "cold cash nexus" that dehumanizes social relations, deprives them of content and emotion, and subjects them to an alienating form of rationality (see, for example, Berman 1983). Thus neither Marx nor Simmel, nor any of their followers, consider the possibility that the actual forms taken by money, and the ways that these forms are used, may be wholly dependent on the relations through which these monetary media are assigned to particular kinds of people, circulating in certain networks and not others. To be sure, because of its ability to break pre-existing social bonds and solidarities, money is understood as presenting new challenges, but also opening new possibilities—new challenges insofar as it increases anomie and alienation (about which Durkheim as well as Marx were most concerned), new possibilities insofar as it opens the space for new forms of individual freedom (as Simmel emphasized). Yet what money makes possible, in the Marx-Simmel framework, is a world eventually devoid of human relations.
The Relational Analysis of Money
With the emergence of new ethnographic studies of money—such as Viviana Zelizer's work (1994) on the attempts of the early-twentieth-century U.S. government to create a homogeneous monetary system—sociologists begin to understand that, counter to the predictions of Marx and Simmel, money continues being segregated and "earmarked" in modern contexts as well. To put it differently, the special monies of so-called primitive societies never disappear, so the all-pervasive commensurability of modern money turns out to be an exaggeration. As social relations become more differentiated, in fact, money becomes more differentiated too.
Zelizer (ibid.), for instance, shows that even in a case of widespread consensus over the unit of account (for example, the dollar), such as the United States in the nineteenth century, people struggled to understand whether the money earned by women was the same as the money earned by men; whether money earned illegally was the same as money earned through legal means; whether money exchanged as a gift was the same as money earned as a compensation for a service, and so on. Moreover, where money's previous, specialized purposes were questioned, individuals engaged in frantic efforts to create new distinctions congruent with the social relations at hand. U.S. families thus engaged in heated arguments about whether the newly elevated and more emancipated status of women required a reworking of the elaborate and humiliating system through which "doles" had hitherto been administered by male breadwinners. And with the entry of more women into the formal labor market, how to classify women's wages (Were they "pin-money"? For what purposes could they be used?) became a source of conflict and debate. In short, where Marx and Simmel would have seen homogeneity, equivalence, fungibility, and fetishism, Zelizer finds nuance and differentiation. Because different social groups will invariably invest money with local meaning, the uses of money will be restricted to acceptable goals, its alleged fungibility broken into multiple, nontransferable currencies. Money, concludes Zelizer, should be understood as ultimately nonfungible. In this perspective, inspired most directly by the principles of relational analysis, money becomes a short-hand for the multiplicity of currencies whose circulation is limited to some networks, and impossible in others.
Zelizer's path-breaking study of how money acquires meaning, based on diffuse but mundane monetary practices such as tipping or gift-giving, soon develops into a more structural account of how "circuits of commerce" come about—full-fledged networks defined by strong boundaries against outsiders, shared understandings about how commercial transactions interpenetrate other social exchanges that take place within the network, and common media of exchange that tend to lose value or become altogether unacceptable outside the boundaries of the network (Zelizer 2001, 2005a; Zelizer and Tilly 2006; see also Collins 1995, 2000). Paradigmatic cases are migrant remittance networks, known for their inventiveness in coordinating large sums of payments through cross-national borders, often with specifically devised currencies and units of account, as well as shared understandings of what remittances should be spent on (Zelizer and Tilly 2006). Another example is the proliferation of local currency schemes with their elaborate systems of allocation and accounting (Zelizer 2005b). In this view, money in general, and not just in its uses, is defined by its unfungibility. Different forms of money, to the extent that they circulate in different "circuits," are linked to different social experiences and thus are not commensurable.
Because this literature focuses primarily on the uses of money by marginalized groups, however, it conflates several issues: interpretation and agency in the face of structural constraints, for instance; or the maintenance of social relations in the face of commercialization. This literature debunks the "myth of fungible money" only with respect to actors who are interstitial to the official economy, and primarily only with respect to uses of official moneys. So its impact on an understanding of moneys other than those circulating outside the mainstream banking system has been muted. This leaves open an important analytical space that a second theory of money, more in line with the concerns of the classical theorists, but also more aggressive toward neoclassical economics than relational analysis is, has begun to occupy. And to this second theory of money the very logic behind relational analysis seems suspicious.
