Age of the Great Capitalist Empires (1450–1971 AD)

“Eleven pesos, then; and as you can’t pay me the eleven pesos, that makes another eleven pesos—twenty-two in all: eleven for the serape and the petate and eleven because you can’t pay. Is that right, Crisiero?”

Crisiero had no knowledge of figures, so it was very natural that he said, “That is right, patrón.”

Don Arnulfo was a decent, honorable man. Other landowners were a good deal less softhearted with their peons.

“The shirt is five pesos. Right? Very well. And as you can’t pay for it, that’s five pesos. And as you remain in my debt for the five pesos, that’s five pesos. And as I shall never have the money from you, that’s five pesos. So that makes five and five and five and five. That’s twenty pesos. Agreed?”

“Yes, patrón, agreed.”

The peon can get the shirt nowhere else when he needs one. He can get credit nowhere but from his master, for whom he works and from whom he can never get away as long as he owes him a centavo.

—B. Traven, The Carreta

The epoch that began with what we’re used to calling the “Age of Exploration” was marked by so many things that were genuinely new—the rise of modern science, capitalism, humanism, the nation-state—that it may seem odd to frame it as just another turn of an historical cycle. Still, from the perspective I’ve been developing in this book, that is what it was.

The era begins around 1450 with a turn away from virtual currencies and credit economies and back to gold and silver. The subsequent flow of bullion from the Americas sped the process immensely, sparking a “price revolution” in Western Europe that turned traditional society upside-down. What’s more, the return to bullion was accompanied by the return of a whole host of other conditions that, during the Middle Ages, had been largely suppressed or kept at bay: vast empires and professional armies, massive predatory warfare, untrammeled usury and debt peonage, but also materialist philosophies, a new burst of scientific and philosophical creativity—even the return of chattel slavery. It was in no way a simple repeat performance. All the Axial Age pieces reappeared, but they came together in an entirely different way.

The 1400s are a peculiar period in European history. It was a century of endless catastrophe: large cities were regularly decimated by the Black Death; the commercial economy sagged and in some regions collapsed entirely; whole cities went bankrupt, defaulting on their bonds; the knightly classes squabbled over the remnants, leaving much of the countryside devastated by endemic warfare. Even in geopolitical terms Christendom was staggering, with the Ottoman Empire not only scooping up what remained of Byzantium but pushing steadily into central Europe, its forces expanding on land and sea.

At the same time, from the perspective of many ordinary farmers and urban laborers, times couldn’t have been much better. One of the perverse effects of the bubonic plague, which killed off about one-third of the European workforce, was that wages increased dramatically. It didn’t happen immediately, but this was largely because the first reaction of the authorities was to enact legislation freezing wages, or even attempting to tie free peasants back to the land again. Such efforts were met with powerful resistance, culminating in a series of popular uprisings across Europe. These were squelched, but the authorities were also forced to compromise. Before long, so much wealth was flowing into the hands of ordinary people that governments had to start introducing new laws forbidding the lowborn to wear silks and ermine, and to limit the number of feast days, which, in many towns and parishes, began eating up one-third or even half of the year. The fifteenth century is, in fact, considered the heyday of Medieval festive life, with its floats and dragons, maypoles and church ales, its Abbots of Unreason and Lords of Misrule.[727]

Over the next centuries, all this was to be destroyed. In England, the festive life was systematically attacked by Puritan reformers; then eventually by reformers everywhere, Catholic and Protestant alike. At the same time its economic basis in popular prosperity dissolved.

Why this happened has been a matter of intense historical debate for centuries. This much we know: it began with a massive inflation. Between 1500 and 1650, for instance, prices in England increased 500 percent, but wages rose much more slowly, so that in five generations, real wages fell to perhaps 40 percent of what they had been. The same thing happened everywhere in Europe.

Why? The favorite explanation, ever since a French lawyer named Jean Bodin first proposed it in 1568, was the vast influx of gold and silver that came pouring into Europe after the conquest of the New World. As the value of precious metals collapsed, the argument went, the price of everything else skyrocketed, and wages simply couldn’t keep up.[728] There is some evidence to support this. The height of popular prosperity around 1450 did correspond to a period when bullion—and therefore, coin—was in particularly short supply.[729] The lack of cash played havoc with international trade in particular; in the 1460s, we hear of ships full of wares forced to turn back from major ports, as no one had any cash on hand to buy from them. The problem only started to turn around later in the decade, with a sudden burst of silver mining in Saxony and the Tirol, followed by the opening of new sea routes to the Gold Coast of West Africa. Then came the conquests of Cortés and Pizarro. Between 1520 and 1640, untold tons of gold and silver from Mexico and Peru were transported across the Atlantic and Pacific in Spanish treasure ships.

The problem with the conventional story is that very little of that gold and silver lingered very long in Europe. Most of the gold ended up in temples in India, and the overwhelming majority of the silver bullion was ultimately shipped off to China. The latter is crucial. If we really want to understand the origins of the modern world economy, the place to start is not in Europe at all. The real story is of how China abandoned the use of paper money. It’s a story worth telling briefly, because very few people know it.

After the Mongols conquered China in 1271, they kept the system of paper money in place, and even made occasional (if usually disastrous) attempts to introduce it in the other parts of their empire. In 1368, however, they were overthrown by another of China’s great popular insurrections, and a former peasant leader was once again installed in power.

During their century of rule, the Mongols had worked closely with foreign merchants, who became widely detested. Partly as a result, the former rebels, now the Ming dynasty, were suspicious of commerce in any form, and they promoted a romantic vision of self-sufficient agrarian communities. This had some unfortunate consequences. For one thing, it meant the maintenance of the old Mongol tax system, paid in labor and in kind; especially since that, in turn, was based on a quasi-caste system in which subjects were registered as farmers, craftsmen, or soldiers and forbidden to change their jobs. This proved extraordinarily unpopular. While government investment in agriculture, roads, and canals did set off a commercial boom, much of this commerce was technically illegal, and taxes on crops were so high that many indebted farmers began to flee their ancestral lands.[730]

Typically, such floating populations can be expected to seek just about anything but regular industrial employment; here as in Europe, most preferred a combination of odd jobs, peddling, entertainment, piracy, or banditry. In China, many also turned prospector. There was a minor silver rush, with illegal mines cropping up everywhere. Uncoined silver ingots, instead of official paper money and strings of bronze coins, soon became the real money of the off-the-books informal economy. When the government attempted to shut down illegal mines in the 1430s and 1440s, their efforts sparked local insurrections, in which miners would make common cause with displaced peasants, seize nearby cities, and sometimes threaten entire provinces.[731]

In the end, the government gave up even trying to suppress the informal economy. Instead, they swung the other way entirely: stopped issuing paper money, legalized the mines, allowed silver bullion to become the recognized currency for large transactions, and even gave private mints the authority to produce strings of cash.[732] This, in turn, allowed the government to gradually abandon the system of labor exactions and substitute a uniform tax system payable in silver.

Effectively, the Chinese government had gone back to its old policy of encouraging markets and merely intervening to prevent any undue concentrations of capital. It quickly proved spectacularly successful, and Chinese markets boomed. Indeed, many speak of the Ming as having accomplished something almost unique in world history: this was a time when the Chinese population was exploding, but living standards markedly improved.[733] The problem was that the new policy meant that the regime had to ensure an abundant supply of silver in the country, so as to keep its price low and minimize popular unrest—but as it turned out, the Chinese mines were very quickly exhausted. In the 1530s, new silver mines were discovered in Japan, but these were exhausted in a decade or two as well. Before long, China had to turn to Europe and the New World.

Now, since Roman times, Europe had been exporting gold and silver to the East: the problem was that Europe had never produced much of anything that Asians wanted to buy, so it was forced to pay in specie for silks, spices, steel, and other imports. The early years of European expansion were largely attempts to gain access either to Eastern luxuries or to new sources of gold and silver with which to pay for them. In those early days, Atlantic Europe really had only one substantial advantage over its Muslim rivals: an active and advanced tradition of naval warfare, honed by centuries of conflict in the Mediterranean. The moment when Vasco da Gama entered the Indian Ocean in 1498, the principle that the seas should be a zone of peaceful trade came to an immediate end. Portuguese flotillas began bombarding and sacking every port city they came across, then seizing control of strategic points and extorting protection money from unarmed Indian Ocean merchants for the right to carry on their business unmolested.

At almost exactly the same time, Christopher Columbus—a Genoese mapmaker seeking a short-cut to China—touched land in the New World, and the Spanish and Portuguese empires stumbled into the greatest economic windfall in human history: entire continents full of unfathomable wealth, whose inhabitants, armed only with Stone Age weapons, began conveniently dying almost as soon as they arrived. The conquest of Mexico and Peru led to the discovery of enormous new sources of precious metal, and these were exploited ruthlessly and systematically, even to the point of largely exterminating the surrounding populations to extract as much precious metal as quickly as possible. As Kenneth Pomeranz has recently pointed out, none of this would have been possible were it not for the practically unlimited Asian demand for precious metals.

Had China in particular not had such a dynamic economy that changing its metallic base could absorb the staggering quantities of silver mined in the New World over three centuries, those mines might have become unprofitable within a few decades. The massive inflation of silver-denominated prices in Europe from 1500 to 1640 indicates a shrinking value for the metal there even with Asia draining off much of the supply.[734]

By 1540, a silver glut caused a collapse in prices across Europe; the American mines would, at this point, simply have stopped functioning, and the entire project of American colonization foundered, had it not been for the demand from China.[735] Treasure galleons moving toward Europe soon refrained from unloading their cargoes, instead rounding the horn of Africa and proceeding across the Indian Ocean toward Canton. After 1571, with the foundation of the Spanish city of Manila, they began to move directly across the Pacific. By the late sixteenth century, China was importing almost fifty tons of silver a year, about 90 percent of its silver, and by the early seventeenth century, 116 tons, or over 97 percent.[736] Huge amounts of silk, porcelain, and other Chinese products had to be exported to pay for it. Many of these Chinese products, in turn, ended up in the new cities of Central and South America. This Asian trade became the single most significant factor in the emerging global economy, and those who ultimately controlled the financial levers—particularly Italian, Dutch, and German merchant bankers—became fantastically rich.

But how exactly did the new global economy cause the collapse of living standards in Europe? One thing we do know: it clearly was not by making large amounts of precious metal available for everyday transactions. If anything, the effect was the opposite. While European mints were stamping out enormous numbers of rials, thalers, ducats, and doubloons, which became the new medium of trade from Nicaragua to Bengal, almost none found their way into the pockets of ordinary Europeans. Instead, we hear constant complaints about the shortage of currency. In England:

For much of the Tudor period the circulating medium was so small that the taxable population simply did not have sufficient coin in which to pay the benevolences, subsidies, and tenths levied upon them, and time and time again household plate, the handiest near money that most people possessed, had to be surrendered.[737]

This was the case in most of Europe. Despite the massive influx of metal from the Americas, most families were so low on cash that they were regularly reduced to melting down the family silver to pay their taxes.

This was because taxes had to be paid in metal. Everyday business in contrast continued to be transacted much as it had in the Middle Ages, by means of various forms of virtual credit money: tallies, promissory notes, or, within smaller communities, simply by keeping track of who owed what to whom. What really caused the inflation is that those who ended up in control of the bullion—governments, bankers, large-scale merchants—were able to use that control to begin changing the rules, first by insisting that gold and silver were money, and second by introducing new forms of credit-money for their own use while slowly undermining and destroying the local systems of trust that had allowed small-scale communities across Europe to operate largely without the use of metal currency.

This was a political battle, even if it was also a conceptual argument about the nature of money. The new regime of bullion money could only be imposed through almost unparalleled violence—not only overseas, but at home as well. In much of Europe, the first reaction to the “price revolution” and accompanying enclosures of common lands was not very different from what had so recently happened in China: thousands of one-time peasants fleeing or being forced out of their villages to become vagabonds or “masterless men,” a process that culminated in popular insurrections. The reaction of European governments, however, was entirely different. The rebellions were crushed, and this time, no subsequent concessions were forthcoming. Vagabonds were rounded up, exported to the colonies as indentured laborers, and drafted into colonial armies and navies—or, eventually, set to work in factories at home.

