CHAPTER 1

Money, Banks, and CreditworthinessThree Myths?

THREE FUNDAMENTAL ASSUMPTIONS characterize scholarly understandingsof money, banks, and creditworthiness, and in what followsI will, perhaps a bit irreverently, refer to them as myths. The first mythdepicts money as a neutral means of accounting for value—as a fungibleinstrument that serves to establish commensurability among qualitativelydifferent commodities. The second myth depicts banks as institutions ofintermediation; it sees them as responsible for the allocation and distributionof scarce financial resources (capital), so that banks intermediatebetween savers and spenders. Finally, the myth of creditworthiness as objectiveassessment understands the criteria by which borrowers are grantedcredit to be a function of the traits of the borrower: the better these criteriacapture such underlying traits, the better the odds that the financial obligationwill be met in the future.

Understanding the nature of these myths, I claim, is essential forunderstanding the conflictual nature of finance. There are three reasons:(1) money can reflect both a logic of inclusion and one of exclusion; it isboth fungible and incommensurable. (2) Banks do not move resources,but create financial claims whose circulation they strive to restrict to certaincircuits. (3) The criteria whereby creditworthiness is adjudicated servenot to capture some objective trait in the borrower, but to create collectiveidentities to which both bankers and their clients must commit. Bycommitting, they can continue exploiting opportunities and restrictingaccess to advantages to their own status group. Therefore, money, credit,and creditworthiness are always contested, with certain bankers strivingto reinforce the boundaries drawn around each phenomenon, while otherbankers strive to transgress those boundaries. The myths of fungiblemoney, of banks as institutions of intermediation, and of creditworthinessas objective assessment, are categories of practice rather than analyticalcategories; they emerge in the course of financial struggle to abet the politicalprojects of conflicting banking groups. This makes conflict centralto the nature of finance in the capitalist process, and recurrent claims toinclusion and exclusion intrinsic to financial exchange. This chapter investigatesthe 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 instrumentsthat are only potentially commensurable with one another, or an abstractsystem of accounting for value that generates equivalences and commensurabilitythrough the quantification of value. Here I will claim that thefirst 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 characterizedby exclusivity and control. As a consequence, specifically, the possessorsof specific financial instruments gain access to particular financialexperiences, as well as to common identities that commit them to collectiveenterprises. In order to understand the importance of this claim wemust begin by questioning the fungible status of money.

What I call the myth of fungible money derives from a large, mostlypolemical literature, dating back to the writings of Karl Marx and GeorgSimmel, that identifies in money the power of transcending any and allsocial boundaries that individuals may erect to contain its spread—andthe spread of commercialization and cold calculation that money bringswith it. Non olet, money does not smell (1921: 124), as Marx put it, referringto Roman emperor Vespasian's quip upon imposing a tax on publiclavatories: for Marx, money is a "universal equivalent," deriving its powerprecisely 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 ina different direction from Marx, to argue that money is freedom, a freedom that entails a high cost: "[M]odern man is free, free because he cansell everything, and free because he can buy everything.... [T]hroughmoney, man is no longer enslaved in things, so on the other hand is thecontent of his Ego, motivation and determination so much identical withconcrete possessions that the constant selling and exchanging of them—eventhe mere fact that they are saleable—often means a selling and uprootingof personal values" (Simmel 1990: 404).

