Debt: The First 5000 Years Part 20

58. "Interest" (from interesse) comes into common usage as a euphemism for usury in the fourteenth century, but it only comes to be used in its more familiar, general sense in the sixteenth. Hobbes doesn't use "self-interest," though he speaks of "private" and "common" interests; but that term was already current, having appeared in the work of Machiavelli's friend Francesco Guicciadini in 1512. It becomes commonplace in the eighteenth century (see Hirschman 1977, 1992, especially chapter 2, "on the concept of interest"; Dumont 1981; Myers 1983, Heilbron 1998).

59. See (1928:187) notes that until around 1800, "interesse" was the common word for "capital" in French; in English the preferred word was "stock." It is curious to note that Adam Smith, for one, actually returns to the Augustinian usage, "self-love," in his famous pa.s.sage about the butcher and the baker (Wealth of Nations 1.2.2).

60. Beier 1985:15963; cf. Dobb 1946:234. Consorting with gypsies was also a capital crime. In the case of vagrancy, justices found it so difficult to find anyone willing to press charges against vagrants that they were eventually forced to reduce the penalty to public whipping.

61. In Walker 1996:244.

62. Helmholtz 1986, Brand 2002, Guth 2008.

63. Helmholz 1986, Muldrew 1998:255, Schofield & Mayhew 2002, Guth 2008).

64. Stout 1742:121.

65. "The horrors of the Fleet and Marshalsea were laid bare in 1729. The poor debtors were found crowded together on the 'common side,'-covered with filth and vermin, and suffered to die, without pity, of hunger and jail fever ... No attempt was made to distinguish the fraudulent from the unfortunate debtor. The rich rogue-able, but unwilling to pay his debts-might riot in luxury and debauchery, while his poor unlucky fellow-prisoner was left to starve and rot on the 'common side' " (Hallam 1866 V:26970.) 66. I do not want to argue that the more familiar narrative of "primitive acc.u.mulation," of the enclosure of common lands and rise of private property, the dislocation of thousands of one-time cottagers who became landless laborers, is false. I simply highlight a less familiar side of the story. It's especially helpful to highlight it because the degree to which the Tudor and Stuart periods were actually marked by a rise of enclosures is a heated matter of debate (e.g., Wordie 1983). The use of debt to split communities against themselves is meant in the same vein as Silvia Federici's (2004) brilliant argument about the role of witchcraft accusations in reversing popular gains of the late Middle Ages and opening the way to capitalism.

67. "Personal credit received a bad press in the eighteenth century. It was frequently said that it was wrong to go into debt simply to pay for everyday consumption goods. A cash economy was celebrated and the virtues of prudent housekeeping and parsimony extolled. Consequently retail credit, p.a.w.nbroking, and moneylending were all attacked, with both borrowers and lenders the targets" (Hoppit 1990:31213.) 68. Wealth of Nations 1.2.2.

69. Muldrew makes this point: 1993:163.

70. Theory of Moral Sentiments 4.1.10.

71. "The man who borrows in order to spend will soon be ruined, and he who lends to him will generally have occasion to repent of his folly. To borrow or to lend for such a purpose, therefore, is in all cases, where gross usury is out of the question, contrary to the interest of both parties; and though it no doubt happens sometimes that people do both the one and the other; yet, from the regard that all men have for their own interest, we may be a.s.sured that it cannot happen so very frequently as we are sometimes apt to imagine" (Wealth of Nations 2.4.2). He does occasionally acknowledge the existence of retail credit, but he grants it no significance.

72. Reeves 1999. Reeves, like Servet (1994, 2001) shows that many were aware of the variability of money-stuffs: Puffendorf, for example, made a long list of them.