Almost all of this was carried out through a manipulation of debt. As a result, the very nature of debt, too, became once again one of the principal bones of contention.

Part I: Greed, Terror, Indignation, Debt

No doubt scholars will never stop arguing about the reasons for the great “price revolution”—largely because it’s not clear what kind of tools can be applied. Can we really use the methods of modern economics, which were designed to understand how contemporary economic institutions operate, to describe the political battles that led to the creation of those very institutions?

This is not just a conceptual problem. There are moral dangers here. To take what might seem an “objective,” macro-economic approach to the origins of the world economy would be to treat the behavior of early European explorers, merchants, and conquerors as if they were simply rational responses to opportunities—as if this were just what anyone would have done in the same situation. This is what the use of equations so often does: make it seem perfectly natural to assume that, if the price of silver in China is twice what it is in Seville, and inhabitants of Seville are capable of getting their hands on large quantities of silver and transporting it to China, then clearly they will, even if doing so requires the destruction of entire civilizations. Or if there is a demand for sugar in England, and enslaving millions is the easiest way to acquire labor to produce it, then it is inevitable that some will enthralled them. In fact, history makes it quite clear that this is not the case. Any number of civilizations have probably been in a position to wreak havoc on the scale that the European powers did in the sixteenth and seventeenth centuries (Ming China itself was an obvious candidate), but almost none actually did so.[738]

Consider, for instance, how the gold and silver from the American mines were extracted. Mining operations began almost immediately upon the fall of the Aztec capital of Tenochtitlán in 1521. While we are used to assuming that the Mexican population was devastated simply as an effect of newly introduced European diseases, contemporary observers felt that the dragooning of the newly conquered natives to work in the mines was at least equally responsible.[739] In The Conquest of America, Tzvetan Todorov offers a compendium of some of the most chilling reports, mostly from Spanish priests and friars who, even when committed in principle to the belief that the extermination of the Indians was the judgment of God, could not disguise their horror at scenes of Spanish soldiers testing the blades of their weapons by eviscerating random passersby, and tearing babies off their mother’s backs to be eaten by dogs. Such acts might perhaps be written off as what one would expect when a collection of heavily armed men—many of violent criminal background—are given absolute impunity; but the reports from the mines imply something far more systematic. When Fray Toribio de Motolinia wrote of the ten plagues that he believed God had visited on the inhabitants of Mexico, he listed smallpox, war, famine, labor exactions, taxes (which caused many to sell their children to moneylenders, others to be tortured to death in cruel prisons), and the thousands who died in the building of the capital city. Above all, he insisted, were the uncountable numbers who died in the mines:

The eighth plague was the slaves whom the Spaniards made in order to put them to work in the mines. At first those who were already slaves of the Aztecs were taken; then those who had given evidence of insubordination; finally all those who could be caught. During the first years after the conquest, the slave traffic flourished, and slaves often changed master. They produced so many marks on their faces, in addition to the royal brand, that they had their faces covered with letters, for they bore the marks of all who had bought and sold them.

The ninth plague was the service in the mines, to which the heavily laden Indians traveled sixty leagues or more to carry provisions … When their food gave out they died, either at the mines or on the road, for they had no money to buy food and there was no one to give it to them. Some reached home in such a state that they died soon after. The bodies of those Indians and of the slaves who died in the mines produced such a stench that it caused a pestilence, especially at the mines of Oaxaca. For half a league around these mines and along a great part of the road one could scarcely avoid walking over dead bodies or bones, and the flocks of birds and crows that came to fatten themselves upon the corpses were so numerous that they darkened the sun.”[740]

Similar scenes were reported in Peru, where whole regions were depopulated by forced service in the mines, and Hispaniola, where the indigenous population was eradicated entirely.[741]

When dealing with conquistadors, we are speaking not just of simple greed, but greed raised to mythic proportions. This is, after all, what they are best remembered for. They never seemed to get enough. Even after the conquest of Tenochtitlán or Cuzco, and the acquisition of hitherto-unimaginable riches, the conquerors almost invariably regrouped and started off in search of more treasure.

Moralists throughout the ages have inveighed against the endlessness of human greed, just as they have against our supposedly endless lust for power. What history actually reveals, though, is that while humans may be justly accused of having a proclivity to accuse others of acting like conquistadors, few really act this way themselves. Even for the most ambitious of us, our dreams are more like Sindbad’s: to have adventures, to acquire the means to settle down and live an enjoyable life, and then, to enjoy it. Max Weber of course argued that the essence of capitalism is the urge—which he thought first appeared in Calvinism—never to settle down, but to engage in endless expansion. But the conquistadors were good Medieval Catholics, even if ones usually drawn from the most ruthless and unprincipled elements of Spanish society. Why the unrelenting drive for more and more and more?

It might help, I think, to go back to the very onset of Hernán Cortés’s conquest of Mexico: What were his immediate motives? Cortés had migrated to the colony of Hispaniola in 1504, dreaming of glory and adventure, but for the first decade and a half, his adventures had largely consisted of seducing other people’s wives. In 1518, however, he managed to finagle his way into being named commander of an expedition to establish a Spanish presence on the mainland. As Bernal Díaz del Castillo, who accompanied him, later wrote, around this time

He began to adorn himself and be more careful of his appearance than before. He wore a plume of feathers, with a medallion and a gold chain, and a velvet cloak trimmed with loops of gold. In fact he looked like a bold and gallant Captain. However, he had no money to defray the expenses I have spoken about, for at the time he was very poor and much in debt, despite the fact that he had a good estate of Indians and was getting gold from the mines. But all this he spent on his person, on finery for his wife, whom he had recently married, and on entertaining guests …

When some merchant friends of his heard that he had obtained his command as Captain General, they lent him four thousand gold pesos in coin and another four thousand in goods secured on his Indians and estates. He then ordered two standards and banners to be made, worked in gold with the royal arms and a cross on each side with a legend which said, “Comrades, let us follow the sign of the Holy Cross with true faith, and through it we shall conquer.”[742]

In other words, he’d been living beyond his means, got himself in trouble, and decided, like a reckless gambler, to double down and go for broke. Unsurprising, then, that when the governor at the last minute decided to cancel the expedition, Cortés ignored him and sailed for the mainland with six hundred men, offering each an equal share in the expedition’s profits. On landing he burned his boats, effectively staking everything on victory.

Let us skip, then, from the beginning of Díaz’s book to its final chapter. Three years later, through some of the most ingenious, ruthless, brilliant, and utterly dishonorable behavior by a military leader ever recorded, Cortés had his victory. After eight months of grueling house-to-house warfare and the death of perhaps a hundred thousand Aztecs, Tenochtitlán, one of the greatest cities of the world, lay entirely destroyed. The imperial treasury was secured, and the time had come, then, for it to be divided in shares among the surviving soldiers.

Yet according to Díaz, the result among the men was outrage. The officers connived to sequester most of the gold, and when the final tally was announced, the troops learned that they would be receiving only fifty to eighty pesos each. What’s more, the better part of their shares was immediately seized again by the officers in their capacity of creditors—since Cortés had insisted that the men be billed for any replacement equipment and medical care they had received during the siege. Most found they had actually lost money on the deal. Díaz writes:

We were all very deeply in debt. A crossbow was not to be purchased for less than forty or fifty pesos, a musket cost one hundred, a sword fifty, and a horse from 800 to 1000 pesos, and above. Thus extravagantly did we have to pay for everything! A surgeon, who called himself Mastre Juan, who had tended some very bad wounds, charged wildly inflated fees, and so did a quack named Murcia, who was an apothecary and a barber and also treated wounds, and there were thirty other tricks and swindles for which payment was demanded of our shares as soon as we received them.

Serious complaints were made about this, and the only remedy that Cortés provided was to appoint two trustworthy persons who knew the prices of goods and could value anything that we had bought on credit. An order went out that whatever price was placed on our purchases or the surgeon’s cures must be accepted, but that if we had no money, our creditors must wait two years for payment.[743]

Spanish merchants soon arrived charging wildly inflated prices for basic necessities, causing further outrage, until:

Our general becoming weary of the continual reproaches which were thrown out against him, saying he had stolen everything for himself, and the endless petitions for loans and advance in pay, determined at once to get rid of the most troublesome fellows, by forming settlements in those provinces which appeared most eligible for this purpose.[744]

These were the men who ended up in control of the provinces, and who established local administration, taxes, and labor regimes. Which makes it a little easier to understand the descriptions of Indians with their faces covered by names like so many counter-endorsed checks, or the mines surrounded by miles of rotting corpses. We are not dealing with a psychology of cold, calculating greed, but of a much more complicated mix of shame and righteous indignation, and of the frantic urgency of debts that would only compound and accumulate (these were, almost certainly, interest-bearing loans), and outrage at the idea that, after all they had gone through, they should be held to owe anything to begin with.

And what of Cortés? He had just pulled off perhaps the greatest act of theft in world history. Certainly, his original debts had now been rendered inconsequential. Yet he somehow always seemed to find himself in new ones. Creditors were already starting to repossess his holdings while he was off on an expedition to Honduras in 1526; on his return, he wrote the Emperor Charles V that his expenses were such that “all I have received has been insufficient to relive me from misery and poverty, being at the moment I write in debt for upwards of five hundred ounces of gold, without possessing a single peso towards it.”[745] Disingenuous, no doubt (Cortés at the time owned his own personal palace), but only a few years later, he was reduced to pawning his wife’s jewelry to help finance a series of expeditions to California, hoping to restore his fortunes. When those failed to turn a profit, he ended up so besieged by creditors that he had to return to Spain to petition the emperor in person.[746]

If all this seems suspiciously reminiscent of the fourth Crusade, with its indebted knights stripping whole foreign cities of their wealth and still somehow winding up only one step ahead of their creditors, there is a reason. The financial capital that backed these expeditions came from more or less the same place (if in this case Genoa, not Venice). What’s more, that relationship, between the daring adventurer on the one hand, the gambler willing to take any sort of risk, and on the other, the careful financier, whose entire operations are organized around producing steady, mathematical, inexorable growth of income, lies at the very heart of what we now call “capitalism.”

As a result, our current economic system has always been marked by a peculiar dual character. Scholars have long been fascinated by Spanish debates that ensued, in Spanish universities like Santander, about the humanity of the Indians (Did they have souls? Could they have legal rights? Was it legitimate to forcibly enthralled them?), just as they have argued about the real attitudes of the conquistadors (was it contempt, revulsion, or even grudging admiration for their adversaries?)[747] The real point is that at the key moments of decision, none of this mattered. Those making the decisions did not feel they were in control anyway; those who were did not particularly care to know the details. To take a telling example: after the earliest years of the gold and silver mines described by Motolinia, where millions of Indians were simply rounded up and marched off to their deaths, colonists settled on a policy of debt peonage: the usual trick of demanding heavy taxes, lending money at interest to those who could not pay, and then demanding that the loans be repaid with work. Royal agents regularly attempted to forbid such practices, arguing that the Indians were now Christian and that this violated their rights as loyal subjects of the Spanish crown. But as with almost all such royal efforts to act as protector of the Indians, the result was the same. Financial exigencies ended up taking precedence. Charles V himself was deeply in debt to banking firms in Florence, Genoa, and Naples, and gold and silver from the Americas made up perhaps one-fifth of his total revenue. In the end, despite a lot of initial noise and the (usually quite sincere) moral outrage on the part of the king’s emissaries, such decrees were either ignored or, at best, enforced for a year or two before being allowed to slip into abeyance.[748]

All of this helps explain why the Church had been so uncompromising in its attitude toward usury. It was not just a philosophical question; it was a matter of moral rivalry. Money always has the potential to become a moral imperative unto itself. Allow it to expand, and it can quickly become a morality so imperative that all others seem frivolous in comparison. For the debtor, the world is reduced to a collection of potential dangers, potential tools, and potential merchandise.[749] Even human relations become a matter of cost-benefit calculation. Clearly this is the way the conquistadors viewed the worlds that they set out to conquer.

