Money Mind & Matter (Grand Street)

8/4/2019 Money Mind & Matter (Grand Street)

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code provides corporations convenient access to publicsubsidywithout requiring anAct of Congress.)The thrift debacle is an exemplum of modern credit:pathological optimists and outright criminals jointly produced a disaster of amagnitude thatonly Uncle Sam couldresolve.Under the spell of free-market theology, campaigncontributions, and relentless lobbying, Congress deregulated finance, assuming that unsupervised capital wouldsafely find itsmost productive outlet. Having forswornregulation, thrift regulators chose not even to audit theirnewly emancipated charges. At the first sign of trouble,Congress chose to deregulate the thrift industry even further; the author of this round of deregulation, M. DannyWall, became the industry's chief supervisor. Anyoneexpressing worry was dismissed as a handwringer orworse-an interventionist. On the rare occasion whenregulators showed any critical interest in the businesspractices of the inappropriately named thrift industry,legislators like then-House Speaker JimWright derailedthe threat.

So deals were stoked with abandon. From 1982 to 1985,for example, oneWestern Savings-an exuberant thrift inTexas, where exuberance crackles in the air-cruised thenation'smoney markets forhot cash, skimmed off high upfront fees, and ran up the loan portfolio some 6,000%byfloating no-money-down real estate loans, lending moneyagainst nonexistent buildings, and the like. Deals wereclosed at open-bar soirees.When borrowers couldn't payinterest,Western lent them themoney. What the helltherewas a federal guarantee.After three years of regulatory indifference, the government politely and ineffectually askedWestern to clean upits act. Nothing happened untilWestern collapsed into thegovernment's arms in late 1986; among itsdefaulting borrowers was John Connally. One customer told theWallStreet Journal,which reported theWestern story: "Idon't

know anybody who borrowed money without intendingto pay it back."Western, of course,was a particularly egregious case inan industrywhere the egregious became the norm. Butthemodern credit culture lives on the assumption that themunificent river of liquiditywill flow for all time. Some[238]


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DOUG HENWOODone will always be willing to take a leveraged asset offyour hands tomorrow at a price comfortably higher thantoday's.Two famous axioms from living apostles of creditillustrate this faith. In the late 1970s, Citibank chairmanWalter Wriston, pioneer of ThirdWorld lending, rebuttedskepticswith the argument that "Countriesdon't go bankrupt."Time has provenWriston painfully wrong in all butthe legalistic sense (though he hasn't suffered for hismisjudgment). This decade's chief debtmonger, junk bondkingpin Michael Milken, used to argue as follows in thedays before his indictment:Capital isn'ta scarce resource,capital is abundant-it's vision that's scarce.WhetherMilken was aswrong asWriston will come clear in thenext recession.This credit culture is a longway from that described bya nineteenth-century Scottish banker, G. M. Bell, quotedby Karl Marx inCapital. Bell thought himself a finermoralist than aman of the cloth: "Bankingestablishments aremoral and religious institutions. How often has the fear ofbeing seen by thewatchful and reproving eye of his bankerdeterred the young tradesman from joining the companyof riotous and extravagant friends?. . .Has he not trembledto be supposed guilty of deceit or the slightest misstatement, lest it should give rise to suspicion, and his accommodation be inconsequence restrictedor discontinued [byhis banker]?. . .And has not that friendly advice been ofmore value to him than that of priest?"As laughable as this seems, Bell's use of religious imagery isn't all that inappropriate; the word credit, after all,derives from credo, "I believe." A credit agreement is aprofession of faithby both parties: shortof a swindle, bothparties believe the debtor will be able to repay the loanwith interest. It is a bet on the future.Credit sprang fromneeds of both borrowers and lenders.Individual entrepreneurs could find only somany uses fortheir idle money. If they pooled it in banks, mere cashcould be transformed into capital, a transformation thatgrants money the power to reproduce itself. But entrepreneurs also found themselves forced to expand; competition demanded a grander scale, so they turned to bankers to finance largeroperations.Without banking, itwouldbe impossible tomatch up borrower and lender.Besides