73. When we attribute value to gold, then, we simply recognize this. The same argument was usually invoked to solve the old Medieval puzzle about diamonds and water: Why is it that diamonds are so expensive, though useless, and water, which is useful in all sorts of ways, hardly worth anything at all? The usual solution was: diamonds are the eternal form of water. (Galileo, who objected to the entire premise, at one point suggested that those who make such claims should really be turned into statues. That way, he suggested, in inimitable Renaissance style, everyone would be happy, since (1) they would be eternal, and (2) the rest of us would no longer have to listen to their stupid arguments.) See Wennerlind 2003, who notes, interestingly, that most European governments employed alchemists in the seventeenth century in order to manufacture gold and silver for coins; it's only when these schemes definitively failed that the governments moved to paper currency.

74. Kindleberger 1984; Boyer-Xambeu, Deleplace, & Gillard 1994; Ingham 2004:171. Rather, this path eventually led to the creation of stock markets: the first public bourses, in fifteenth-century Bruges and Antwerp, began not by trading shares in joint-stock ventures, which barely existed at the time, but by "discounting" bills of exchange.

75. Usher (1934, 1944) originally introduced the distinction between "primitive banking," where one simply lends out what one has, and "modern banking," based on some sort of fractional reserve system-that is, one lends more than one has, thus effectively creating money. This would be another reason why we have now moved to something other than "modern banking"-see below.

76. Spufford 1988:258, drawing on Usher 1943:23942. While deposit notes were used, private bank notes, based on credit, only appear quite late-from London goldsmiths, who also acted as bankers, in the seventeenth and eighteenth centuries.

77. See Munro 2003b for a useful summary.

78. MacDonald 2006:156.

79. Tomas de Mercado in Flynn 1978:400.

80. See Flynn 1979; Braudel 1992:52223; Stein & Stein 2000: 50105, 96062; Tortella & Comin 2002. The number of juros in circulation went from 3.6 million ducats in 1516 to 80.4 million in 1598.

81. The most famous exponent of this position was Nicholas Barbon (1690), who argued that "money is a value made by law" and a measure in just the same manner as inches or hours or fluid ounces. He also emphasized that most money was credit anyway.

82. Locke (1691:144) also cited in Caffentzis 1989:4647, which remains the most insightful summary of the debate and its implications. Compare Perlman & McCann 1998:11720; Letwin 2003:7178; Valenze 2006:4043.

83. We tend to forget that the materialism of the Marxist tradition is not some radical departure-Marx was, like Nietzsche, taking bourgeois a.s.sumptions (though in his case, different ones) and pushing them in directions that would outrage their original proponents. Anyway, there is good reason to believe that what we now call "historical materialism" is really Engels' addition to the project-Engels being himself nothing if not bourgeois in background and sensibilities (he was a stalwart of the Cologne stock exchange).

84. Macaulay 1886:485-the original essay was published in the Spectator, March 1, 1711.

85. Faust II, Act 1-see Sh.e.l.l 1992, Binsw.a.n.ger 1994 for a detailed a.n.a.lysis. The connection with alchemy is revealing. When in 1300 Marco Polo had remarked that the Chinese emperor "seemed to have mastered the art of alchemy" in his ability to turn mere paper into something as good as gold, this was clearly meant as a joke; by the seventeenth century most European monarchs actually did employ alchemists to try to produce gold from base metals; it was only their failure that led to the adoption of paper money (Wennerlend 2003).

86. It's not as if suspicions about money didn't exist-but they tended to focus, instead, on moral and metaphysical issues (e.g., "the theft of time").

87. Said to have been given at a talk at the University of Texas in 1927, but in fact, while the pa.s.sage is endlessly cited in recent books and especially on the internet, it cannot be attested to before roughly 1975. The first two lines appear to actually derive from a British investment advisor named L.L.B. Angas in 1937: "The modern Banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banks can in fact inflate, mint and unmint the modern ledger-entry currency" (Angas 1937:2021). The other parts of the quote are probably later inventions-and Lord Stamp never suggested anything like this in his published writings. A similar line, "the bank hath benefit of all interest which it creates out of nothing" attributed to William Patterson, the first director of the Bank of England, is likewise first attested to only in the 1930s, and is also almost certainly apocryphal.