It is the peculiar feature of modern capitalism to create social arrangements that essentially force us to think this way. The structure of the corporation is a telling case in point—and it is no coincidence that the first major joint-stock corporations in the world were the English and Dutch East India companies, ones that pursued that very same combination of exploration, conquest, and extraction as did the conquistadors. It is a structure designed to eliminate all moral imperatives but profit. The executives who make decisions can argue—and regularly do—that, if it were their own money, of course they would not fire lifelong employes a week before retirement, or dump carcinogenic waste next to schools. Yet they are morally bound to ignore such considerations, because they are mere employes whose only responsibility is to provide the maximum return on investment for the company’s stockholders. (The stockholders, of course, are not given any say.)

The figure of Cortés is instructive for another reason. We are speaking of a man who, in 1521, had conquered a kingdom and was sitting atop a vast pile of gold. Neither did he have any intention of giving it away—even to his followers. Five years later, he was claiming to be a penniless debtor. How was this possible?

The obvious answer would be: Cortés was not a king, he was a subject of the King of Spain, living within the legal structure of a kingdom that insisted that, if he were not good at managing his money, he would lose it. Yet as we’ve seen, the king’s laws could be ignored in other cases. What’s more, even kings were not entirely free agents. Charles V was continually in debt, and when his son Philip II—his armies fighting on three different fronts at once—attempted the old Medieval trick of defaulting, all his creditors, from the Genoese Bank of St. George to the German Fuggers and Welsers, closed ranks to insist that he would receive no further loans until he started honoring his commitments.[750]

Capital, then, is not simply money. It is not even just wealth that can be turned into money. But neither is it just the use of political power to help one use one’s money to make more money. Cortés was trying to do exactly that: in classical Axial Age fashion, he was attempting to use his conquests to acquire plunder, and slaves to work the mines, with which he could pay his soldiers and suppliers cash to embark on even further conquests. It was a tried-and-true formula. But for all the other conquistadors, it provided a spectacular failure.

This would seem to mark the difference. In the Axial Age, money was a tool of empire. It might have been convenient for rulers to promulgate markets in which everyone would treat money as an end in itself; at times, rulers might have even come to see the whole apparatus of government as a profit-making enterprise; but money always remained a political instrument. This is why when the empires collapsed and armies were demobilized, the whole apparatus could simply melt away. Under the newly emerging capitalist order, the logic of money was granted autonomy; political and military power were then gradually reorganized around it. True, this was a financial logic that could never have existed without states and armies behind it in the first place. As we have seen in the case of Medieval Islam, under genuine free-market conditions—in which the state is not involved in regulating the market in any significant way, even in enforcing commercial contracts—purely competitive markets will not develop, and loans at interest will become effectively impossible to collect. It was only the Islamic prohibition against usury, really, that made it possible for them to create an economic system that stood so far apart from the state.

Martin Luther was making this very point in 1524, right around the time that Cortés was first beginning to have trouble with his creditors. It is all very well, Luther said, for us to imagine that all might live as true Christians, in accordance with the dictates of the Gospel. But in fact there are few who are really capable of acting this way:

Christians are rare in this world; therefore the world needs a strict, hard, temporal government that will compel and constrain the wicked not to rob and to return what they borrow, even though a Christian ought not to demand it, or even hope to get it back. This is necessary in order that the world not become a desert, peace may not perish, and trade and society not be utterly destroyed; all of which would happen if we were to rule the world according to the Gospel and not drive and compel the wicked, by laws and the use of force, to do what is right … Let no one think that the world can be ruled without blood; the sword of the ruler must be red and bloody; for the world will and must be evil, and the sword is God’s rod and vengeance upon it.[751]

“Not to rob and to return what they borrow”—a telling juxtaposition, considering that in Scholastic theory, lending money at interest had itself been considered theft.

And Luther was referring to interest-bearing loans here. The story of how he got to this point is telling. Luther began his career as a reformer in 1520 with fiery campaigns against usury; in fact, one of his objections to the sale of Church indulgences was that it was itself a form of spiritual usury. These positions won him enormous popular support in towns and villages. However, he soon realized that he’d unleashed a genie that threatened to turn the whole world upside-down. More radical reformers appeared, arguing that the poor were not morally obliged to repay the interest on usurious loans, and proposing the revival of Old Testament institutions like the sabbatical year. They were followed by outright revolutionary preachers who began once again questioning the very legitimacy of aristocratic privilege and private property. In 1525, the year after Luther’s sermon, there was a massive uprising of peasants, miners, and poor townsfolk across Germany: the rebels, in most cases, representing themselves as simple Christians aiming to restore the true communism of the Gospels. Over a hundred thousand were slaughtered. Already in 1524, Luther had a sense that matters were spilling out of control and that he would have to choose sides: in that text, he did so. Old Testament laws like the Sabbatical year, he argued, are no longer binding; the Gospel merely describes ideal behavior; humans are sinful creatures, so law is necessary; while usury is a sin, a four to five-percent rate of interest is currently legal under certain circumstances; and while collecting that interest is sinful, under no circumstances is it legitimate to argue that for that reason, borrowers have the right to break the law.[752]

The Swiss Protestant reformer Zwingli was even more explicit. God, he argued, gave us the divine law: to love thy neighbor as thyself. If we truly kept this law, humans would give freely to one another, and private property would not exist. However, Jesus excepted, no human being has ever been able to live up to this pure communistic standard. Therefore, God has also given us a second, inferior, human law, to be enforced by the civil authorities. While this inferior law cannot compel us to act as we really ought to act (“the magistrate can force no one to lend out what belongs to him without hope of recompense or profit”)—at least it can make us follow the lead of the apostle Paul, who said: “Pay all men what you owe.”[753]

Soon afterwards, Calvin was to reject the blanket ban on usury entirely, and by 1650, almost all Protestant denominations had come to agree with his position that a reasonable rate of interest (usually five percent) was not sinful, provided the lenders act in good conscience, do not make lending their exclusive business, and do not exploit the poor.[754] (Catholic doctrine was slower to come around, but it did ultimately accede by passive acquiescence.)

If one looks at how all this was justified, two things jump out. First, Protestant thinkers all continued to make the old Medieval argument about interesse: that “interest” is really compensation for the money that the lender would have made had he been able to place his money in some more profitable investment. Originally, this logic was just applied to commercial loans. Increasingly, it was now applied to all loans. Far from being unnatural, then, the growth of money was now treated as completely expected. All money was assumed to be capital.[755] Second, the assumption that usury is something that one properly practices on one’s enemies, and therefore, by extension, that all commerce partakes something of the nature of war, never entirely disappears. Calvin, for instance, denied that Deuteronomy only referred to the Amalekites; clearly, he said, it meant that usury was acceptable when dealing with Syrians or Egyptians; indeed with all nations with whom the Jews traded.[756] The result of opening the gates was, at least tacitly, to suggest that one could now treat anyone, even a neighbor, as a foreigner.[757] One need only observe how European merchant adventurers of the day actually were treating foreigners, in Asia, Africa, and the Americas, to understand what this might mean in practice.

Or, one might look closer to home. Take the story of another well-known debtor of the time, the Margrave Casimir of Brandenburg-Ansbach (1481–1527), of the famous Hohenzollern dynasty:

Casimir was the son of Margrave Friedrich the Elder of Brandenburg, who has come to be known as one of the “mad princes” of the German Renaissance. Sources differ on just how mad he actually was. One contemporary chronicle describes him as “somewhat deranged in his head from too much racing and jousting;” most agree that he was given to fits of inexplicable rage, as well as to the sponsorship of wild, extravagant festivals, said often to have degenerated into wild bacchanalian orgies.[758]

All agree, however, that he was poor at managing his money. At the beginning of 1515, Friedrich was in such financial trouble—he is said to have owed 200,000 guilders—that he alerted his creditors, mostly fellow nobles, that he might soon be forced to temporarily suspend interest payments on his debts. This seems to have caused a crisis of faith, and within a matter of weeks, his son Casimir staged a palace coup—moving, in the early hours of February 26, 1515, to seize control of the castle of Plassenburg while his father was distracted with the celebration of Carnival, then forcing him to sign papers abdicating for reason of mental infirmity. Friedrich spent the rest of his life confined in Plassenburg, denied all visitors and correspondence. When at one point his guards requested that the new Margrave provide a couple guilders so he could pass the time gambling with them, Casimir made a great public show of refusal, stating (ridiculously, of course) that his father had left his affairs in such disastrous shape that he could not possibly afford to.[759]

Casimir dutifully doled out governorships and other prize offices to his father’s creditors. He tried to get his house in order, but this proved surprisingly difficult. His enthusiastic embrace of Luther’s reforms in 1521 clearly had as much to do with the prospect of getting his hands on Church lands and monastic assets than with any particular religious fervor. Yet at first, the disposition of Church property remained moot, and Casimir himself compounded his problems by running up gambling debts of his own said to have amounted to nearly 50,000 guilders.[760]

Placing his creditors in charge of the civil administration had predictable effects: increasing exactions on his subjects, many of whom became hopelessly indebted themselves. Unsurprisingly, Casimir’s lands in the Tauber Valley in Franconia became one of the epicenters of the revolt of 1525. Bands of armed villagers assembled, declaring they would obey no law that did not accord with “the holy word of God.” At first, the nobles, isolated in their scattered castles, offered little resistance. The rebel leaders—many of them local shopkeepers, butchers, and other prominent men from nearby towns—began with a largely orderly campaign of tearing down castle fortifications, their knightly occupants being offered guarantees of safety if they cooperated, agreed to abandon their feudal privileges, and swore oaths to abide by the rebels’ Twelve Articles. Many complied. The real venom of the rebels was reserved for cathedrals and monasteries, dozens of which were sacked, pillaged, and destroyed.

Casimir’s reaction was to hedge his bets. At first he bided his time, assembling an armed force of about two thousand experienced soldiers, but refusing to intervene as rebels pillaged several nearby monasteries; in fact, negotiating with the various rebel bands in such apparent good faith that many believed he was preparing to join them “as a Christian brother.”[761] In May, however, after the knights of the Swabian League defeated the rebels of the Christian Union to the south, Casimir swung into action, his forces brushing aside poorly disciplined rebel bands to sweep through his own territories like a conquering army, burning and pillaging villages and towns, slaughtering women and children. In every town he set up punitive tribunals, and seized all looted property, which he kept, even as his men also expropriated any wealth still to be found in the region’s cathedrals, ostensibly as emergency loans to pay his troops.

It seems significant that Casimir was, of all the German princes, both the longest to waver before intervening, and the most savagely vengeful once he did. His forces became notorious not only for executing accused rebels, but systematically chopping off the fingers of accused collaborators, his executioner keeping a grim ledger of amputated body parts for later reimbursement—a kind of carnal inversion of the account ledgers that had caused him so much trouble in his life. At one point, in the town of Kitzingen, Casimir ordered the gouging out of the eyes of fifty-eight burghers who had, he declared, “refused to look at him as their lord.” Afterwards he received the following bill:[762]

80 beheaded
69 eyes put out or fingers cut off	114½ fl.
from this to deduct
Received from the Rothenburgers	10 fl.
Received from Ludwig von Hutten	2 fl.
Remainder
Plus 2 months’ pay at 8 fl. per month	16 fl.
Total	118½ fl.

[Signed] Augustin, the executioner, who the Kitzingers call “Master Ouch.”