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borrowing, the sale of stock to bankers and other flushcharacters allowed capitalism to transcend the limitedscale of family enterprise to colonize theworld.Such expansive powers are both wondrous and terrifying. As Marx once noted, "The credit system has a dualcharacter immanent in it"-even as it expands the productive power of the economy, thus propelling us into thefuture, it is inseparable from a "most colossal system ofgambling and swindling.... It is this dual character thatgives the principal spokesmen for credit . . . their nicelymixed character of swindler and prophet."Now even cash itself is based on faith-faith in the govemnment'sbacking of themoney, faith in the economy scapacity to continue to produce things fit for sale.A U.S.dollar, once backed by gold, isnow simply an obligation ofthe Federal Reserve, a quasi-public institutionwhose assets aremainly U.S. Treasury bonds-debts of thehighestcaliber, but debts nonetheless.For most of history, credit's dreamier excesses werelimited by gold, a metal at once seen as both "naturalmoney" and pure enough to touch the body of Christ.Marx, again: "Themonetary system [i.e., gold-based] isessentially Catholic, the credit system essentially Protestant. . . . The monetary existence of commodities has apurely social existence. It is faith that brings salvation.Faith inmoney value as the immanent spirit of commodities, faith in themode of production and itspredestineddisposition, faith in the individual agents of production asmere personifications of self-valorizing capital. But thecredit system is no more emancipated from themonetarysystem as its basis thanProtestantism is from the foundations of Catholicism." This conflation of the sacred andprofane cries out forDr. Freud.

the lights of classic psychoanalysis, money is gold,and gold is transformed shit; exchange relations aresublimated rituals of the anus. Though this is by now acommonplace, readers found it a rather shocking thesis in1908. Freud's essay on the anal characterbegins by notingthe coexistence of a trio of features in such cases: orderliness, obstinacy, and thrift.Freud speculates that thisunholy trinity-hallmarks of the Victorian bourgeois

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springs from an infantile interest in the anus and itsproducts. Orderliness, says Freud, gives "the impression of areaction-formation against an interest inwhat is uncleanand disturbing and should not be part of the body."Obstinacy represents the baby's lingering reluctance topartwith his or her stool on command.And the infantile roots of thrift are perhaps themostinteresting of all. Freud notes the rich associations betweenmoney and dirt found in folklore and everyday language. InEnglish, there are expressions like "filthy rich"and "filthy lucre." In legends, "the gold which the devilgives his paramours turns into excrement after his departure. . . .We also know about the superstitionwhichconnects the finding of treasure with defaecation, andeveryone is familiarwith the figure of the 'shitterof ducats'[a German idiom for awealthy spendthrift;we have ourgoose with its golden egg]. Indeed, even according toancient Babylonian doctrine gold is 'the faeces of hell."'(Modem dictionaries fail to confirm this;maybe Freud'sphilologists got caught up in someGermanic enthusiasms.)Finally, Freud suggests that "it is possible that the contrast between themost precious substance known tomenand themost worthless . . .has led to the specific identification of gold with faeces."Freud's early followers-notably Abraham, Ferencz:i,and Jones-trod the anal path blazed by themaster. Theaccumulation ofmoney isa sublimated urge to retain fecesfor thevery pleasure of it, and theproduction of commodities is the psychic derivative of the expulsion of feces.

Money, inFerenczi's phrase, is "nothingother than odourless, dehydrated filth that has been made to shine."(The psychological equivalence of dirt and money isalso suggested by the low social origins of bankers inpremodern times. Using decidedly nonfecal reasoning, philosopher of money Georg Simmel speculates that "Theimportance of money as a means, independent of allspecific ends, results in the fact thatmoney becomes thecenter of interest and the proper domain of individualsand classes who, because of their social position, are excluded frommany kinds of personal and specific goals."Simmel's examples include the emancipated Roman andAthenian slaveswho became bankers, as did Armenians in