88. Joint-stock corporations were created in the beginning of the colonial period, with the famous East India Company and related colonial enterprises, but they largely vanished during the period of the industrial revolution and were mainly revived only at the end of the nineteenth century, and then princ.i.p.ally, at first, in America and Germany. As Giovanni Arrighi (1994) has pointed out, the heyday of British capitalism was marked by small family firms and high finance; it was America and Germany, who spent the first half of the twentieth century battling over who would replace Great Britain as hegemon, that introduced modern bureaucratic corporate capitalism.

89. MacKay 1854:52.

90. MacKay 1854:5354.

91. Spyer 1997.

92. Prakash 2003:20916.

93. Hardenburg & Cas.e.m.e.nt 1913; the story has been a.n.a.lyzed most famously, and insightfully, by Mick Taussig (1984, 1987).

94. Encyclopedia Britannica, 11th edition (1911): entry for "Putumayo."

95. As Taussig notes (1984:482), when the head of the company was later asked what he actually meant by "cannibal" he said, simply, that it meant the Indians refused to trade with anybody else.

96. This is a point demonstrated in great detail in an important book by Yann Moulier-Boutang (1997), which unfortunately has never been translated into English.

97. Davies 1975:59. "Indentured" comes from the "indentations" or notches on a tally again, since these were widely used as contracts for those who, like most indentured servants, couldn't read (Blackstone 1827 I:218).

98. Immanuel Wallerstein (1974) provides the cla.s.sic a.n.a.lysis of this "second serfdom.

99. This was true, incidentally, across the cla.s.s spectrum: everyone was expected to do this, from lowly milkmaids and apprentices to "ladies in waiting" and knight's pages. This was one reason, incidentally, why indentured-service contracts did not seem like much of a jump in the seventeenth century: they were simply lengthening the term of contracted employment from one to five or seven years. Even in Medieval times there were also adult day-laborers, but these were often considered indistinguishable from simple criminals.

100. The very word "proletariat" in a way alludes to this, as it's taken from a Roman term for "those who have children."

101. C.L.R. James 1938; Eric Williams 1944.

102. "Many devices were available by which businessmen economized in the use of cash in wage payments-payment could be made only at long intervals; payment might consist in giving claims on others (truck payment, tickets or vouchers to authorize purchasing from shops, etc., the provision of private notes and tokens)"-Mathias 1979a:95.

103. Actually the full list is: "cabbage, chips, waxers, sweepings, sockings, wastages, blessing, lays, dead men, onces, primage, furthing, dunnage, portage, wines, vails, tinge, buggings, colting, rumps, birrs, fents, thrums, potching, sc.r.a.pings, poake, coltage, extra, tret, tare, largess, the con, n.o.bbings, knockdown, boot, tommy, tr.i.m.m.i.n.gs, poll, gleanings, lops, tops, bontages, keepy back, pin money" (Linebaugh 1993:449; see also Linebaugh 1982, Rule 1986:11517).

104. Tebb.u.t.t 1983:49. On p.a.w.nbroking in general: Hardaker 1892, Hudson 1982, Caskey 1994, Fitzpatrick 2001.

105. Linebaugh 1993: 371404.

106. Usually in order to conclude that today, of course, we are living in an entirely different world, because clearly that's not true any more. It might help here to remind the reader that Marx saw himself as writing a "critique of political economy"-that is, of theory and practice of economics of his day.

107. See the Lockhart translation of Bernal Diaz (Diaz 1844 II:396), which gives several versions of the story, drawn from different sources.

108. Clenninden 1991:144.

109. It is on these grounds that Testart distinguishes slavery owing to gambling, where the gambler stakes his own person, and debt slavery, even if these are ultimately gambling debts. "The mentality of the gambler who directly stakes his person in the game is closer to that of the warrior, who risks losing his life in war or being taken into slavery, than to that of the poor person willing to sell himself to survive" (Testart 2002:180).

