Debt (63 page)

Another way to look at this might be to say that the new age came to be increasingly uncomfortable with the political nature of money. Politics, after all, is the art of persuasion; the political is that dimension of social life in which things really do become true if enough people believe them. The problem is that in order to play the game effectively, one can never acknowledge this: it may be true that, if I could convince everyone in the world that I was the King of France, I would in fact become the King of France; but it would never work if I were to admit that this was the only basis of my claim. In this sense, politics is very similar to magic—one reason both politics and magic tend, just about everywhere, to be surrounded by a certain halo of fraud. These suspicions were widely vaunted at the time. In 1711, the satirical essayist Joseph Addison penned a little fantasy about the Bank of England’s—and as a result, the British monetary system’s—dependence on public
faith in the political stability of the throne. (The Act of Settlement of 1701 was the bill that guaranteed the royal succession, and a sponge was a popular symbol for default). In a dream, he said,

If one does not believe in the king, then the money vanishes with him.

Thus kings, magicians, markets, and alchemists all fused in the public imagination during this era, and we still talk about the “alchemy” of the market, or “financial magicians.” In Goethe’s
Faust
(1808), he actually has his hero—in his capacity as alchemist-magician—pay a visit to the Holy Roman Emperor. The Emperor is sinking under the weight of endless debts that he has piled up paying for the extravagant pleasures of his court. Faust, and his assistant, Mephistopheles, convince him that he can pay off his creditors by creating paper money. It’s represented as an act of pure prestidigitation. “You have plenty of gold lying somewhere underneath your lands,” notes Faust. “Just issue notes promising your creditors you’ll give it to them later. Since no one knows how much gold there really is, there’s no limit to how much you can promise.”
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This kind of magical language almost never appears in the Middle Ages.
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It would appear that it’s only in a resolutely materialist age that this ability to simply produce things by saying that they are there comes to be seen as a scandalous, even diabolical. And the surest sign that one has entered such a materialist age is precisely the fact that it is seen so. We have already observed Rabelais, at the very beginning of the age, reverting to language almost identical to that used by Plutarch when he railed against moneylenders in Roman times—“laughing at those natural philosophers who hold that nothing can be made of nothing,” as they manipulate their books and ledgers to demand back money they never actually had. Panurge just turned it around: no, it’s
by borrowing that I make something out of nothing, and become a kind of god.

But consider the following lines, often attributed to Lord Josiah Charles Stamp, director of the Bank of England:

It seems extremely unlikely that Lord Stamp ever really said this, but the passage has been cited endlessly—in fact, it’s probably the single most often-quoted passage by critics of the modern banking system. However apocryphal, it clearly strikes a chord, and apparently for the same reason: bankers are creating something out of nothing. They are not only frauds and magicians. They are evil, because they’re playing God.

But there’s a deeper scandal than mere prestidigitation. If Medieval moralists did not raise such objections, it was not just because they were comfortable with metaphysical entities. They had a much more fundamental problem with the market: greed. Market motives were held to be inherently corrupt. The moment that greed was validated, and unlimited profit was considered a perfectly viable end in itself, this political, magical element became a genuine problem, because it meant that even those actors—the brokers, stock-jobbers, traders—who effectively made the system run had no convincing loyalty to anything, even to the system itself.

Hobbes, who first developed this vision of human nature into an explicit theory of society, was well aware of this greed dilemma. It formed the basis of his political philosophy. Even, he argued, if we are all rational enough to understand that it’s in our long-term interest to live in peace and security, our short-term interests are often such that killing and plundering are the most obviously profitable courses to take, and all it takes is a few to cast aside their scruples to create utter insecurity and chaos. This was why he felt that markets could only exist under the aegis of an absolutist state, which would force us to keep our promises and respect one another’s property. But what happens
when we’re talking about a market in which it is state debts and state obligations themselves that are being traded; when one cannot really speak of a state monopoly on force because one is operating in an international market where the primary currency is bonds that the state depends on for its very ability to marshal military force?

Having made incessant war on all remaining forms of the communism of the poor, even to the point of criminalizing credit, the masters of the new market system discovered that they had no obvious justification left to maintain even the communism of the rich—that level of cooperation and solidarity required to keep the economic system running. True, for all its endless strains and periodic breakdowns, the system has held out so far. But as recent events have dramatically testified, it has never been resolved.

We are used to seeing modern capitalism (along with modern traditions of democratic government) as emerging only later: with the Age of Revolutions—the industrial revolution, the American and French revolutions—a series of profound breaks at the end of the eighteenth century that only became fully institutionalized after the end of the Napoleonic Wars. Here we come face to face with a peculiar paradox. It would seem that almost all elements of financial apparatus that we’ve come to associate with capitalism—central banks, bond markets, short-selling, brokerage houses, speculative bubbles, securization, annuities—came into being not only before the science of economics (which is perhaps not too surprising), but also before the rise of factories, and wage labor itself.
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This is a genuine challenge to familiar ways of thinking. We like to think of the factories and workshops as the “real economy,” and the rest as superstructure, constructed on top of it. But if this were really so, then how can it be that the superstructure came first? Can the dreams of the system create its body?