This second theory of money, neochartalism, points to the rise of the modern state, and the rationalization of the economy and more generally of social life it made possible, as the processes that must be understood in order to analyze money. The theme of the rise of the modern state was developed in sociology by Weber and his followers, but it was heterodox economists working in the post-Keynesian tradition (Wray 1990, 1999; Wray and Bell 2004; Wray and Forstater 2009; Lavoie 2006; see also Minsky 1986; B. J. Moore 1988), and allied social scientists, most notably Geoffrey Ingham (see esp. 2004), who specified how money fits in this narrative. To this literature, broadly labeled neochartalism, after Georg Knapp's terminology (Knapp 1924), we now turn.
Neochartalism
From the point of view of neochartalism, of the many functions fulfilled by money, that of serving as a unit of account is the most important. Economists since Adam Smith (1976: esp. 309) tell a stylized story about the origins of money as a common medium that individual participants to market exchange agree upon out of convenience (Menger 1892; Jones 1976: 309; Schumpeter 1994): they thus privilege the means-of-exchange and store-of-value functions of money. But neochartalists reject this story, and the emphasis on circulation and storage of value it implies, both on historical and logical grounds (see, esp., Innes 1913 for a classical statement; and Smithin 2000 for a recent synthesis). Money is a collective process, they argue, backed by an authority that establishes a system of accounting for value that all those who are subject to the authority then have to accept. The logic of this argument is that, much as we measure distance with reference to an abstract system (such as the metric system), and we do not expect it to vary depending on the specific ruler we use to measure it, we should define money by virtue of its abstract nature as a measure of value, not in terms of the actual forms it takes (Innes 1913). The "primary concept of a Theory of Money" is money of account, to quote Keynes (1930: 1).
The emphasis on money as money-of-account naturally leads to questions about the authority that underlies it. In fact, if money arose out of simple convenience, that would imply that private agents agreed to a common standard of accounting for value: but why would they not privilege whatever good they were most endowed with instead (Ingham 1996)? Simmel provides a useful answer, one that neochartalists emphasize over the more cultural understandings of money as a leveler of social distinctions that I discussed briefly above. Simmel argues that money is "a bill of exchange from which the name of the drawee is lacking, or alternatively, which is guaranteed rather than accepted." Crucially, money is dependent on a "third factor [that] is introduced between the two parties [to an exchange]: the community as a whole, which provides real value corresponding to money." Money becomes "a relationship with the economic community that accepts the money"; money is thus "minted by its highest representative. This is the core truth in the theory that money is only a claim upon society" (Simmel 1990: 177).
Simmel, then, by pointing to the nature of money as a "claim upon society" in units of account set by its "highest representative," effectively introduces the role of a collective authority, rather than the spontaneous coordination of private actors, in the production of money. And he suggests none other than the modern state as the strongest expression of monetary authority. But the nature of that authority is more specific than what Simmel had in mind. It is, according to neochartalists, fiscal. This has important implications for a theory of money.
In this tax-centered view of monetary processes, the nature of modern money is "chartalist," to use Knapp's term (1924): it is a token claim to value whose unit of account and acceptability is enforced by the state through fiscal policy. What matters to money is that it is denominated in the monetary units prescribed by the state, or, as Keynes has it: "[M]oney-of-account is the description or title and the money is the thing which answers that description.... [The state] claims the right to declare what thing corresponds to the name" (1930: 4). In modern capitalism, whatever currency the state will ask its citizens to pay taxes in, that currency will become money.
The neochartalist perspective as a consequence puts much emphasis on the fiscal origins of money, and the coercive aspects of revenue extraction. To be sure, the acceptance of legal tender can be enforced by the state's legal system—but it is ultimately the state's fiscal capacity that grounds the monetary system (a point clearly articulated by Knapp). Moreover, because the money issued by the state acquires liquidity within the political boundaries of the state, it also serves as a "reserve" for the private issue of monetary and nonmonetary instruments (Wray 1999). The money of the state thus becomes the most desirable and safest in a hierarchy of money because it is the currency that is most acceptable and most liquid (Bell 2001). The concentration of political authority in the hands of the state has historically led to the rise and institutionalization of national currencies as the dominant form of monetary exchange and, most important, of accounting for value (Ingham 1999, 2001, 2004, 2006).
(Continues...)
Excerpted from Conservatives Versus Wildcats by Simone Polillo. Copyright © 2013 by Board of Trustees of the Leland Stanford Junior University. Excerpted by permission of Stanford University Press.
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