110. This is incidentally why complaints about the immorality of deficits are so profoundly disingenuous: since modern money effectively is government debt, if there was no deficit, the results would be disastrous. True, money can also be generated privately, by banks, but there would appear to be limits to this. This is why U.S. financial elites, led by Alan Greenspan, panicked in the late 1990s when the Clinton administration began to run budget surpluses; the Bush tax cuts appear to have been designed specifically to ensure that the deficit was maintained.

111. Wallerstein 1989.

112. 1988:600.

113. Britain pa.s.sed its first bankruptcy law in 1542.

114. This is no doubt what Goethe was getting at when he had Faust, specifically, tell the emperor to pay his debts with IOUs. After all, we all know what happened to him when his time came due.

115. Sonenscher (2007) gives a long and detailed history of these debates.

116. One might trace a religious element here: in the time of Augustus, a group of religious cultists in the Middle East conceived the idea that fire was about to come from the sky and consume the planet. Nothing seemed less likely at the time. Leave them in charge of a corner of the world for two thousand years, they figure out a way to do it. But still, this is clearly part of a larger pattern.

Chapter Twelve.

1. I was first put on to the significance of the date by fellow anthropologist Chris Gregory (1998: 26596; also Hudson 2003a). U.S. citizens had not been able to cash in dollars for gold since 1934. The a.n.a.lysis that follows is inspired by both Gregory and Hudson.

2. One plausible-sounding version, which cites rather small amounts of bullion, can be found at: www.rediff.com/money/2001/nov/17wtc.htm. For a more entertaining, fictional version: www.rense.com/general73/confess.htm.

3. "The Federal Reserve Bank of New York: the Key to the Gold Vault" (newyorkfed.org/education/addpub/goldvaul.pdf).

4. As a minor aside, I remember from the time also reading news reports noting that there were, in fact, a number of expensive jewelry shops in the arcades directly beneath the Towers, and that all the gold in them did in fact disappear. Presumably they were pocketed by rescue workers, but considering the circ.u.mstances, it would seem there were no serious objections-at least, I've never heard anything about the matter being further investigated, let alone prosecuted.

5. It's no coincidence, certainly, that William Greider decided to name his great history of the Federal Reserve (1989) The Secrets of the Temple. This is actually how many of its own officials privately describe it. He quotes one: "The System is just like the Church ... It's got a pope, the chairman; and a college of cardinals, the governors and bank presidents; and a curia, the senior staff. The equivalent of the laity is the commercial banks ... We even have different orders of religious thought like Jesuits and Franciscans and Dominicans only we call them pragmatists and monetarists and neo-Keynesians" (ibid:54).

6. This is hardly a new claim, and it rests in part on the Braudelian (world-systems) school, for instance, the recent work of Mielants (2007). For a more cla.s.sically Marxist version developing the connection since Nixon's time, see Custers 2007. For a more mainstream neocla.s.sical treatments of the connection, see MacDonald & Gastman 2001, MacDonald 2006.

7. Senator Fullbright, in McDermott 2008:190.

8. I note that this flies directly in the face of the intent of the United States Const.i.tution (1.8.5), which specifies that only Congress was relegated the power "to coin money, [and] regulate the value thereof"-no doubt at the behest of the Jeffersonians, who were opposed to creating a central bank. The United States still observes the letter of the law: United States coins are issued directly by the Treasury. United States paper money, while signed by the head of the Treasury, is not issued by the Treasury but by the Federal Reserve. They are technically banknotes, though as with the Bank of England, one bank is granted a monopoly in issuing them.

9. For those who don't know how the Fed works: technically, there are a series of stages. Generally the Treasury puts out bonds to the public, and the Fed buys them back. The Fed then loans the money thus created to other banks at a special low rate of interest ("the prime rate"), so that those banks can then lend at higher ones. In its capacity as regulator of the banking system, the Fed also establishes the fractional reserve rate: just how many dollars these banks can "lend"-effectively, create-for every dollar they borrow from the Fed, or have on deposit, or can otherwise count as a.s.sets. Technically this is 10 to 1, but a variety of legal loopholes allow banks to go considerably higher.