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Turkey; Moors in Spain; and Huguenots, Quakers, andJews elsewhere in Europe. Reading Simmel eighty yearslater, one thinks how the social prestige of banking increased alongwith thedevelopment of credit, that is,withits evolving liberation from gold.)Norman 0. Brown, not the most fashionable of writersthese days, found thispsychoanalytic orthodoxy wanting.In his book Life Against Death (1985), Brown returnedthe sacred to the analysis of money and demeaned bothequally. For Brown, money and the sacred are both sublimated products of a revulsion from the body. And suchsublimation,whether aimed at God orMammon, is "thedenial of life and the body.... The more the life of thebody passes into things, the less life there is in the body,and at the same time the increasingaccumulation of thingsrepresents an ever fuller articulation of the lost life of thebody."To Brown, the exchange relation is imbuedwith guilt,and the debtor-creditor relationwith sadomasochism. Inthis,Brown follows Nietzsche, for whom all religions are"systems of cruelties" and forwhom all creditors enjoy "awarrant forand a title tocruelty." (Modernusage confirmsthe linkof debt with both sadomasochism and the sacred:"bonds"impose conditions known as "covenants"on debtors.) For both Nietzsche and Brown, debt is a sickly tribute paid by the present to the past. (Of course,we postmoderns see-consciously or not-credit as away to stealfrom the future.)But for a partisan of the body, Brown is nonethelessguilty of the ancient psychoanalytic habit of dematerializing its needs. As the early analyst Paul Schilder-whorightly laments the absence of a psychoanalysis of worknoted, "When one looks over large parts of the psychoanalytic literature one would not conceive the idea thatone eats because one ishungry and wants food for sustaining one's life but one would rather suppose that eating isa slyway of satisfying oral libido.... Silberer once said ...[that] according to psychoanalytic conceptions . . . theDanube . . . ismerely a projection of urine and birthwater."Similarly, Brown's gold is a fetishized projection of intrapsychic drama, not an alienated embodiment of real social

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DOUG HENWOODpower. His moneyed subjects lack class, race, nationality,and gender. For Marx, what made gold valuable was thatit embodied human labor and served as the universal exchange equivalent for all other commodities, whose valuealso arises from the labor thatmade them.But the natureofmarket relations-anonymous, mathematical-is tohidethe social nature of production and exchange behind theveil of money. As psychoanalysis lacks a theory of work,so does Marxism lack an understanding of the passionsthat sustain the disguise. With credit comes a set of passions entirely different from those of gold.M oney, Brown says, is but part of the "commitmenttomathematize theworld, intrinsic tomodern science." But modem science has nowmathematized money.

Aside from doomsayers, survivalists, and other goldbugs,the monetary functions of the yellow metal are all butforgotten. Even paper money is getting scarce. The bulkof society'smoney now lives a ghostly electronic life.At the end of 1988, theU.S. money supply totaled justover $3 trillion.Of this, only $212 billion, or seven percent,was currency. If such "near-money"instruments as Treasury bills and commercial paper are added, the currencytotal shrinks to under five percent.With this dematerialization ofmoney has come at leasta partial banishment of the guilty sadomasochism of theanus.Whether this represents amanic flight from guilt ora new guiltless passion remains to be seen. But capitalism,having undermined the authoritarian-patriarchal family,now produces fewer guilt-ridden obsessives andmore hungry narcissists than itdid in thedayswhen gold andDaddyreigned as the harsh taskmasters fromwhom there wasno appeal. Like the narcissist, today's consumer seemsless interested in the accumulation of possessions than inthe (novelty-rich, credit-financed) act of purchase itself.Rather than the guilty obstinacy of the anus, one detectsa more primitive, fickle, and etemally dissatisfied orality.Can capitalism adapt itself to this new personality type?Since 1973, theworld has been on a pure paper-moneystandard. Credit is elasticwithout apparent limit.Unlikegold, which seems fixed and immortal, credit is createdand destroyed continuously. In the 1980s, we are experi

