Jan Sowa
DEBT, OR THE ILLUSION OF WEALTH

Merchants of Nothingness
"What is money"? This philosophical question opens the brochure Modern Money Mechanics, published by the Federal Reserve Bank of Chicago. It continues: "Money is such a routine part of everyday life that its existence and acceptance are usually taken for granted. A user may sense that money must come into being either automatically as a result of economic activity or as an outgrowth of some government operation. But just how this happens all too often remains a mystery."[1]
In fact, most of us would respond to the question "Where does money come from"? with a shrug of the shoulders and with a similar response as when asked by toddlers about where they come from: from the bank (storks deliver them), it establishes itself (we find them in the cabbage patch), the government produces it (from Mummy's tummy), etc. Possibly the only surprising aspect in the observation of the authors of the brochure is the philosophical tone with which the technocrats from the Chicago bank introduce their otherwise rather dry lecture on how fractional reserve banking works. However, this tone is appropriate. Today, money has become something so ordinary and counterintuitive that to understand its essence or the mechanism of its functioning is a truly philosophical task. And we are not talking here about the oft-mentioned virtualization of money. Of course, it is true that only a small portion of money has the tangible form of bills or coins, and in fact - as we discover in the aforementioned publication, in 1991, out of the existing US$ 898 trillion, cash only comprised just over 30 percent[2], the rest being in the form of bank reserves in accounting records (in other words, stored on computers). This issue is probably of some significance for the mechanism of money creation, although it is only technical and therefore its meaning is only secondary. When we pay in cash or by electronic debit card (but not by credit card), in principle, we are exchanging the same thing - the money that is already in circulation. And what exactly is that? What is it that we exchange when we exchange money? That is precisely the fundamental philosophical problem, because we exchange nothing. It is hard to find appropriate language to express the fact that we exchange nothing, because we do, in fact, exchange something, even though in economic terms, that something is "nothing". This brings to mind Heidegger, wherein "existence exists", "nothingness non-exists" and "money monies", because the modus of its existence evades the naive ontology dividing the world into "something" and "nothing". This "nothing" can be quite easily described, albeit not in the standard language of economics, even though "money" is one of its basic theoretical categories. For that reason, the philosophical question which opens the Federal Reserve Bank's brochure, as well as its philosophical observation, is, by all means, a valid one. Contemporary money is "nothing" - a spectre, phantom, or delusion. The only economics that is capable of capturing its nature is the same economics that theoreticians of culture refer to when they talk about spectres, ghosts and delusions: libidinous economics.[3] In its light, the spectral money reveals its carefully concealed true nature: it is only and exclusively a certain organization of pleasure, but - paradoxically - not our own, but the pleasure of the Other, which in line with the procedures of ideological interpellation, shapes the identities creating money and establishes the only standard with which the value of money is linked today, namely phantasm. This is, in fact, the simplest philosophical answer to the question of what money is today.

Money Cycles
This has not always been the case. For centuries (at least since early antiquity), human societies have known two types of money: hard and soft. Hard money is that whose value can always correspond to something actual, tangible and material. Its role could be played by various objects, from shells in the distant past, to precious metals - mainly silver and gold - throughout most of known history - through to chocolate and cigarettes in Germany soon after the Second World War.[4] Soft money does not have such a tangible value and is only an expression of somebody's will or promise, in which a sufficient number of people have agreed to trust; or were coerced into doing so, for example, when a ruler would force his subjects to accept and use the money he would issue himself. Periods when one or the other type of money was in circulation would often overlap, however, hard money would always triumph throughout most of history. Soft money would usually come into circulation as a result of a crisis, for example, at times when the coffers of the Royal Treasury were empty and had to be replenished, the simplest solution being the production of one's own money (there were many examples of this in the Middle Ages), when wars forced governments to gather substantial quantities of cash in a hurry (for example, the United States, during the American Civil War and Europe during the Second World War) or when an imminent crisis would force governments to rapidly generate wealth, as was the case in the USA during the presidency of Richard Nixon, who ended the direct convertibility of the dollar to gold. However, such type of money always tended to be short-lived, leading to serious economic problems (inflation, devaluation, pauperization, economic stagnation) and would relatively quickly give in to hard money. Most often, this would happen contrary to the intentions of rulers and governments. People would simply stop using the official currency and would instead reintroduce hard money in the form of gold, silver or something else, the value of which did not depend strictly on the government's will. In this respect, China in the era of the Ming Dynasty, was not any different from the contemporary United States of America, as a result of the grassroots demand to reintroduce gold as the official currency.[5]