The repression eventually inspired Casimir’s brother Georg (later known as “the Pious”) to write a letter asking him if Casimir was intending to take up a trade—since, as Georg gently reminded him, he could not very well continue to be a feudal overlord if his peasants were all dead.[763]

With such things happening, it is hardly surprising that men like Thomas Hobbes came to imagine the basic nature of society as a war of all against all, from which only the absolute power of monarchs could save us. At the same time, Casimir’s behavior—combining as it does a general attitude of unprincipled, cold-blooded calculation with outbursts of almost inexplicably vindictive cruelty—seems, like that of Cortés’s angry foot soldiers when unleashed on the Aztec provinces, to embody something essential about the psychology of debt. Or, more precisely, perhaps, about the debtor who feels he has done nothing to deserve being placed in his position: the frantic urgency of having to convert everything around oneself into money, and rage and indignation at having been reduced to the sort of person who would do so.

Part II: The World of Credit and the World of Interest

Of all the beings that have existence only in the minds of men, nothing is more fantastical and nice than Credit; it is never to be forced; it hangs upon opinion; it depends upon our passions of hope and fear; it comes many times unsought-for, and often goes away without reason; and once lost, it is hardly to be quite recovered.

—Charles Davenant, 1696

He that has lost his credit is dead to the world.

—English and German Proverb

The peasants’ visions of communistic brotherhood did not come out of nowhere. They were rooted in real daily experience: of the maintenance of common fields and forests, of everyday cooperation and neighborly solidarity. It is out of such homely experience of everyday communism that grand mythic visions are always built.[764] Obviously, rural communities were also divided, squabbling places, since communities always are—but insofar as they are communities at all, they are necessarily founded on a ground of mutual aid. The same, incidentally, can be said of members of the aristocracy, who might have fought endlessly over love, land, honor, and religion, but nonetheless still cooperated remarkably well with one another when it really mattered (most of all, when their position as aristocrats was threatened); just as the merchants and bankers, much as they competed with one another, managed to close ranks when it really mattered. This is what I refer to as the “communism of the rich,” and it is a powerful force in human history.[765]

The same, as we’ve seen repeatedly, applies to credit. There are always different standards for those one considers friends or neighbors. The inexorable nature of interest-bearing debt, and the alternately savage and calculating behavior of those enslaved to it, are typical above all of dealings between strangers: it’s unlikely that Casimir felt much more kinship with his peasants than Cortés did with the Aztecs (in fact, most likely less, since Aztec warriors were at least aristocrats). Inside the small towns and rural hamlets, where the state was mostly far away, Medieval standards survived intact, and “credit” was just as much a matter of honor and reputation as it had ever been. The great untold story of our current age is of how these ancient credit systems were ultimately destroyed.

Recent historical research, notably that of Craig Muldrew, who has sifted through thousands of inventories and court cases from sixteenth- and seventeenth-century England, has caused us to revise almost all our old assumptions about what everyday economic life at that time was like. Of course, very little of the American gold and silver that reached Europe actually ended up in the pockets of ordinary farmers, mercers, or haberdashers.[766] The lion’s share stayed in the coffers of either the aristocracy or the great London merchants, or else in the royal treasury.[767] Small change was almost nonexistent. As I’ve already pointed out, in the poorer neighborhoods of cities or large towns, shopkeepers would issue their own lead, leather, or wooden token money; in the sixteenth century this became something of a fad, with artisans and even poor widows producing their own currency as a way to make ends meet.[768] Elsewhere, those frequenting the local butcher, baker, or shoemaker would simply put things on the tab. The same was true of those attending weekly markets, or selling neighbors milk or cheese or candle-wax. In a typical village, the only people likely to pay cash were passing travelers, and those considered riff-raff: paupers and ne’er-do-wells so notoriously down on their luck that no one would extend credit to them. Since everyone was involved in selling something, however just about everyone was both creditor and debtor; most family income took the form of promises from other families; everyone knew and kept count of what their neighbors owed one another; and every six months or year or so, communities would held a general public “reckoning,” canceling debts out against each other in a great circle, with only those differences then remaining when all was done being settled by use of coin or goods.[769]

The reason that this upends our assumptions is that we’re used to blaming the rise of capitalism on something vaguely called “the market”—the breakup of older systems of mutual aid and solidarity, and the creation of a world of cold calculation, where everything had its price. Really, English villagers appear to have seen no contradiction between the two. On the one hand, they believed strongly in the collective stewardship of fields, streams, and forests, and the need to help neighbors in difficulty. On the other hand, markets were seen as a kind of attenuated version of the same principle, since they were entirely founded on trust. Much like the Tiv women with their gifts of yams and okra, neighbors assumed they ought to be constantly slightly in debt to one another. At the same time, most seem to have been quite comfortable with the idea of buying and selling, or even with market fluctuations, provided it didn’t get to the point of threatening honest families’ livelihoods.[770] Even when loans at interest began to be legalized in 1545, that did not ruffle too many feathers, as long as it took place within that same larger moral framework: lending was considered an appropriate vocation, for example, for widows with no other source of income, or as a way for neighbors to share in the profits from some minor commercial venture. William Stout, a Quaker merchant from Lancashire, spoke glowingly of Henry Coward, the tradesman in whose shop he first apprenticed:

My master then had a full trade of groceries, ironmongerware, and several other goods, and very much respected and trusted, not only by the people of his own religious profession, but by all others of all professions and circumstances … His credit was so much, that any who had money to dispose of lodged it with him to put out to interest or to make use of it.[771]

In this world, trust was everything. Most money literally was trust, since most credit arrangements were handshake deals. When people used the word “credit,” they referred above all to a reputation for honesty and integrity; and a man or woman’s honor, virtue, and respectability, but also, reputation for generosity, decency, and good-natured sociability, were at least as important considerations when deciding whether to make a loan as were assessments of net income.[772] As a result, financial terms became indistinguishable from moral ones. One could speak of others as “worthies,” as “a woman of high estimation” or “a man of no account,” and equally of “giving credit” to someone’s words when one believes what they say (“credit” is from the same root as “creed” or “credibility”), or of “extending credit” to them, when one takes them at their word that they will pay one back.

One should not idealize the situation. This was a highly patriarchal world: a man’s wife or daughter’s reputation for chastity was as much a part of his “credit” as his own reputation for kindness or piety. What’s more, almost all people below the age of 30, male or female, were employed as servants in someone else’s household—as farmhands, milkmaids, apprentices—and as such, were of “no account” at all.[773] Finally, those who lost credibility in the eyes of the community became, effectively, pariahs, and descended into the criminal or semi-criminal classes of rootless laborers, beggars, harlots, cutpurses, hawkers, peddlers, fortune-tellers, minstrels, and other such “masterless men” or “women of ill repute.”[774]

Cold cash was employed largely between strangers, or when paying rents, tithes, and taxes to landlords, bailiffs, priests, and other superiors. The landed gentry and wealthy merchants, who eschewed handshake deals, would often use cash with one another, especially to pay off bills of exchange drawn on London markets.[775] Above all, gold and silver were used by the government to purchase arms and pay soldiers, and among the criminal classes themselves. This meant that coins were most likely to be used both by the sort of people who ran the legal system—the magistrates, constables, and justices of the peace—and by those violent elements of society they saw it as their business to control.

Over time, this led to an increasing disjuncture of moral universes. For most, who tried to avoid entanglement in the legal system just as much as they tried to avoid the affairs of soldiers and criminals, debt remained the very fabric of sociability. But those who spent their working lives within the halls of government and great commercial houses gradually began to develop a very different perspective, whereby cash exchange was normal and it was debt that came to be seen as tinged with criminality.

Each perspective turned on a certain tacit theory of the nature of society. For most English villagers, the real font and focus of social and moral life was not so much the church as the local ale-house—and community was embodied above all in the conviviality of popular festivals like Christmas or May Day, with everything that such celebrations entailed: the sharing of pleasures, the communion of the senses, all the physical embodiment of what was called “good neighborhood.” Society was rooted above in the “love and amity” of friends and kin, and it found expression in all those forms of everyday communism (helping neighbors with chores, providing milk or cheese for old widows) that were seen to flow from it. Markets were not seen as contradicting this ethos of mutual aid. It was, much as it was for Tusi, an extension of mutual aid—and for much the same reason: because it operated entirely through trust and credit.[776]

England might not have produced a great theorist like Tusi, but one can find the same assumptions echoed in most of the Scholastic writers, as for instance in Jean Bodin’s De Republica, widely circulated in English translation after 1605. “Amity and friendship,” Bodin wrote, “are the foundation of all human and civil society”—they constitute that “true, natural justice” on which the whole legal structure of contracts, courts, and even government must necessarily be built.[777] Similarly, when economic thinkers reflected on the origins of the money, they spoke of “trusting, exchanging, and trading.”[778] It was simply assumed that human relations came first.

As a result, all moral relations came to be conceived as debts. “Forgive us our debts”—this was the period, the very end of the Middle Ages, that this translation of the Lord’s Prayer gained such universal popularity. Sins are debts to God: unavoidable, but perhaps manageable, since at the end of time our moral debts and credits will be all canceled out against each other in God’s final Reckoning. The notion of debt inserted itself into even the most intimate of human relations. Like the Tiv, Medieval villagers would sometimes refer to “flesh debts,” but the notion was completely different: it referred to the right of either partner in a marriage to demand sex from the other, which in principle either could do whenever he or she desired. The phrase “paying one’s debts” thus developed connotations, much as the Roman phrase “doing one’s duty” had, centuries before. Geoffrey Chaucer even makes a pun out of “tally” (French: taille) and “tail” in the Shipman’s Tale, a story about a woman who pays her husband’s debts with sexual favors: “and if so I be faille, I am youre wyf, score it upon my taille.”[779]

Even London merchants would occasionally appeal to the language of sociability, insisting that in the final analysis, all trade is built on credit, and credit is really just an extension of mutual aid. In 1696, for instance, Charles Davenant wrote that even if there were a general collapse of confidence in the credit system, it could not last long, because eventually, when people reflected on the matter and realized that credit is simply an extension of human society,

They will find, that no trading nation ever did subsist, and carry on its business by real stock [that is, just coin and merchandise]; that trust and confidence in each other, are as necessary to link and hold a people together, as obedience, love, friendship, or the intercourse of speech. And when experience has taught man how weak he is, depending only on himself, he will be willing to help others, and call upon the assistance of his neighbors, which of course, by degrees, must set credit again afloat.[780]

Davenant was an unusual merchant (his father was a poet). More typical of his class were men like Thomas Hobbes, whose Leviathan, published in 1651, was in many ways an extended attack on the very idea that society is built on any sort of prior ties of communal solidarity.

Hobbes might be considered the opening salvo of the new moral perspective, and it was a devastating one. When Leviathan came out, it’s not clear what scandalized its readers more: its relentless materialism (Hobbes insisted that humans were basically machines whose actions could be understood by one single principle: that they tended to move toward the prospect of pleasure and away from the prospect of pain), or its resultant cynicism (if love, amity, and trust are such powerful forces, Hobbes asked, why is it that even within our families, we lock our most valuable possessions in strongboxes?) Still, Hobbes’ ultimate argument—that humans, being driven by self-interest, cannot be trusted to treat each other justly of their own accord, and therefore that society only emerges when they come to realize that it is to their long-term advantage to give up a portion of their liberties and accept the absolute power of the King—differed little from arguments that theologians like Martin Luther had been making a century earlier. Hobbes simply substituted scientific language for biblical references.[781]

I want to draw particular attention to the underlying notion of “self-interest.”[782] It is in a real sense the key to the new philosophy. The term first appears in English right around Hobbes’ time, and it is, indeed, directly borrowed from interesse, the Roman law term for interest payments. When it was first introduced, most English authors seemed to view the idea that all human life can be explained as the pursuit of self-interest as a cynical, foreign, Machiavellian idea, one that sat uncomfortably with traditional English mores. By the eighteenth century, most in educated society accepted it as simple common sense.

But why “interest”? Why make a general theory of human motivation out of a word that originally meant “penalty for late payment on a loan”?