All this raises the question of what “capitalism” is to begin with, a question on which there is no consensus at all. The word was originally invented by socialists, who saw capitalism as that system whereby those who own capital command the labor of those who do not. Proponents, in contrast, tend to see capitalism as the freedom of the marketplace, which allows those with potentially marketable visions to pull resources together to bring those visions into being. Just about
everyone agrees, however, that capitalism is a system that demands constant, endless growth. Enterprises have to grow in order to remain viable. The same is true of nations. Just as five percent per annum was widely accepted, at the dawn of capitalism, as the legitimate commercial rate of interest—that is, the amount that any investor could normally expect her money to be growing by the principle of
interesse
—so is five percent now the annual rate at which any nation’s GDP really ought to grow. What was once an impersonal mechanism that compelled people to look at everything around them as a potential source of profit has come to be considered the only objective measure of the health of the human community itself.

Starting from our baseline date of 1700, then, what we see at the dawn of modern capitalism is a gigantic financial apparatus of credit and debt that operates—in practical effect—to pump more and more labor out of just about everyone with whom it comes into contact, and as a result produces an endlessly expanding volume of material goods. It does so not just by moral compulsion, but above all by using moral compulsion to mobilize sheer physical force. At every point, the familiar but peculiarly European entanglement of war and commerce reappears—often in startling new forms. The first stock markets in Holland and Britain were based mainly in trading shares of the East and West India companies, which were both military and trading ventures. For a century, one such private, profit-seeking corporation governed India. The national debts of England, France, and the others were based in money borrowed not to dig canals and erect bridges, but to acquire the gunpowder needed to bombard cities and to construct the camps required for the holding of prisoners and the training of recruits. Almost all the bubbles of the eighteenth century involved some fantastic scheme to use the proceeds of colonial ventures to pay for European wars. Paper money was debt money, and debt money was war money, and this has always remained the case. Those who financed Europe’s endless military conflicts also employed the government’s police and prisons to extract ever-increasing productivity from the rest of the population.

As everybody knows, the world market system initiated by the Spaniards and Portuguese empires first arose in the search for spices. It soon settled into three broad trades, which might be labeled the arms trade, the slave trade, and the drug trade. The last refers mostly to soft drugs, of course, like coffee, tea, and the sugar to put in them, and tobacco, but distilled liquor first appears at this stage of human history as well, and as we all know, Europeans had no compunctions about aggressively marketing opium in China as a way of finally putting an end to the need to export bullion. The cloth trade only came later, after
the East India Company used military force to shut down the (more efficient) Indian cotton export trade. One need only take a glance at the book that preserves Charles Davenant’s 1696 essay on credit and human fellowship:
The political and commercial works of that celebrated writer Charles D’Avenant: relating to the trade and revenue of England, the Plantation trade, the East-India trade and African trade
. “Obedience, love, and friendship” might suffice to govern relations between fellow Englishmen, then, but in the colonies, it was mainly just obedience.

As I’ve described, the Atlantic slave trade can be imagined as a giant chain of debt-obligations, stretching from Bristol to Calabar to the headwaters of the Cross River, where the Aro traders sponsored their secret societies; just as in the Indian Ocean trade, similar chains connected Utrecht to Capetown to Jakarta to the Kingdom of Gelgel, where Balinese kings arranged their cockfights to lure their own subjects to gamble their freedom away. In either case, the end product was the same: human beings so entirely ripped from their contexts, and hence so thoroughly dehumanized, that they were placed outside the realm of debt entirely.

The middlemen in these chains, the various commercial links of the debt chain that connected the stock-jobbers in London with the Aro priests in Nigeria, pearl divers in the Aru islands of Eastern Indonesia, Bengali tea plantations, or Amazonian rubber-tappers, give one the impression of having been sober, calculating, unimaginative men. At either end of the debt chain, the whole enterprise seemed to turn on the ability to manipulate fantasies, and to run a constant peril of slipping into what even contemporary observers considered varieties of phantasmagoric madness. On the one end were the periodic bubbles, propelled in part by rumor and fantasy and in part by the fact that just about everyone in cities like Paris and London with any disposable cash would suddenly become convinced that they would somehow be able to profit from the fact that everyone else was succumbing to rumor and fantasy.

Charles MacKay has left us some immortal descriptions of the first of these, the famous “South Sea Bubble” of 1710. Actually, the South Sea Company itself (which grew so large that at one point it bought up most of the national debt) was just the anchor for what happened, a giant corporation, its stock constantly ballooning in value, that seemed, to put it in contemporary terms, “too big to fail.” It soon became the model for hundreds of new start-up offerings:

The author lists, as arbitrary examples, eighty-six schemes, ranging from the manufacture of soap or sailcloth, the provision of insurance for horses, to a method to “make deal-boards out of sawdust.” Each issued stock; each issue would appear, then be scooped up and avidly traded back and forth in taverns, coffee-houses, alleys, and haberdasheries across the city. In every case their price was quickly bid through the ceiling—each new buyer betting, effectively, that he or she could unload them to some even more gullible sucker before the inevitable collapse. Sometimes people bid on cards and coupons that would allow them no more than the right to bid on other shares later. Thousands grew rich. Thousands more were ruined.