Phantom Money
We are living in the times of soft money. It is used practically throughout the world. However, this is a relatively new situation, since the definitive entry into the era of soft money took place in 1971, when the United States abandoned the Bretton Woods system and the gold standard. What is more, contemporary money has a very peculiar nature and differs from the soft money arbitrarily generated by rulers and governments. It is money which can only be partly managed, which makes it different from other similar forms of currency subordinated to someone's will (known as fiat money from the Latin fiat, meaning "let it be done"). It is easy to limit its supply, but hard to increase it, the consequences of which we are experiencing in the current financial crisis. In order to be able to grasp its specific, strictly phantasmal nature, we have to go back to the late Middle Ages, when the history of capitalism began in Northern Italy. It was precisely there, as Fernand Braudel argues, that we should be looking for the roots of our contemporary economy:

Modern capitalism has not invented anything. Even today, one cannot invent anything that does not have its precedence in the ingenuity of one of the Italian Republics (...) Promissory notes, loans, the striking of coins, banks, forwards and futures contracts, public finance, borrowings, capitalism, colonialism, but also social unrest, a highly qualified workforce, the class struggle, social injustice, political cruelty - in a nutshell, all that existed there.[6]

The ingenuity of the Italians, on which their success was based, consisted, to a large extent, in perfecting the institution of written acknowledgment of debt or the promissory note. It resolved one of the fundamental problems of trade - the so-called return way problem. After the goods had been delivered to the contractor, the merchant had to find a way to safely bring the money earned home. Transportation of cash can be even riskier than transporting goods. The problem was solved by a complex system of international trade cooperation, established in Europe at the turn of the fourteenth century, thanks to the introduction of the institution of the promissory note. Merchants in two cities trading with each other, instead of paying one another in gold or silver, would issue promissory notes. These would then either be drawn by the representative office of the buyer's firm operating in the seller's town, or they would be mutually settled.
The appearance of promissory notes was a breakthrough in the history of the European economy, as it meant that economic activity was no longer restricted by shortages of natural money. Money began to generate itself, in proportion to its value - in the form of goods or services - whose turnover it had to service. Therefore, the economy itself regulates the production of the lubricant which is indispensable for its functioning. If we are looking for the first traces of modern capitalism, the oldest preserved document from its history would most probably be a promissory note for 45 pounds, signed by a certain Bouromeo de Bouromei in Milan on March 9th, 1325. The document read: Pagate per questa prima litera (lettera) a di IX Ottobre a Luca do Goro, Lib. XLV. Sono per la valuta qui da Marco Reno, al tempo il pagate e poncte a mio conto e R. che Christo vi guarde.[7]

The invention of a written acknowledgment of debt lies at the very heart of the contemporary mechanism of money creation. In order to understand that, we have to unearth the essence of contemporary money and take a somewhat dull but necessary journey to the kingdom of finance and banking. Our reward will be an answer to the almost fundamental question: where does money come from.
Contrary to what one might believe, looking at chairmen of national banks flexing their financial muscle on television screens, telling us how their institutions care about the welfare of society, it is not some central administrative bodies that are responsible for the creation of money in modern capitalism. The ingenuity and, at the same time, the weakness of the current financial regime is that the mechanism of money creation is completely dispersed by nature and in fact, is a certain procedure realized by the multitude, or rather, by the closest parody of that multitude that capitalism can muster. That multitude is the consumers, or more precisely, consumers taking credit. Money is created only when someone decides to take credit. When we use a credit card to pay for a dinner in a restaurant, when we buy a washing machine in instalments, or take a loan to buy a car, flat or anything else - we create money. Of course, that means that money is created by a commercial bank, by granting us credit, but it only does so because we ask for it and because in return for the credit, we furnish the bank with an IOU, obliging us to repay the amount borrowed. This is the crux of the matter, which is generally misunderstood. The bank does not lend us the money it has, namely the money that someone has deposited in that bank. When the bank gives us credit, it literally creates money, opening a bank account for us with the credit amount specified in an agreement. Of course, it cannot do that at will. The number of loans that it can grant is limited by the assets it has. Nevertheless, the number of credits it grants significantly exceeds its assets. By how much the number of loans granted can exceed the bank's assets is decided by a central bank, which specifies the level of the so-called reserve requirement. The central bank decides what percentage of assets a commercial bank has to deposit in the form of reserves in the central bank. In Poland, for example, the minimum reserve is set at 3%. The sum that remains after depositing the cash reserve is the total amount of credit that a given commercial bank can grant.
How that mechanism functions can be easily illustrated using a simple example. Let us imagine that there are only two citizens in Poland and only one commercial bank. The first citizen has all the money in circulation - amounting to, let us say, 100 zlotys - and he deposits it in the bank. The bank has to deposit three zlotys at the central bank and 97 zlotys can be made available in the form of credit for the second citizen. At the same time, while granting the credit, the bank does not annul the savings of the first citizen and thus, when the second citizen takes out that 97 zlotys on credit, the total sum of money grows from 100 to 197 zlotys. New money has thus been created. The moment it becomes a deposit, the bank has to once again hold a reserve against that sum with the central bank. On 97 zlotys, that reserve is 2.91 zlotys, leaving the bank with 94.09 zlotys, which again, it can make available in the form of a loan. When someone takes that loan, the total sum of money will now amount to 100+97+94.09, namely 291.09 zlotys. And so it goes on. The limitation on the creation of money is strictly connected with the level of the reserve requirement. Set at 3 per cent, each zloty can yield 33 new zlotys. When that rate is 10 per cent, only 10 zlotys can be created.