Part of the term’s appeal was that it derived from bookkeeping. It was mathematical. This made it seem objective, even scientific. Saying we are all really pursuing our own self-interest provides a way to cut past the welter of passions and emotions that seem to govern our daily existence, and to motivate most of what we actually observe people to do (not only out of love and amity, but also envy, spite, devotion, pity, lust, embarrassment, torpor, indignation, and pride) and discover that, despite all this, most really important decisions are based on the rational calculation of material advantage—which means that they are fairly predictable as well. “Just as the physical world is ruled by the laws of movement,” wrote Helvétius, in a passage reminiscent of Lord Shang, “no less is the moral universe ruled by laws of interest.”[783] And of course it was on this assumption that all the quadratic equations of economic theory could ultimately be built.[784]

The problem is that the origin of the concept is not rational at all. Its roots are theological, and the theological assumptions underpinning it never really went away. “Self-interest” is first attested to in the writings of the Italian historian Francesco Guicciadini (who was, in fact, a friend of Machiavelli), around 1510, as a euphemism for St. Augustine’s concept of “self-love.” For Augustine, the “love of God” leads us to benevolence toward our fellows; self-love, in contrast, refers to the fact that, since the Fall of Man, we are cursed by endless, insatiable desires for self-gratification—so much so that, if left to our own devices, we will necessarily fall into universal competition, even war. Substituting “interest” for “love” must have seemed an obvious move, since the assumption that love is the primary emotion was precisely what authors like Guicciadini were trying to get away from. But it kept that same assumption of insatiable desires under the guise of impersonal math, since what is “interest” but the demand that money never cease to grow? The same was true when it became the term for investments—“I have a twelve-percent interest in that venture”—it is money placed in the continual pursuit of profit.[785] The very idea that human beings are motivated primarily by “self-interest,” then, was rooted in the profoundly Christian assumption that we are all incorrigible sinners; left to our own devices, we will not simply pursue a certain level of comfort and happiness and then stop to enjoy it; we will never cash in the chips, like Sindbad, let alone question why we need to buy chips to begin with. And as Augustine already anticipated, infinite desires in a finite world means endless competition, which in turn is why, as Hobbes insisted, our only hope of social peace lies in contractual arrangements and strict enforcement by the apparatus of the state.

The story of the origins of capitalism, then, is not the story of the gradual destruction of traditional communities by the impersonal power of the market. It is, rather, the story of how an economy of credit was converted into an economy of interest; of the gradual transformation of moral networks by the intrusion of the impersonal—and often vindictive—power of the state. English villagers in Elizabethan or Stuart times did not like to appeal to the justice system, even when the law was in their favor—partly on the principle that neighbors should work things out with one another, but mainly, because the law was so extraordinarily harsh. Under Elizabeth, for example, the punishment for vagrancy (unemployment) was, for first offense, to have one’s ears nailed to a pillory; for repeat offenders, death.[786]

The same was true of debt law, especially since debts could often, if the creditor was sufficiently vindictive, be treated as a crime. In Chelsea around 1660,

Margaret Sharples was prosecuted for stealing cloth, “which she had converted into a petticoat for her own wearing,” from Richard Bennett’s shop. Her defense was that she had bargained with Bennett’s servant for the cloth, “but having not money sufficient in her purse to pay for it, took it away with purpose to pay for it so soon as she could: and that she afterwards agreed with Mr Bennett of a price for it.” Bennett confirmed that this was so: after agreeing to pay him 22 shillings, Margaret “delivered a hamper with goods in it as a pawn for security of the money, and four shillings ninepence in money.” But “soon after he disliked upon better consideration to hold agreement with her: and delivered the hamper and goods back,” and commenced formal legal proceedings against her.[787]

As a result, Margaret Sharples was hanged.

Obviously, it was the rare shopkeeper who wished to see even his most irritating client on the gallows. Therefore decent people tended to avoid the courts entirely. One of the most interesting discoveries of Craig Muldrew’s research is that the more time passed, the less true this became.

Even in the late Middle Ages, in the case of really large loans, it was not unusual for creditors to lodge claims in local courts—but this was really just a way of ensuring that there was a public record (remember that most people at the time were illiterate). Debtors were willing to go along with the proceedings in part, it would seem, because if there was any interest being charged, it meant that if they did default, the lender was just as guilty in the eyes of the law as they were. Less than one-percent of these cases were ever brought to judgment.[788] The legalization of interest began to change the nature of the playing field. In the 1580s, when interest-bearing loans began to become common between villagers, creditors also began to insist on the use of signed, legal bonds; this led to such an explosion of appeals to the courts that in many small towns, almost every household seemed to be caught up in debt litigation of some sort or other. Only a tiny proportion of these suits were ever brought to judgment, either: the usual expedient was still to rely on the simple threat of punishment to encourage debtors to settle out of court.[789] Still, as a result, the fear of debtor’s prison—or worse—came to hang over everyone, and sociability itself came to take on the color of crime. Even Mr. Coward, the kindly shopkeeper, was eventually laid low. His good credit itself became a problem, especially as he felt honor-bound to use it to help the less fortunate:

He also dealt in merchandise with loose partners, and became concerned much with persons of declining circumstances, where neither profit nor credit could be got; and he gave uneasiness to his wife, by his frequenting some houses of no good character. And she was a very indolent woman, and drew money privately from him, and his circumstances became so burdensome that he daily expected to be made a prisoner. Which, with the shame of forfeiting his former reputation, it drew him into despair and broke his heart, so that he kept to his house for some time and died of grief and shame.[790]

It is perhaps not surprising, when one consults contemporary sources about what those prisons were like, particularly for those who were not of aristocratic origins. Mr. Coward would surely have known, as the conditions at the most notorious, like Fleet and Marshalsea, caused periodic scandals when exposed in parliament or the popular press, filling the papers with stories of shackled debtors “covered with filth and vermin, and suffered to die, without pity, of hunger and jail fever,” as the aristocratic roués placed in the elite side of the same jails lived lives of comfort, visited by manicurists and prostitutes.[791]

The criminalization of debt, then, was the criminalization of the very basis of human society. It cannot be overemphasized that in a small community, everyone normally was both lender and borrower. One can only imagine the tensions and temptations that must have existed in a communities—and communities, much though they are based on love, in fact, because they are based on love, will always also be full of hatred, rivalry and passion—when it became clear that with sufficiently clever scheming, manipulation, and perhaps a bit of strategic bribery, they could arrange to have almost anyone they hated imprisoned or even hanged. What was it that Richard Bennett really had against Margaret Sharples? We’ll never know the back-story, but it’s a pretty safe bet that there was one. The effects on communal solidarity must have been devastating. The sudden accessibility of violence really did threaten to transform what had been the essence of sociality into a war of all against all.[792] It’s not surprising then, that by the eighteenth century, the very notion of personal credit had acquired a bad name, with both lenders and borrowers considered equally suspect.[793] The use of coins—at least among those who had access to them—had come to seem moral in itself.

Understanding all this allows us to see some of the European authors considered in earlier chapters in an entirely new light. Take Panurge’s encomium on debt: it turns out that the real joke is not the suggestion that debt ties communities together (any English or French peasant of the day would have simply assumed this), or even that only debt ties communities together; it is putting the sentiment in the mouth of a wealthy scholar who’s really an inveterate criminal—that is, holding up popular morality as a mirror to make fun of the very upper classes who claimed to disapprove of it. Or consider Adam Smith:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.[794]

The bizarre thing here is that, at the time Smith was writing, this simply wasn’t true.[795] Most English shopkeepers were still carrying out the main part of their business on credit, which meant that customers appealed to their benevolence all the time. Smith could hardly have been unaware of this. Rather, he is drawing a utopian picture. He wants to imagine a world in which everyone used cash, in part because he agreed with the emerging middle-class opinion that the world would be a better place if everyone really did conduct themselves this way, and avoid confusing and potentially corrupting ongoing entanglements. We should all just pay the money, say “please” and “thank you,” and leave the store. What’s more, he uses this utopian image to make a larger point: that even if all businesses operated like the great commercial companies, with an eye only to self-interest, it wouldn’t matter. Even the “natural selfishness and rapacity” of the rich, with all their “vain and insatiable desires” will still, through the logic of the invisible hand, lead to the benefit of all.[796]

In other words, Smith simply imagined the role of consumer credit in his own day, just as he had his account of the origins of money.[797] This allowed him to ignore the role of both benevolence and malevolence in economic affairs; both the ethos of mutual aid that forms the necessary foundation of anything that would look like a free market (that is, one which is not simply created and maintained by the state), and the violence and sheer vindictiveness that had actually gone into creating the competitive, self-interested markets that he was using as his model.

Nietzsche, in turn, was taking up Smith’s premises, that life is exchange, but laying bare everything (the torture, murder, mutilation) that Smith preferred not to have to talk about. Now that we have seen just a little of the social context, it’s difficult to read Nietzsche’s otherwise puzzling descriptions of ancient hunters and herdsmen keeping accounts of debts and demanding each others’ eyes and fingers without immediately thinking of Casimir’s executioner, who actually did present his master with a bill for gouged eyes and severed fingers. What he is really describing is what it took to produce a world in which the son of a prosperous middle-class reverend, such as himself, could simply assume that all human life is premised on calculated, self-interested exchange.

Part III: Impersonal Credit-money

One reason that historians took so long to notice the elaborate popular-credit systems of Tudor and Stuart England is that intellectuals of the time spoke about money in the abstract; they rarely mentioned it. For the educated classes, “money” soon came to mean gold and silver. Most wrote as if it could be taken for granted that gold and silver had always been used as money for all nations in history and, presumably, always would be.

This not only flew in the face of Aristotle; it directly contradicted the discoveries of European explorers of the time, who were finding shell money, bead money, feather money, salt money, and an endless variety of other currencies everywhere they went.[798] Yet all this just caused economic thinkers to dig in their heels. Some appealed to alchemy to argue that the monetary status of gold and silver had a natural basis: gold (which partook of the sun) and silver (which partook of the moon) were the perfected, eternal forms of metal toward which all baser metals tend to evolve.[799] Most, however, didn’t feel that much explanation was required; the intrinsic value of precious metals was simply self-evident. As a result, when royal advisers or London pamphleteers discussed economic problems, the issues they debated were always the same: How do we keep bullion from leaving the country? What do we do about the crippling shortage of coin? For most, questions like “How do we maintain trust in local credit systems?” simply did not arise.

This was even more extreme in Britain than on the Continent, where “crying up” or “crying down” the currency was still an option. In Britain, after a disastrous attempt at devaluation under the Tudors, such expedients were abandoned. Henceforth, debasement became a moral issue. For the government to mix base metal into the pure eternal substance of a coin was clearly wrong. So, to a lesser extent, was coin-clipping, a near-universal practice in England, which might be thought of as a kind of popular version of devaluation, since it involved secretly shaving silver off the edges of coins and then pressing them down so they seemed like they were still the original size.

What’s more, those new forms of virtual money that began to emerge in the new age were firmly rooted in these same assumptions. This is critical, because it helps explain what might otherwise seem a bizarre contradiction: How is it that this age of ruthless materialism, in which the notion that money was a social convention was definitively rejected, also saw the rise of paper money, along with a whole host of new credit instruments and forms of financial abstraction that have become so typical of modern capitalism? True, most of these—checks, bonds, stocks, annuities—had their origins in the metaphysical world of the Middle Ages. Yet in this new age, they underwent an enormous efflorescence.

If one looks at the actual history, though, it quickly becomes clear that all of these new forms of money in no way undermined the assumption that money was founded on the “intrinsic” value of gold and silver: in fact, they reinforced it. What seems to have happened is that, once credit became unlatched from real relations of trust between individuals (whether merchants or villagers), it became apparent that money could, in effect, be produced simply by saying it was there; but that, when this is done in the amoral world of a competitive marketplace, it would almost inevitably lead to scams and confidence games of every sort—causing the guardians of the system to periodically panic, and seek new ways to latch the value of the various forms of paper back onto gold and silver.