10. Which does raise the rather interesting question of what its gold reserves are actually for.

11. Indeed, perhaps the greatest compromise to United States global power in recent years is the fact that there is now one place-the region of China facing Taiwan-where air defenses are now so dense and sophisticated that the United States Air Force is no longer certain that it can penetrate at will. The inability to blow up Osama bin Laden is, of course, the most dramatic limit to this power.

12. Or, to put the money in the United States stock market, which ultimately has a similar effect. As Hudson notes, "American diplomats have made it clear that to buy control of U.S. companies or even to return to gold would be viewed as an unfriendly act" (2002a:7), so, unless they want to move out of dollars entirely, which would be considered an even more unfriendly act, there is little alternative. As to how "unfriendly" acts might be received: see below.

13. Hudson 2002a:12.

14. As many have remarked, the three countries that switched to the euro around this time-Iraq, Iran, and North Korea-were precisely those singled out by Bush as his "Axis of Evil." Of course we can argue about cause and effect here. It's also significant that the core euro-using states such as France and Germany uniformly opposed the war, while U.S. allies were drawn from euro-skeptics like the UK.

15. For a few representative takes on the relation of the dollar and empire: from a neocla.s.sical economic perspective, Ferguson (2001, 2004), from a radical Keynesian perspective, Hudson (2003a), from a Marxist one, Brenner (2002).

16. Even the CIA now ordinarily refers to such arrangements as "slavery," though technically debt peonage is different.

17. Compare this to the deficit/military chart above, on page 366-the curve is effectively identical.

18. See dailybail.com/home/china-warns-us-about-debt-monetization.html, accessed December 22, 2009. The story is based on a piece from the Wall Street Journal, "Don't Monetize the Debt: The president of the Dallas Fed on inflation risk and central bank independence" (Mary Anastasia O'Grady, WSJ, May 23, 2009.) I should add that in popular usage nowadays, "to monetize the debt" is generally used as a synonym for "printing money" to pay debt. This usage has become almost universal, but it's not the original sense of the term, which is to turn the debt itself into money. The Bank of England did not print money to pay the national debt; it turned the national debt itself into money. Here too there is a profound argument going on about the nature of money itself.

19. The arrangement is sometimes referred to as Bretton Woods II (Dooley, Folkerts-Landau & Garber 2004, 2009): effectively, an agreement since the 1990s at least to use various unofficial means to keep the dollar's value artificially high, and East Asian currencies-particularly the Chinese-artificially low, in order to expedite cheap Asian exports to the United States. Since real wages in the United States have either stagnated or retreated continually since the 1970s, this, and the acc.u.mulation of consumer debt, is the only reason living standards in the United States have not precipitously declined.

20. On Zheng He, see Dreyer 2006, Wade 2004, Wake 1997. On the tribute trade in general: Moses 1967, Yu 1967, Hamas.h.i.ta 1994, 2003; Di Cosmo & Wyatt 2005.

21. The argument here follows Arrighi, Hui, Hung and Selden 2003, some elements of which were echoed in Arrighi's last work, Adam Smith in Beijing (2007).

22. j.a.pan of course was something of an exception, since it had arguably achieved something like First World status even before this.

23. Keynes 1936:345.

24. See www.irle.berkeley.edu/events/spring08/feller/ 25. The key legislation was the "Depository Inst.i.tutions Deregulation and Monetary Control Act" of 1980, which struck down all federal usury laws: ostensibly, in reaction to the rampant inflation of the late 1970s, though of course they were never restored when inflation was brought back under control, as it has in the last quarter-century. It left state interest ceilings in place, but inst.i.tutions like credit-card companies were allowed to observe the laws of the state in which they are registered, no matter where they operated. This is why most are registered in South Dakota, which has no maximum interest rate.

