Money and Politics

More Topics

Intro

Trusting the world

Homo sapiens evolved to think of people as divided into us and them.“Us” was the group immediately around you, whoever you were, and “them” was everyone else. In fact, no social animal is ever guided by the interests of the entire species to which it belongs. No chimpanzee cares about the interests of the chimpanzee species, no snail will lift a tentacle for the global snail community, no lion alpha-male makes a bid for becoming the king of all lions, and at the entrance of no beehive can one find the slogan: “Worker bees of the world—Unite!”

But over the last few millennia, Homo sapiens became more and more exceptional in this respect. People began to cooperate on a regular basis with complete strangers, whom they imagined as “brothers” or “friends.” Today, the whole of humankind has become a single network of cooperation. Though even today not all people believe in the same god or obey the same government, they are all willing to use the same money. Osama bin-Laden, for all his hatred of American culture, American religion, and American politics, was very fond of American dollars. How did money succeed where gods and kings failed?

Lectures

Articles

How does money work?

Gold coins and dollar bills have value only in our common imagination. Their worth is not inherent in the chemical structure of the metal or paper, nor in their color or shape. Money isn’t a material reality—it is a mental construct. It works by converting matter into mind. But why does it succeed? Why should anyone be willing to exchange a fertile rice paddy for a handful of useless gold coins? Why are you willing to flip hamburgers, sell health insurance, or babysit three obnoxious brats when all you get for your exertions is a few pieces of colored paper?

People are willing to do such things when they trust the figments of their collective imagination. Trust is the raw material from which all types of money are minted. When a wealthy farmer sold his possessions for a handful of gold coins and traveled with them to another province, he trusted that upon reaching his destination other people would be willing to sell him rice, houses, and fields in exchange for the gold. Money is accordingly a system of mutual trust, and not just any system of mutual trust: Money is the most universal and most efficient system of mutual trust ever devised. Even people who do not believe in the same god or obey the same king are more than willing to use the same money. Osama bin-Laden, for all his hatred of American culture, American religion, and American politics, was very fond of American dollars.

What created this trust was a very complex and long-term network of political, social, and economic relations. Why do I believe in the gold coin or dollar bill? Because my neighbors believe in them. And my neighbors believe in them because I believe in them. And we all believe in them because our king believes in them and demands them in taxes, and because our priest believes in them and demands them in tithes. Take a dollar bill and look at it carefully. You will see that it is simply a colorful piece of paper with the signature of the US secretary of the treasury on one side, and the slogan “In God We Trust” on the other. We accept the dollar in payment, because we trust in God and the US secretary of the treasury. The crucial role of trust explains why our financial systems are so tightly bound up with our political, social, and ideological systems, why financial crises are often triggered by political developments, and why the stock market can rise or fall depending on the way traders feel on a particular morning.

Read More

The Capitalist Religion

Money is an astounding thing because it can represent myriad different objects and convert anything into almost anything else. However, before the modern era this ability was limited. In most cases, money could represent and convert only things that actually existed in the present. This imposed a severe limitation on economic growth, since it made it very hard to finance new enterprises.

If you had a dream to open a bakery, and had no ready cash, you could not realize your dream. Without a bakery, you could not bake cakes. Without cakes, you could not make money. Without money, you could not build a bakery. Humankind was trapped in this predicament for thousands of years. As a result, economies remained frozen. The way out of the trap was discovered only in the modern era, with the appearance of a new system based on trust in the future. In it, people agreed to represent imaginary goods—goods that do not exist in the present—with a special kind of money they called “credit.” Credit enables us to build the present at the expense of the future. It’s founded on the assumption that our future resources are sure to be far more abundant than our present resources. A host of new and wonderful opportunities open up if we can build things in the present using future income.

If credit is such a wonderful thing, why did nobody think of it earlier? Of course they did. Credit arrangements of one kind or another have existed in all known human cultures, going back at least to ancient Sumer. The problem in previous eras was not that no one had the idea or knew how to use it. It was that people seldom wanted to extend much credit because they didn’t trust that the future would be better than the present. They generally believed that times past had been better than their own times and that the future would be worse, or at best much the same. To put that in economic terms, they believed that the total amount of wealth was limited, if not dwindling. People therefore considered it a bad bet to assume that they personally, or their kingdom, or the entire world, would be producing more wealth ten years down the line. Business looked like a zero-sum game. Of course, the profits of one particular bakery might rise, but only at the expense of the bakery next door. Venice might flourish, but only by impoverishing Genoa. The king of England might enrich himself, but only by robbing the king of France. You could cut the pie in many different ways, but it never got any bigger.

Read More

The Last War

We are living in the most peaceful era in history. International wars have dropped to an all-time low. With few exceptions, since 1945 states no longer invade other states in order to conquer and swallow them up. Such conquests had been the bread and butter of political history since time immemorial. It was how most great empires were established, and how most rulers and populations expected things to stay. But campaigns of conquest like those of the Romans, Mongols and Ottomans cannot take place today anywhere in the world. Since 1945, no independent country recognized by the UN has been conquered and wiped off the map. Limited international wars still occur from time to time, and millions still die in wars, but wars are no longer the norm.

Many people believe that the disappearance of international war is unique to the rich democracies of Western Europe. In fact, peace reached Europe after it prevailed in other parts of the world. Thus the last serious international wars between South American countries were the Peru-Ecuador War of 1941 and the Bolivia-Paraguay War of 1932-1935. And before that there hadn’t been a serious war between South American countries since 1879–1884, with Chile on one side and Bolivia and Peru on the other.

We seldom think of the Arab world as particularly peaceful. Yet only once since the Arab countries won their independence has one of them mounted a full-scale invasion of another (the Iraqi invasion of Kuwait in 1990). There have been quite a few border clashes (e.g., Syria vs. Jordan in 1970), many armed interventions of one in the affairs of another (e.g., Syria in Lebanon), numerous civil wars (Algeria, Yemen, Libya), and an abundance of coups and revolts. Yet there have been no full-scale international wars among the Arab states except the Gulf War. Even widening the scope to include the entire Muslim world adds only one more example, the Iran-Iraq War. There was no Turkey-Iran War, Pakistan-Afghanistan War, or Indonesia-Malaysia War.

Read More