This is the story normally told as “the origins of modern banking.” From our perspective, though, what it reveals is just how closely bound together war, bullion, and these new credit instruments were. One need only consider the paths not traveled. For instance: there was no intrinsic reason why a bill of exchange couldn’t be endorsed over to a third party, then become generally transferable—thus, in effect turning it into a form of paper money. This is how paper money first emerged in China. In Medieval Europe there were periodic movements in that direction, but for a variety of reasons, they did not go far.[800] Alternately, bankers can produce money by issuing book credits for more than they have on cash reserve. This is considered the very essence of modern banking, and it can lead to the circulation of private bank notes.[801] Some moves were made in this direction as well, especially in Italy, but it was a risky proposition, since there was always the danger of depositors panicking and making a run, and most Medieval governments threatened extremely harsh penalties on bankers unable to make restitution in such cases: as witnessed by the example of Francesch Castello, beheaded in front of his own bank in Barcelona in 1360.[802]

Where bankers effectively controlled Medieval governments, it proved safer and more profitable to manipulate the government’s own finances. The history of modern financial instruments, and the ultimate origins of paper money, really begin with the issuing of municipal bonds—a practice begun by the Venetian government in the twelfth century when, needing a quick infusion of income for military purposes, it levied a compulsory loan on its taxpaying citizens, for which it promised each of them five percent annual interest, and allowed the “bonds” or contracts to become negotiable, thus, creating a market in government debt. They [the Venetian government?] tended to be quite meticulous about interest payments, but since the bonds had no specific date of maturity, their market prices often fluctuated wildly with the city’s political and military fortunes, and so did resulting assessments of the likelihood that they would be able to be repaid. Similar practices quickly spread to the other Italian states and to northern European merchant enclaves as well: the United Provinces of Holland financed their long war of independence against the Hapsburgs (1568–1648) largely through a series of forced loans, though they floated numerous voluntary bond issues as well.[803]

Forcing taxpayers to make a loan is, in one sense, simply demanding that they pay their taxes early; but when the Venetian state first agreed to pay interest—and in legal terms, this was again interesse, a penalty for late payment—it was in principle penalizing itself for not immediately giving the money back. It’s easy to see how this might raise all sorts of questions about the legal and moral relation between people and government. Ultimately, the commercial classes in those mercantile republics that pioneered these new forms of financing did end up seeing themselves as owning the government more than they saw themselves as being in its debt. Not only the commercial classes: by 1650, a majority of Dutch households held at least a little government debt.[804] However, the true paradox only appears when one begins to “monetize” this debt—that is, to take government promises to pay and allow them to circulate as currency.

While already by the sixteenth century, merchants were using bills of exchange to settle debts, government debt bonds—rentes, juros, annuities—were the real credit money of the new age. It’s here that we have to look for the real origins of the “price revolution” that hammered once-independent townsfolk and villagers into the ground and opened the way for most of them to ultimately be reduced to wage laborers, working for those who had access to these higher forms of credit. Even in Seville, where the treasure fleets from the New World first touched port in the Old, bullion was not much used in day-to-day transactions. Most of it was taken directly to the warehouses of Genoese bankers operating from the port and stored for shipment east. But in the process, it became the basis for complex credit schemes whereby the value of the bullion was loaned to the emperor to fund military operations, in exchange for papers entitling the bearer to interest-bearing annuities from the government—papers that could in turn be traded as if they were money. By such means, bankers could almost endlessly multiply the actual value of gold and silver they held. Already in the 1570s, we hear of fairs in places like Medina del Campo, not far from Seville, that had become “veritable factories of certificates,” with transactions carried out exclusively through paper.[805] Since whether the Spanish government would actually pay their debts, or how regularly, were always slightly uncertain, the bills would tend to circulate at a discount—especially as juros began circulating throughout the rest of Europe—causing continual inflation.[806]

It was only with the creation of the Bank of England in 1694 that one can speak of genuine paper money, since its banknotes were in no sense bonds. They were rooted, like all the others, in the king’s war debts. This can’t be emphasized enough. The fact that money was no longer a debt owed to the king, but a debt owed by the king, made it very different than what it had been before. In many ways it had become a mirror image of older forms of money.

The reader will recall that the Bank of England was created when a consortium of forty London and Edinburgh merchants—mostly already creditors to the crown—offered King William III a £1.2 million loan to help finance his war against France. In doing so, they also convinced him to allow them in return to form a corporation with a monopoly on the issuance of banknotes—which were, in effect, promissory notes for the money the king now owed them. This was the first independent national central bank, and it became the clearinghouse for debts owed between smaller banks; the notes soon developed into the first European national paper currency. Yet the great public debate of the time, a debate about the very nature of money, was about not paper but metal. The 1690s were a time of crisis for British coinage. The value of silver had risen so high that new British coins (the mint had recently developed the “milled edge” familiar from coins nowadays, which made them clip-proof) were actually worth less than their silver content, with predictable results. Proper silver coins vanished; all that remained in circulation were the old clipped ones, and these were becoming increasingly scarce. Something had to be done. A war of pamphlets ensued, which came to a head in 1695, one year after the founding of the bank. Charles Davenant’s essay on credit, which I’ve already cited, was actually part of this particular pamphlet-war: he proposed that Britain move to a pure credit money based on public trust, and he was ignored. The Treasury proposed to call in the coinage and reissue it at a 20- to 25-percent lower weight, so as to bring it back below the market price for silver. Many who supported this position took explicitly Chartalist positions, insisting that silver has no intrinsic value anyway, and that money is simply a measure established by the state.[807] The man who won the argument, however, was John Locke, the Liberal philosopher, at that time acting as adviser to Sir Isaac Newton, then Warden of the Mint. Locke insisted that one can no more make a small piece of silver worth more by relabeling it a “shilling” than one can make a short man taller by declaring there are now fifteen inches in a foot. Gold and silver had a value recognized by everyone on earth; the government stamp simply attested to the weight and purity of a coin, and—as he added in words veritably shivering with indignation—for governments to tamper with this for their own advantage was just as criminal as the coin-clippers themselves:

The use and end of the public stamp is only to be a guard and voucher of the quality of silver which men contract for; and the injury done to the public faith, in this point, is that which in clipping and false coining heightens the robbery into treason.[808]

Therefore, he argued, the only recourse was to recall the currency and restrike it at exactly the same value that it had before.

This was done, and the results were disastrous. In the years immediately following, there was almost no coinage in circulation; prices and wages collapsed; there was hunger and unrest. Only the wealthy were insulated, since they were able to take advantage of the new credit money, trading back and forth portions of the king’s debt in the form of banknotes. The value of these notes, too, fluctuated a bit at first, but eventually stabilized once they were made redeemable in precious metals. For the rest, the situation only really improved once paper money, and, eventually, smaller-denomination currency, became more widely available. The reforms proceeded top-down, and very slowly, but they did proceed, and they gradually came to create the world where even ordinary, everyday transactions with butchers and bakers were carried out in polite, impersonal terms, with small change, and therefore it became possible to imagine everyday life itself as a matter of self-interested calculation.

It’s easy enough to see why Locke would adopt the position that he did. He was a scientific materialist. For him, “faith” in government—as in the quote above—was not the citizens’ belief that the government will keep its promises, but simply that it won’t lie to them; that it would, like a good scientist, give them accurate information, and who wanted to see human behavior as founded in natural laws that—like the laws of physics that Newton had so recently described—were higher than those of any mere government. The real question is why the British government agreed with him and resolutely stuck to this position despite all the immediate disasters. Soon afterwards, in fact, Britain adopted the gold standard (in 1717) and the British Empire maintained it, and with it the notion that gold and silver were money, down to its final days.

True, Locke’s materialism also came to be broadly accepted—even to be the watchword of the age.[809] Mainly, though, the reliance on gold and silver seemed to provide the only check on the dangers involved with the new forms of credit-money, which multiplied very quickly—especially once ordinary banks were allowed to create money too. It soon became apparent that financial speculation, unmoored from any legal or community constraints, was capable of producing results that seemed to verge on insanity. The Dutch Republic, which pioneered the development of stock markets, had already experienced this in the tulip mania of 1637—the first of a series of speculative “bubbles,” as they came to be known, in which future prices would first be bid through the ceiling by investors and then collapse. A whole series of such bubbles hit the London markets in the 1690s, in almost every case built around a new joint-stock corporation formed, in imitation of the East India Company, around some prospective colonial venture. The famous South Sea Bubble in 1720—in which a newly formed trading company, granted a monopoly of trade with the Spanish colonies, bought up a considerable portion of the British national debt and saw its shares briefly skyrocket before collapsing in ignominy—was only the culmination. Its collapse was followed the next year by the collapse of John Law’s famous Banque Royale in France, another central-bank experiment—similar to the Bank of England—that grew so quickly that within a few years it had absorbed all the French colonial trading companies, and most of the French crown’s own debt, issuing its own paper money, before crashing into nothingness in 1721, sending its chief executive fleeing for his life. In each case, this was followed by legislation: in Britain, to forbid the creation of new joint-stock companies (other than for the building of turnpikes and canals), and in France, to eliminate paper money based in government debt entirely.

It’s unsurprising, then, that Newtonian economics (if we may call it that)—the assumption that one cannot simply create money, or even, really, tinker with it—came to be accepted by almost everyone. There had to be some solid, material foundation to all this, or the entire system would go insane. True, economists were to spend centuries arguing about what that foundation might be (was it really gold, or was it land, human labor, the utility or desirability of commodities in general?) but almost no one returned to anything like the Aristotelian view.

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,

I saw Public Credit, set on her throne in the Grocer’s Hall, the Great Charter over her head, the Act of Settlement full in her view. Her touch turned everything to gold. Behind her seat, bags filled with coin were piled up to the ceiling. On her right the door flies open. The Pretender rushes in, a sponge in one hand, and in the other a sword, which he shakes at the Act of Settlement. The beautiful Queen sinks down fainting. The spell by which she has turned all things around her into treasure is broken. The money bags shrink like pricked bladders. The piles of gold pieces are turned into bundles of rags or fagots of wooden tallies.[810]

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

Thus kings, magicians, markets, and alchemists all fuzed 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.”[811]

This kind of magical language almost never appears in the Middle Ages.[812] 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:

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. Banking was conceived in iniquity and born in sin. Bankers own the earth; take it away from them, but leave them with the power to create credit, and with the stroke of a pen they will create enough money to buy it back again … If you wish to remain slaves of Bankers, and pay the cost of your own slavery, let them continue to create deposits.[813]

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 egis 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.

Part IV: So What Is Capitalism, Anyway?

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.[814] 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 startup offerings:

Innumerable joint-stock companies started up everywhere. They soon received the name Bubbles, the most appropriate imagination could devise … Some of them lasted a week or a fortnight, and were no more heard of, while others could not even live out that span of existence. Every evening produced new schemes, and every morning new projects. The highest of the aristocracy were as eager in this hot pursuit of gain as the most plodding jobber in Cornhill.[815]

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.

The most absurd and preposterous of all, and which shewed, more completely than any other, the utter madness of the people, was one started by an unknown adventurer, entitled “A company for the carrying on of an undertaking of great advantage, but nobody to know what it is.”

The man of genius who essayed this bold and successful inroad upon public credulity merely stated in his prospectus that the required capital was half a million, in five thousand shares of 1001. each, deposit 21. per share. Each subscriber, paying his deposit, would be entitled to 1001. per annum per share. How this immense profit was to be obtained, he would not condescend to inform them at that time, but promised that in a month the full particulars would be duly announced, and call made for the remaining 981. of the subscription. Next morning, at nine o’clock, this great man opened an office in Cornhill. Crowds beset his door, and when he shut up at three o’clock, he found that no less than one thousand shares had been subscribed for, and the deposits paid.