26. The first is from Thomas Friedman (1999) in a c.o.c.ky and vacuous book called The Lexus and the OIive Tree, the second from Randy Martin (2002) in a book of the same name.

27. In America this "universal otherness" is accomplished above all through racism. This is why most small retailing in the United States is conducted on ethnic lines: say, Korean grocers or dry-cleaners, who pool credit with one another, whose clients, however, are sufficiently socially distant that there is no question of extending credit outside, or even expecting basic relations of trust-since they themselves ordinarily expect electricians, locksmiths, contractors of various sorts who provide services to at least attempt to shaft them. Essentially the market across racial or ethnic lines becomes one where everyone is a.s.sumed to be Amalek.

28. Gilder 1981:266, cited in Cooper 2008:7. Cooper's essay is a brilliant exploration of the relation between debt imperialism-a phrase she seems to have coined, inspired by Hudson-and evangelical Christianity, and it is heartily recommended. See also Naylor 1985.

29. Robertson 1992:153. In Cooper again: op cit.

30. Atwood 2008:42.

31. This is, incidentally, also the best response to conventional critiques of the poor as falling into debt because they are unable to delay gratification-another way in which economic logic, with all its human blind spots, skews any possible understanding of "consumers' " actual motivations. Rationally, since CDs yield around 4 percent annually, and credit cards charge 20 percent, consumers should save as a cushion and only go into debt when they absolutely have to, postponing unnecessary purchases until there's a surplus. Very few act this way, but this is rarely because of improvidence (can't wait to get that flashy new dress) but because human relations can't actually be put off in the same way as imaginary "consumer purchases": one's daughter will only be five once, and one's grandfather has only so many years left.

32. There are so many books on the subject that one hesitates to cite, but a couple of outstanding examples are Anya Kamentz's Generation Debt (2006), and Brett William's Social History of the Credit Trap (2004). The larger point about demands for debt as a form of cla.s.s struggle is in large part inspired by the Midnight Notes collective, who argue that, however paradoxically, "neoliberalism has thrown open a new dimension of struggle between capital and the working cla.s.s within the domain of credit" (2009:7). I have followed this a.n.a.lysis to a degree, but tried to move away from the economistic framing of human life as "reproduction of labor" that hobbles so much Marxist literature-the emphasis on life beyond survival might be distantly Vaneigem-influenced (1967), but largely falls back on my own work on value theory (Graeber 2001).

33. Elyachar 2002:510.

34. See for instance, "India's micro-finance suicide epidemic," Soutik Biswas, BBC News South Asia, 16 December 2010, http.bbc.co.uk/news/world-south-asia-11997571 35. I have observed this first hand on any number of occasions in my work as an activist: police are happy to effectively shut down trade summits, for example, just to ensure that there's no possible chance that protestors can feel they have succeeded in doing so themselves.

36. In practice, it mainly consists of "interest-free" banking arrangements that pay lip service to the notion of profit-sharing but in reality operate in much the same way as any other bank. The problem is that if profit-sharing banks are competing with more conventional ones in the same marketplace, those who antic.i.p.ate that their enterprises will yield high profits will gravitate toward the ones offering fixed-interest loans, and only those who antic.i.p.ate lower profits will turn to the profit-sharing option (Kuran 1995:162). For a transition to no-interest banking to work, it would have to be total.

37. Under the Caliphate, to guarantee the money supply; in China, through systematic intervention to stabilize markets and prevent capitalistic monopolies; later, in the United States and other North Atlantic republics, through allowing the monetization of its own debt.

38. True, as I showed in chapter 5, economic life will always be a matter of clashing principles, and thus might be said to be incoherent to a certain extent. Actually I don't think this is in any way a bad thing-at the very least, it's endlessly productive. The distortions born of violence strike me as uniquely insidious.

39. von Mises 1949:54041. The original German text was published in 1940 and presumably composed a year or two previous.

40. Ferguson 2007:iv.