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encing the freestmovement of capital across borders sincebefore the FirstWorld War. Some $700 billion a day ormore passes through theNew York bank wire, most of itspeculative trading in foreign exchange, little of it connected with production, none of itwith gold. A dollar, onceworth 25.8 grains of gold, isnow worth what thesewireslast said it'sworth-and governments regularly carry onexpensive arguments with the wires. Debt continues toflourish, growing at a rate eclipsing both money and production. Neither borrowers nor lenders are chastened bypersistently usurious interest rates and relativelyweak income growth at all levels: wages, profits, even governmentrevenues.Why cut back on spending when you can borrowthe difference?There has certainly been no recurrence of the Depression, at least in theNorthern Hemisphere. (In the SouthernHemisphere, three- and five-digit inflation rates haveaccompanied economic collapse-a novel form of depression.) Can our luck hold forever? In the past, credit bubbles were regularlypunctured, bringing paper values backin line with gold. Such panics and crashes, which frequently culminated inwars, purged the economy ofmarginal capitals, laying the groundwork for the next stage ofgrowth. Though it'sunpleasant to point this out, the greatboom of the 1950s and 1960swas prepared by almost twodecades of depression andwar.The eagerness to avoid a secondDepression brought thestate deeply into the economy to act as buyer and lenderof last resort. The free marketeers of the Reagan-Bushyears furtherdeepened the state's involvement, as the $300billion socialization of the thrift industry's losses proves.But every bailout almost assures a fresh disaster as borrowers and lenders get more reckless. These's nothing toinvestigate, there'sa federal guarantee, was the commentof a Securities and Exchange official when recently informed of some dubious credit judgments by theFederalHome Loan Mortgage Corporation.Finance may need the discipline of capital punishmentto keep it honest-but without gold or something like it,it operates under a regime of perpetual clemency. DavidHarvey, one of the finestMarxian analysts of credit, quotes

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approvingly in The Limits to Capital (1982) the following observation of J. Niehans, on the matter of whatKeynes called that "barbarous relic," gold:

Commoditymoney is the only type of money that,at thepresent time, can be said to have passed the test of historyin market economies. Except for short interludes of war,revolution,and financialcrisis,Western economies have

been on commodity money systems from the dawn of theirhistory almost up to the present time. More precisely, it isonly since 1973 that the absence of any link to the com

modity world is claimed to be a normal feature of themonetary system. It will take several more decades beforewe can tell whether the Western world has finally embarked . . . on a new era of non-commodity money orwhether the present period will turn out to be just anotherinterlude.

Harvey cheerily suspects that it is just another interlude,"presumably characterized by financial crises, war andperhaps even revolution."It is,of course, considered quaint, almost loony, to arguethis, but Niehans andHarvey may be right.Harvey arguesthat inflationhas now replaced deflation as themechanismof capital devaluation. Money wealth is devalued, but notfully.Rather than accepting a harsh but complete purge,indulgent central banking substitutes disguised and partialdevaluations, where losses to capital are socialized (thusshiftingmuch of the burden to labor) and money is continuously debased. It doesn't have the ring of a long-termstrategy about it.

This argument sounds suspiciously like hard-moneycrankery.Brown would dismiss it asmasochistically yielding to a fetish-which, of course, it is.But the fetish isn'tmerely a figment of imaginations twisted by the fetish itself; it is a logic immanent in capitalism itself, a systemwhich demands austerity as the price of abundance. Theattempt to evade this logic produces only a bizzarria ofhollow prosperity and speculative bubbles. The attemptto conform to itprovokes depression. There must be a betterway.As Claus Offe put it, capital's challenge is to "politicallyregulate the economic systemwithout materially politiciz

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ing it." The gradual nationalization of credit-not onlythrough dramatic bailouts but through routine bailoutsfinanced by an indulgent central bank-should make thischallenge tougher than ever. If the public is going tobailout ruined swindlers and prophets, then thepublic shouldget something in return.More andmore, credit ismoney ofthe state. Too bad the state still belongs to the swindlers.

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Money Mind & Matter (Grand Street)