He was philosopher enough to be contented with his venture, and set off that same evening for the Continent. He was never heard of again.[816]

If one is to believe MacKay, the entire population of London conceived the simultaneous delusion, not that money could really be manufactured out of nothing, but that other people were foolish enough to believe that it could—and that, by that very fact, they actually could make money out of nothing after all.

Moving to the other side of the debt chain, we find fantasies ranging from the charming to the apocalyptic. In the anthropological literature, there is everything from the beautiful “sea wives” of Aru pearl divers, who will not yield up the treasures of the ocean unless courted with gifts bought on credit from local Chinese shops,[817] to the secret markets where Bengali landlords purchase ghosts to terrorize insubordinate debt peons; to Tiv flesh-debts, a fantasy of human society cannibalizing itself; to finally, occasions at which, the Tiv nightmare appears to have very nearly become true.[818] One the most famous and disturbing was the great Putumayo scandal of 1909–1911, in which the London reading public was shocked to discover that the agents of the subsidiary of a British rubber company operating in the Peruvian rainforest had created their very own Heart of Darkness, exterminating tens of thousands of Huitoto Indians—who the agents insisted on referring to only as “cannibals”—in scenes of rape, torture, and mutilation that recalled the very worst of the conquest four hundred years earlier.[819]

In the debates that followed, the first impulse was to blame everything on a system whereby the Indians were said to have been caught in a debt trap, made completely dependent on the company store:

The root of the whole evil was the so called patron or “peonage” system—a variety of what used to be called in England the “truck system”—by which the employee, forced to buy all his supplies at the employer’s store, is kept hopelessly in debt, while by law he is unable to leave his employment until his debt is paid … The peon is thus, as often as not, a de facto slave; and since in the remoter regions of the vast continent there is no effective government, he is wholly at the mercy of his master.[820]

The “cannibals” who ended up flogged to death, crucified, tied up and used for target practice, or hacked to pieces with machetes for failure to bring in sufficient quantities of rubber, had, the story went, fallen into the ultimate debt trap; seduced by the wares of the company’s agents, they’d ended up bartering away their very lives.

A later Parliamentary inquiry discovered that the real story was nothing of the sort. The Huitoto had not been tricked into becoming debt peons at all. It was the agents and overseers sent into the region who were, much like the conquistadors, deeply indebted—in their case, to the Peruvian company that had commissioned them, which was ultimately receiving its own credit from London financiers. These agents had certainly arrived with every intention of extending that web of credit to include the Indians, but discovering the Huitoto to have no interest in the cloth, machetes, and coins they had brought to trade with them, they’d finally given up and just started rounding Indians up and forcing them to accept loans at gunpoint, then tabulating the amount of rubber they owed.[821] Many of the Indians massacred, in turn, had simply been trying to run away.

In reality, then, the Indians had been reduced to slavery; it’s just that, by 1907, no one could openly admit this. A legitimate enterprise had to have some moral basis, and the only morality the company knew was debt. When it became clear that the Huitoto rejected the premise, everything went haywire, and the company ended up, like Casimir, caught in a spiral of indignant terror that ultimately threatened to wipe out its very economic basis.

It is the secret scandal of capitalism that at no point has it been organized primarily around free labor.[822] The conquest of the Americas began with mass enslavement, then gradually settled into various forms of debt peonage, African slavery, and “indentured service”—that is, the use of contract labor, workers who had received cash in advance and were thus bound for five-, seven-, or ten-year terms to pay it back. Needless to say, indentured servants were recruited largely from among people who were already debtors. In the 1600s there were at times almost as many white debtors as African slaves working in southern plantations, and legally they were at first in almost the same situation, since in the beginning, plantation societies were working within a European legal tradition that assumed slavery did not exist, so even Africans in the Carolinas were classified, as contract laborers.[823] Of course this later changed when the idea of “race” was introduced. When African slaves were freed, they were replaced, on plantations from Barbados to Mauritius, with contract laborers again: though now ones recruited mainly in India or China. Chinese contract laborers built the North American railroad system, and Indian “coolies” built the South African mines. The peasants of Russia and Poland, who had been free landholders in the Middle Ages, were only made serfs at the dawn of capitalism, when their lords began to sell grain on the new world market to feed the new industrial cities to the west.[824] Colonial regimes in Africa and Southeast Asia regularly demanded forced labor from their conquered subjects, or, alternately, created tax systems designed to force the population into the labor market through debt. British overlords in India, starting with the East India Company but continuing under Her Majesty’s government, institutionalized debt peonage as their primary means of creating products for sale abroad.

This is a scandal not just because the system occasionally goes haywire, as it did in the Putumayo, but because it plays havoc with our most cherished assumptions about what capitalism really is—particularly that, in its basic nature, capitalism has something to do with freedom. For the capitalists, this means the freedom of the marketplace. For most workers, it means free labor. Marxists have questioned whether wage labor is ultimately free in any sense (since someone with nothing to sell but his or her body cannot in any sense be considered a genuinely free agent), but they still tend to assume that free wage labor is the basis of capitalism. And the dominant image in the history of capitalism is the English workingman toiling in the factories of the industrial revolution, and this image can be traced forward to Silicon Valley, with a straight line in between. All those millions of slaves and serfs and coolies and debt peons disappear, or if we must speak of them, we write them off as temporary bumps along the road. Like sweatshops, this is assumed to be a stage that industrializing nations had to pass through, just as it is still assumed that all those millions of debt peons and contract laborers and sweatshop workers who still exist, often in the same places, will surely live to see their children become regular wage laborers with health insurance and pensions, and their children, doctors and lawyers and entrepreneurs.

When one looks at the actual history of wage labor, even in countries like England, that picture begins to melt away. In most of Medieval northern Europe, wage labor had been mainly a lifestyle phenomenon. From roughly the age of twelve or fourteen to roughly twenty-eight or thirty, everyone was expected to be employed as a servant in someone else’s household—usually on a yearly contract basis, for which they received room, board, professional training, and usually a wage of some sort—until they accumulated enough resources to marry and set up a household of their own.[825] The first thing that “proletarianization” came to mean was that millions of young men and women across Europe found themselves effectively stuck in a kind of permanent adolescence. Apprentices and journeymen could never become “masters,” and thus, never actually grow up. Eventually, many began to give up and marry early—to the great scandal of the moralists, who insisted that the new proletariat were starting families they could not possibly support.[826]

There is, and has always been, a curious affinity between wage labor and slavery. This is not just because it was slaves on Caribbean sugar plantations who supplied the quick-energy products that powered much of early wage laborers’ work; not just because most of the scientific management techniques applied in factories in the industrial revolution can be traced back to those sugar plantations; but also because both the relation between master and slave, and between employer and employee, are in principle impersonal: whether you’ve been sold or you’re simply rented yourself out, the moment money changes hands, who you are is supposed to be unimportant; all that’s important is that you are capable of understanding orders and doing what you’re told.[827]

This is one reason, perhaps, that in principle, there was always a feeling that both the buying of slaves and the hiring of laborers should really not be on credit, but should employ cash. The problem, as I’ve noted, was that for most of the history of British capitalism, the cash simply didn’t exist. Even when the Royal Mint began to produce smaller-denomination silver and copper coins, the supply was sporadic and inadequate. This is how the “truck system” developed to begin with: during the industrial revolution, factory owners would often pay their workers with tickets or vouchers good only in local shops, with whose owners they had some sort of informal arrangement, or, in more isolated parts of the country, which they owned themselves.[828] Traditional credit relations with one’s local shopkeeper clearly took on an entirely new complexion once the shopkeeper was effectively an agent of the boss. Another expedient was to pay workers at least partly in kind—and notice the very richness of the vocabulary for the sorts of things one was assumed to be allowed to appropriate from one’s workplace, particularly from the waste, excess, and side products: cabbage, chips, thrums, sweepings, buggings, gleanings, sweepings, potchings, vails, poake, coltage, knockdowns, tinge.[829] “Cabbage,” for instance, was the cloth left over from tailoring, “chips” the pieces of board that dockworkers had the right to carry from their workplace (any piece of timber less than two feet long), “thrums” were taken from the warping-bars of looms, and so on. And of course we have already heard about payment in the form of cod, or nails.

Employers had a final expedient: wait for the money to show up, and in the meantime, don’t pay anything—leaving their employes to get by with only what they could scrounge from their shop floors, or what their families could finagle in outside employment, receive in charity, preserve in savings pools with friends and families, or, when all else failed, acquire on credit from the loan sharks and pawnbrokers who rapidly came to be seen as the perennial scourge of the working poor. The situation became such that, by the nineteenth century, any time a fire destroyed a London pawnshop, working-class neighborhoods would brace for the wave of domestic violence that would inevitably ensue when many a wife was forced to confess that she’d long since secretly hocked her husband’s Sunday suit.[830]

We are, nowadays, used to associating factories eighteen months in arrears for wages with a nation in economic free-fall, such as occurred during the collapse of the Soviet Union; but owing to the hard-money policies of the British government, who were always concerned above all to ensure that their paper money didn’t float away in another speculative bubble, in the early days of industrial capitalism, such a situation was in no way unusual. Even the government was often unable to find the cash to pay its own employes. In eighteenth-century London, the Royal Admiralty was regularly over a year behind in paying the wages of those who labored at the Deptford docks—one reason that they were willing to tolerate the appropriation of chips, not to mention hemp, canvas, steel bolts, and cordage. In fact, as Linebaugh has shown, the situation only really began to take recognizable form around 1800, when the government stabilized its finances, began paying cash wages on schedule, and therefore tried to abolish the practice of what was now relabeled “workplace pilfering”—which, meeting outraged resistance on the part of the dockworkers, was made punishable by whipping and imprisonment. Samuel Bentham, the engineer put in charge of reforming the dockyards, had to turn them into a regular police state in order to be able to institute a regime of pure wage labor—to which purpose he ultimately conceived the notion of building a giant tower in the middle to guarantee constant surveillance, an idea that was later borrowed by his brother Jeremy for the famous Panopticon.[831]

Men like Smith and Bentham were idealists; even utopians. To understand the history of capitalism, however, we have to begin by realizing that the picture we have in our heads, of workers who dutifully punch the clock at 8:00 a.m. and receive regular remuneration every Friday, on the basis of a temporary contract that either party is free to break off at any time, began as a utopian vision, was only gradually put into effect even in England and North America, and has never, at any point, been the main way of organizing production for the market, ever, anywhere.

This is actually why Smith’s work is so important. He created the vision of an imaginary world almost entirely free of debt and credit, and therefore, free of guilt and sin; a world where men and women were free to simply calculate their interests in full knowledge that everything had been prearranged by God to ensure that it will serve the greater good. Such imaginary constructs are of course what scientists refer to as “models,” and there’s nothing intrinsically wrong with them. Actually I think a fair case can be made that we cannot think without them. The problem with such models—at least, it always seems to happen when we model something called “the market”—is that, once created, we have a tendency to treat them as objective realities, or even fall down before them and start worshiping them as gods. “We must obey the dictates of the market!”

Karl Marx, who knew quite a bit about the human tendency to fall down and worship our own creations, wrote Das Capital in an attempt to demonstrate that, even if we do start from the economists’ utopian vision, so long as we also allow some people to control productive capital, and, again, leave others with nothing to sell but their brains and bodies, the results will be in many ways barely distinguishable from slavery, and the whole system will eventually destroy itself. What everyone seems to forget is the “as if” nature of his analysis.[832] Marx was well aware that there were far more bootblacks, prostitutes, butlers, soldiers, peddlers, chimneysweeps, flower girls, street musicians, convicts, nannies, and cab drivers in the London of his day than there were factory workers. He was never suggesting that that’s what the world was actually like.