Che vuoi?
This then, is how money is created: it is made by a bank every time we take credit. This has three essential consequences that go far beyond the boring domain of banking and finance: 1/ money is debt, 2/ money is only multiplied when we take loans, 3/ money - and thus wealth - is an illusion. Finally, I would like to write a few words on each of those three issues.
Firstly, the question of debt. It is hard to think of a more topical subject of our times, when unpaid credits bring not only the largest banks but also sovereign states to the brink of bankruptcy. The subject is taken up by contemporary theory and criticism. One only has to mention the outstanding analyses by Christian Marazzi or Maurizio Lazzarato, among others.[8]Both claim that debt is by no means an unexpected anomaly or a blemish on capitalist affluence, but a structural element in the functioning of our contemporary economy. This seems obvious, even on the most basic level: if money is debt, then the more money, the more debt. The amount of the total debt - namely public debt, foreign debt and the private debt of citizens and businesses in the richest countries and their societies - is staggering. The total debt of the United States amounts to 51 trillion dollars[9], or almost 400 per cent of the country's GDP. But the paradox does not end there. Debt is an indispensable and structural condition of the availability of money in circulation. Each time we repay a credit instalment, we permanently withdraw a certain amount from circulation. If that sum is to go back into circulation, someone else has to take credit again. If everyone repaid every penny of their debts and if no one took out a new loan, there would not be a single penny in circulation. And what is even more ironic - the entire system is structured such that there is not enough cash in it to repay all the debt and the interest. Annulment of the entire debt would only be possible when banks liquidated all of their income from credit. For that reason, we cannot treat growing debt as pathology, since according to the logic of contemporary finance, a growing economy needs more and more money to support that growth and since money is debt, the economy needs more and more of it. Therefore, debt is nothing but an illusion of wealth and at the same time, its perverse, hidden, flip side.
Secondly: since the creation of money is effected by and thanks to credit, the main method for regulating the amount of money is the manipulation of the amount of credit - namely, increasing or decreasing it. And this is where the problems begin to mount. As economists say, you can pull a string, but you cannot push it. While it is relatively easy to reduce the amount of credit issued (all a central bank needs to do to decrease the maximum sum of money in circulation is to increase the reserve requirement), it is much more difficult to increase it. An increase in the reserve ratio in fact decreases the amount of money available, but a decrease leads only to its potential increase. If money is to be created in actual fact, someone has to want to take credit. This is where we definitely leave the field of economy in the classical sense and enter the field of the libidinal economy. As Slavoj Žižek has repeatedly stated, the fundamental question of Lacan's psychoanalysis is how we know what we are supposed to want. This is precisely the question which, through the mechanism of debt, contemporary capitalism asks us: Che vuoi? Capitalism colonizes the world we live in, our desires and our ignorance through debt. If capitalism is to endure, we have to continue to want and desire things that we cannot simply buy with our savings, but rather those things the possession of which forces us to take credit. Therefore, consumption is not only a commonsensical condition for production, but it is also a prerequisite for the possibility of production, namely the circulation of money. Hence the significance of what Jeffrey Williams refers to as the "pedagogy of debt"[10] and what Maurizzio Lazzarato calls "the production of man in debt" - contemporary capitalism is a bio-political system because in order for it to exist, it has to shape our identity as good borrowers: unrestrained yet disciplined, extravagant yet conscientious, willing not only to consume, but also to work so that we can pay back the credit taken for consumption.
As a link between the reality and the illusion, the libidinal economy allows us to grasp the third question that is the illusory nature of money and the entire affluence that surrounds us. As I have written before, the contemporary regime of the production of soft money differs from anything else we have hitherto encountered in history. It is a paradoxical attempt to manage not only the illusion, but also a dispersed one, because it is generated by tens of millions of small, individual decisions to take credit. That management is carried out precisely by a specific construction of identity, or in other words, it is based on the operation of private and state ideological apparatuses,[11] through which individuals are requested to become diligent and subservient debtors. In this sense, money, or debt, means arranging the pleasure of the Other, since it means serving all those goals of a system that individuals are subordinated to. It also efficiently counteracts all subversive actions. There are few things in life that more effectively discourage one from becoming a revolutionary than taking on a 30-year mortgage.
The paradox of the system of fractional reserves lies in the fact that it combines fiduciary money (based on trust, fides in Latin) with an attempt to support it with something more than merely the arbitrary will of the ruler or group of bureaucrats, as had always been the case whenever fiat money was issued. Such support, however, does not comprise any real or existing value (someone's estate, money or goods) nor is it the trust in a given unit itself - for that reason, the name fiduciary is somewhat misleading - but a kind of phantasm a rebours: namely, the future of the debtor. By signing a promissory note, he commits that he will follow a given scenario (will generate a certain amount of wealth, which will go back to the creditor), and as a result, he can gratify his desire immediately, and not only after that scenario has come to fruition (and in its classic definition, phantasm is an imagined scenario where the entity plays the main role and its realization fulfils the desire[12]). From the perspective of the libidinal economy credit therefore constitutes an instrument for controlling the phantasm, a phantasm which being perversely defined by the power of capital, is the only guarantor of money.
The mechanism of credit as a reverse phantasm ensures that the future becomes the source of current wealth. This exposes the illusory nature of contemporary money and the entire wealth that it guarantees. This illusion comes from the future. Capitalism has managed to do something that for now remains only a fantasy of science-fiction authors, namely the conveyance of wealth from the future to the present. Our entire material world, constructed thanks to money based on debt, is a world from the future. Our wealth does not correspond in any way to our current possessions, but instead to a future state which becomes a fact only when we have earned it, or when we have paid off our debt. We are living in an illusory world, in an imaginary preview of our own existence from the future, which has already arrived. But it turns out to be an illusion.