With money comes modernity (Poggi 1993), and in particular, detachmentfrom more traditional sources of authority and identity. A similartheme is later also developed by anthropologists witnessing the transitionto market economies in non-Western societies, where, with the advent ofcolonialism and capitalism, "special monies" were allegedly being replacedby generalized monies (Bohannan 1959). The idea that money is "special"conveys how the different kinds of monetary tokens that pre-existed themarket economy circulated in restricted spheres of exchange—characterizedby specific obligations and loyalties, and never by a market logic offree exchange. The advent of modern money, by virtue of its neutrality tovalues 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 asa "cold cash nexus" that dehumanizes social relations, deprives them ofcontent 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 formstaken by money, and the ways that these forms are used, may be whollydependent on the relations through which these monetary media are assignedto particular kinds of people, circulating in certain networks andnot others. To be sure, because of its ability to break pre-existing socialbonds and solidarities, money is understood as presenting new challenges,but also opening new possibilities—new challenges insofar as it increasesanomie and alienation (about which Durkheim as well as Marx were mostconcerned), new possibilities insofar as it opens the space for new formsof individual freedom (as Simmel emphasized). Yet what money makespossible, in the Marx-Simmel framework, is a world eventually devoid ofhuman relations.

The Relational Analysis of Money

With the emergence of new ethnographic studies of money—such asViviana Zelizer's work (1994) on the attempts of the early-twentieth-centuryU.S. government to create a homogeneous monetary system—sociologistsbegin to understand that, counter to the predictions of Marx and Simmel,money continues being segregated and "earmarked" in modern contexts aswell. To put it differently, the special monies of so-called primitive societiesnever disappear, so the all-pervasive commensurability of modern moneyturns 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 widespreadconsensus over the unit of account (for example, the dollar), such as theUnited States in the nineteenth century, people struggled to understandwhether the money earned by women was the same as the money earnedby men; whether money earned illegally was the same as money earnedthrough legal means; whether money exchanged as a gift was the sameas money earned as a compensation for a service, and so on. Moreover,where money's previous, specialized purposes were questioned, individualsengaged in frantic efforts to create new distinctions congruent with thesocial relations at hand. U.S. families thus engaged in heated argumentsabout whether the newly elevated and more emancipated status of womenrequired a reworking of the elaborate and humiliating system throughwhich "doles" had hitherto been administered by male breadwinners. Andwith the entry of more women into the formal labor market, how to classifywomen's wages (Were they "pin-money"? For what purposes couldthey be used?) became a source of conflict and debate. In short, whereMarx and Simmel would have seen homogeneity, equivalence, fungibility,and fetishism, Zelizer finds nuance and differentiation. Because differentsocial groups will invariably invest money with local meaning, theuses of money will be restricted to acceptable goals, its alleged fungibilitybroken 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 becomesa short-hand for the multiplicity of currencies whose circulation islimited 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 ofcommerce" come about—full-fledged networks defined by strong boundariesagainst outsiders, shared understandings about how commercialtransactions interpenetrate other social exchanges that take place withinthe network, and common media of exchange that tend to lose value orbecome 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 inventivenessin coordinating large sums of payments through cross-nationalborders, 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 currencyschemes with their elaborate systems of allocation and accounting(Zelizer 2005b). In this view, money in general, and not just in its uses, isdefined by its unfungibility. Different forms of money, to the extent thatthey circulate in different "circuits," are linked to different social experiencesand thus are not commensurable.

Because this literature focuses primarily on the uses of money bymarginalized groups, however, it conflates several issues: interpretationand agency in the face of structural constraints, for instance; or the maintenanceof social relations in the face of commercialization. This literaturedebunks the "myth of fungible money" only with respect to actors whoare interstitial to the official economy, and primarily only with respectto uses of official moneys. So its impact on an understanding of moneysother than those circulating outside the mainstream banking system hasbeen muted. This leaves open an important analytical space that a secondtheory of money, more in line with the concerns of the classical theorists,but also more aggressive toward neoclassical economics than relationalanalysis is, has begun to occupy. And to this second theory of money thevery logic behind relational analysis seems suspicious.

This second theory of money, neochartalism, points to the rise ofthe modern state, and the rationalization of the economy and more generallyof social life it made possible, as the processes that must be understoodin order to analyze money. The theme of the rise of the modern statewas developed in sociology by Weber and his followers, but it was heterodoxeconomists working in the post-Keynesian tradition (Wray 1990,1999; Wray and Bell 2004; Wray and Forstater 2009; Lavoie 2006; see alsoMinsky 1986; B. J. Moore 1988), and allied social scientists, most notablyGeoffrey Ingham (see esp. 2004), who specified how money fits in thisnarrative. To this literature, broadly labeled neochartalism, after GeorgKnapp's terminology (Knapp 1924), we now turn.