Still, if there is anything that the last several hundred years of world history have shown, it’s that utopian visions can have a certain appeal. This is as true of Adam Smith’s as of those ranged against it. The period from roughly 1825 to 1975 is a brief but determined effort on the part of a large number of very powerful people—with the avid support of many of the least powerful—to try to turn that vision into something like reality. Coins and paper money were, finally, produced in sufficient quantities that even ordinary people could conduct their daily lives without appeal to tickets, tokens, or credit. Wages started to be paid on time. New sorts of shops, arcades, and galleries appeared, where everyone paid in cash, or alternately, as time went on, by means of impersonal forms of credit like installment plans. As a result, the old puritanical notion that debt was sin and degradation began to take a profound hold on many of those who came to consider themselves the “respectable” working classes, who often took freedom from the clutches of the pawnbroker and loan shark as a point of pride, which separated them from drunkards, hustlers, and ditch-diggers as surely as the fact that they weren’t missing teeth.

Speaking as someone brought up in that sort of working-class family (my brother died at the age of 53, having refused to his dying day to acquire a credit card), I can attest to the degree that, for those who spend most of their waking hours working at someone else’s orders, the ability to pull out a wallet full of banknotes that are unconditionally one’s own can be a compelling form of freedom. It’s not surprising that so many of the economists’ assumptions—most of those for which I have been taking them to task over the course of this book—have been embraced by the leaders of the historic workers’ movements, so much so that they have come to shape our visions of what alternatives to capitalism might be like. The problem is not just—as I demonstrated in chapter 7—that it is rooted in a deeply flawed, even perverse, conception of human freedom. The real problem is that, like all utopian dreams, it is impossible. We could no more have a universal world market than we could have a system in which everyone who wasn’t a capitalist was somehow able to become a respectable, regularly paid wage laborer with access to adequate dental care. A world like that has never existed and never could exist. What’s more, the moment that even the prospect that this might happen begins to materialize, the whole system starts to come apart.

Part IV: Apocalypse

Let us return, finally, to where we began: with Cortés and the Aztec treasure. The reader might have asked herself, What did happen to it? Did Cortés really steal it from his own men?

The answer seems to be that by the time the siege was over, there was very little of it left. Cortés seems to have gotten his hands on much of it long before the siege even began. A certain portion he had won by gambling.

This story, too, is in Bernal Díaz, and it is strange and puzzling, but also, I suspect, profound. Let me fill in some of the gaps in our story. After burning his boats, Cortés began to assemble an army of local allies, which was easy to do because the Aztecs were widely hated, and then he began to march on the Aztec capital. Moctezuma, the Aztec emperor, who had been monitoring the situation closely, concluded that he needed to at least figure out what sort of people he was dealing with, so he invited the entire Spanish force (only a few hundred men) to be his official guests in Tenochtitlán. This eventually led to a series of palace intrigues during which Cortés’s men briefly held the emperor hostage before being forcibly expelled.

During the time when Moctezuma was being held captive in his own palace, he and Cortés passed a good deal of their time playing an Aztec game called totoloque. They played for gold, and Cortés, of course, cheated. At one point, Moctezuma’s men brought the matter to the king’s attention, but the king just laughed and made a joke of it—neither was he concerned later when Pedro de Alvarado, Cortés’s chief lieutenant, began cheating even more flagrantly, demanding gold for each point lost and when he lost, paying only in worthless pebbles. Why Moctezuma behaved so has remained something of an historical mystery. Díaz took it as a gesture of lordly magnanimity, perhaps even a way of putting the petty-minded Spaniards in their place.[833]

One historian, Inga Clenninden, suggests an alternate interpretation. Aztec games, she notes, tended to have a peculiar feature: there was always a way that, by a freak stroke of luck, one could achieve total victory. This seems to have been true, for instance, of their famous ball games. Observers always wonder, viewing the tiny stone hoops set high above the court, how anyone could ever possibly have managed to score. The answer seems to be: they didn’t, at least not that way. Normally the game had nothing to do with the hoop. The game was played between two opposing squads, attired as for battle, knocking the ball back and forth:

The normal method of scoring was through the slow accumulation of points. But that process could be dramatically preempted. To send the ball through one of the rings—a feat, given the size of the ball and the ring, presumably rarer than a hole in one in golf—gave instant victory, ownership of all the goods wagered, and the right to pillage the cloaks of the onlookers.[834]

Whoever scored the point won everything, down to the audience’s clothing.

There were similar rules in board games, such as Cortés and Moctezuma were playing: if, by some freak stroke of luck, one of the dice landed on its edge, the game was over, and the winner took everything. This, Clenninden suggests, must have been what Moctezuma was really waiting for. After all, he was clearly in the middle of extraordinary events. Strange creatures had appeared, apparently from nowhere, with unheard-of powers. Rumors of epidemics, of the destruction of nearby nations, had presumably already reached him. If ever there was a time that some grandiose revelation was due from the gods, then surely this was it.

Such an attitude does seem to fit perfectly with the spirit of Aztec culture gleaned from its literature, which exuded a sense of impending catastrophe, perhaps astrologically determined, just possibly avoidable—but probably not. Some have suggested that Aztecs must have somehow been aware that they were a civilization skating on the brink of ecological catastrophe; others, that the apocalyptic tone is retrospective—since, after all, what we know of Aztec literature is almost entirely gleaned from men and women who actually did experience its complete destruction. Still, there does seem to be a certain frantic quality in certain Aztec practices—the sacrifice of as many as tens of thousands of war prisoners, most notably in the apparent belief that, were the Sun not continually fed with human hearts, it would die and world with it—that it’s hard to explain in any other way.

If Clenninden is right, for Moctezuma, he and Cortés were not simply gambling for gold. Gold was trivial. The stakes were the entire universe.

Moctezuma was above all a warrior, and all warriors are gamblers; but unlike Cortés, he was clearly in every way a man of honor. As we’ve also seen, the quintessence of a warrior’s honor, which is a greatness that can only come from the destruction and degradation of others, is his willingness to throw himself into a game where he risks that same destruction and degradation himself—and, unlike Cortés, to play graciously, and by the rules.[835] When the time came, it meant being willing to stake everything.

He did. And as it turns out, nothing happened. No die landed on its edge. Cortés continued to cheat, the gods sent no revelation, and the universe was eventually destroyed.

If there’s something to be learned here—and as I say, I think there is—it is that there may be a deeper, more profound relation between gambling and apocalypse. Capitalism is a system that enshrines the gambler as an essential part of its operation, in a way that no other ever has; yet at the same time, capitalism seems to be uniquely incapable of conceiving of its own eternity. Could these two facts be linked?

I should be more precise here. It’s not entirely true that capitalism is incapable of conceiving of its own eternity. On the one hand, its exponents do often feel obliged to present it as eternal, because they insist that is it is the only possible viable economic system: one that, as they still sometimes like to say, “has existed for five thousand years and will exist for five thousand more.” On the other hand, it does seem that the moment a significant portion of the population begins to actually believe this, and particularly, starts treating credit institutions as if they really will be around forever, everything goes haywire. Note here how it was the most sober, cautious, responsible capitalist regimes—the seventeenth-century Dutch Republic, the eighteenth-century British Commonwealth—the ones most careful about managing their public debt—that saw the most bizarre explosions of speculative frenzy, the tulip manias and South Sea bubbles.

Much of this seems to turn on the nature of national deficits and credit money. The national debt is, as politicians have complained practically since these things first appeared, money borrowed from future generations. Still, the effects have always been strangely double-edged. On the one hand, deficit financing is a way of putting even more military power in the hands of princes, generals, and politicians; on the other, it suggests that government owes something to those it governs. Insofar as our money is ultimately an extension of the public debt, then whenever we buy a newspaper or a cup of coffee, or even place a bet on a horse, we are trading in promises, representations of something that the government will give us at some time in the future, even if we don’t know exactly what it is.[836]

Immanuel Wallerstein likes to point out that the French Revolution introduced several profoundly new ideas in politics—ideas which, fifty years before the revolution, the vast majority of educated Europeans would have written off as crazy, but which, fifty years afterwards, just about anyone felt they had to at least pretend they thought were true. The first is that social change is inevitable and desirable: that the natural direction of history is for civilization to gradually improve. The second is that the appropriate agent to manage such change is the government. The third is that the government gains its legitimacy from an entity called “the people.”[837] It’s easy to see how the very idea of a national debt—a promise of continual future improvement (at the very least, five percent annual improvement) made by government to people—might itself have played a role in inspiring such a revolutionary new perspective. Yet at the same time, when one looks at what men like Mirabeau, Voltaire, Diderot, Siéyes—the philosophes who first proposed that notion of what we now call “civilization”—were actually arguing about in the years immediately leading up to the revolution, it was even more about the danger of apocalyptic catastrophe, of the prospect of civilization as they knew it being destroyed by default and economic collapse.

Part of the problem was the obvious one: the national debt is, first, born of war; second, it is not owed to all the people equally, but above all to capitalists—and in France at that time, “capitalist” meant, specifically, “those who held pieces of the national debt.” The more democratically inclined felt that the entire situation was opprobrious. “The modern theory of the perpetuation of debt,” Thomas Jefferson wrote, around this same time, “has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating.”[838] Most Enlightenment thinkers feared that it promised even worse. Intrinsic to the new, “modern” notion of impersonal debt, after all, was the possibility of bankruptcy.[839] Bankruptcy, at that time, was indeed something of a personal apocalypse: it meant prison, the dissolution of one’s estate; for the least fortunate, it meant torture, starvation, and death. What national bankruptcy would mean, at that point in history, nobody knew. There were simply no precedents. Yet as nations fought greater and bloodier wars, and their debts escalated geometrically, default began to appear unavoidable.[840] Abbe Sieyés first put forward his great scheme for representative government, for instance, primarily as a way of reforming the national finances, to fend off the inevitable catastrophe. And when it happened, what would it look like? Would the money become worthless? Would military regimes seize power, regimes across Europe be likewise forced to default and fall like dominos, plunging the continent into endless barbarism, darkness, and war? Many were already anticipating the prospect of the Terror long before the revolution itself.[841]

It’s a strange story because we are used to thinking of the Enlightenment as the dawn of a unique phase of human optimism, borne on assumptions that the advance of science and human knowledge would inevitably make life wiser, safer, and better for everyone—a naïve faith said to have peaked in the Fabian socialism of the 1890s, only to be annihilated in the trenches of World War I. In fact, even the Victorians were haunted by the dangers of degeneration and decline. Most of all, Victorians shared the near-universal assumption that capitalism itself would not be around forever. Insurrection seemed imminent. Many Victorian capitalists operated under the sincere belief that they might, at any moment, find themselves hanging from trees. In Chicago, for instance, a friend once took me on a drive down a beautiful old street, full of mansions from the 1870s: the reason, he explained, that it looked like that, was that most of Chicago’s rich industrialists of the time were so convinced that the revolution was immanent that they collectively relocated along the road that led to the nearest military base. Almost none of the great theorists of capitalism, from anywhere on the political spectrum, from Marx to Weber, to Schumpeter, to von Mises, felt that capitalism was likely to be around for more than another generation or two at the most.

One could go further: the moment that the fear of imminent social revolution no longer seemed plausible, by the end of World War II, we were immediately presented with the specter of nuclear holocaust.[842] Then, when that no longer seemed plausible, we discovered global warming. This is not to say that these threats were not, and are not, real. Yet it does seem strange that capitalism feels the constant need to imagine, or to actually manufacture, the means of its own imminent extinction. It’s in dramatic contrast to the behavior of the leaders of socialist regimes, from Cuba to Albania, who, when they came to power, immediately began acting as if their system would be around forever—ironically enough, considering they in fact turned out to be something of an historical blip.

Perhaps the reason is because what was true in 1710 is still true. Presented with the prospect of its own eternity, capitalism—or anyway, financial capitalism—simply explodes. Because if there’s no end to it, there’s absolutely no reason not to generate credit—that is, future money—infinitely. Recent events would certainly seem to confirm this. The period leading up to 2009 was one in which many began to believe that capitalism really was going to be around forever; at the very least, no one seemed any longer to be able to imagine an alternative. The immediate effect was a series of increasingly reckless bubbles that brought the whole apparatus crashing down.