Neochartalism

From the point of view of neochartalism, of the many functions fulfilledby money, that of serving as a unit of account is the most important.Economists since Adam Smith (1976: esp. 309) tell a stylized story aboutthe origins of money as a common medium that individual participantsto market exchange agree upon out of convenience (Menger 1892; Jones1976: 309; Schumpeter 1994): they thus privilege the means-of-exchange andstore-of-value functions of money. But neochartalists reject this story, andthe emphasis on circulation and storage of value it implies, both on historicaland logical grounds (see, esp., Innes 1913 for a classical statement; andSmithin 2000 for a recent synthesis). Money is a collective process, theyargue, backed by an authority that establishes a system of accounting forvalue 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 referenceto an abstract system (such as the metric system), and we do notexpect it to vary depending on the specific ruler we use to measure it, weshould 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 conceptof a Theory of Money" is money of account, to quote Keynes (1930: 1).

The emphasis on money as money-of-account naturally leads toquestions about the authority that underlies it. In fact, if money arose outof simple convenience, that would imply that private agents agreed to acommon standard of accounting for value: but why would they not privilegewhatever good they were most endowed with instead (Ingham 1996)?Simmel provides a useful answer, one that neochartalists emphasize overthe more cultural understandings of money as a leveler of social distinctionsthat I discussed briefly above. Simmel argues that money is "a bill ofexchange from which the name of the drawee is lacking, or alternatively,which is guaranteed rather than accepted." Crucially, money is dependenton a "third factor [that] is introduced between the two parties [to anexchange]: the community as a whole, which provides real value correspondingto money." Money becomes "a relationship with the economiccommunity that accepts the money"; money is thus "minted by its highestrepresentative. This is the core truth in the theory that money is only aclaim upon society" (Simmel 1990: 177).

Simmel, then, by pointing to the nature of money as a "claim uponsociety" in units of account set by its "highest representative," effectivelyintroduces the role of a collective authority, rather than the spontaneouscoordination of private actors, in the production of money. And hesuggests none other than the modern state as the strongest expression ofmonetary authority. But the nature of that authority is more specific thanwhat Simmel had in mind. It is, according to neochartalists, fiscal. Thishas important implications for a theory of money.

In this tax-centered view of monetary processes, the nature of modernmoney is "chartalist," to use Knapp's term (1924): it is a token claimto value whose unit of account and acceptability is enforced by the statethrough fiscal policy. What matters to money is that it is denominated inthe monetary units prescribed by the state, or, as Keynes has it: "[M]oney-of-accountis the description or title and the money is the thing whichanswers that description.... [The state] claims the right to declare whatthing corresponds to the name" (1930: 4). In modern capitalism, whatevercurrency the state will ask its citizens to pay taxes in, that currency willbecome money.

The neochartalist perspective as a consequence puts much emphasison the fiscal origins of money, and the coercive aspects of revenueextraction. To be sure, the acceptance of legal tender can be enforcedby the state's legal system—but it is ultimately the state's fiscal capacitythat grounds the monetary system (a point clearly articulated by Knapp).Moreover, because the money issued by the state acquires liquidity withinthe political boundaries of the state, it also serves as a "reserve" for theprivate issue of monetary and nonmonetary instruments (Wray 1999). Themoney of the state thus becomes the most desirable and safest in a hierarchyof money because it is the currency that is most acceptable and mostliquid (Bell 2001). The concentration of political authority in the hands ofthe state has historically led to the rise and institutionalization of nationalcurrencies as the dominant form of monetary exchange and, most important,of accounting for value (Ingham 1999, 2001, 2004, 2006).