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1. Modern Money Mechanics. A Workbook on Bank Reserves and Deposit Expansion, Federal Reserve Bank of Chicago, no publication date, p. 2.
2. Ibid, p. 3.
3. See, for e.g. M. Janion, Phantasmal Critique Project. Sketches on the Existence of Humans and Spirits, Warsaw 1991 and J. Sowa, The Ghostly Body of the King. Peripheral Struggles with Contemporary Form, Kraków 2011
4. See. N. Lewis, Gold. The Once and Future Money, Hoboken 2007, p. 42.
5. See, for e.g. T. Durden, Utah Pushes To Accept Gold, Silver As Alternative Currency, "Zero Hedge", 03.03.2011, http://www.zerohedge.com/article/utah-pushes-accept-gold-silver-alternative-currency.
6. F. Braudel, Material culture, economy, capitalism, Warsaw, vol. 3, Games of Exchange, Warsaw 1992. p. 75.
7. Quote from: H. C. Percy, Our Cashier's Scrap-Book; Being Bank Notes, New And Old, For General Circulation. A Portfolio Of Bank Anecdotes And Incidents, New York 1879, p. 182.
8. See Ch. Marazzi, The Violence of Financial Capitalism, New York 2010 and Maurizio Lazzarato, La Fabrique de l'homme endetté. Essai sur la condition néolibérale, Paris 2011.
9. M. Lazaratto, La Fabrique..., p. 86.
10. J. Williams, The Pedagogy of Debt, [w:] The Edu-factory Collective, Toward a Global Autonomous University, New York 2009, pp. 89-96.
11. See. L. Althusser, Ideology and Ideological State Apparatuses, trans. A. Staroń, "Nowa Krytyka", http://nowakrytyka.pl/spip.php?article374.
12. See, for e.g. J. Laplanche, J.-B. Pontalis, Dictionary of Psychoanalysis, trans. E. Modzelewska, E. Wojciechowska, Warsaw 1996, p.52.

translated by Emilia Bulman & Marek Jarosz

JAN SOWA (1976) is a sociologist, writer and activist. He studied literature, philosophy and psychology at the Jagiellonian University in Kraków and University Paris 8 in Saint-Denis. He holds a Ph.D. degree in sociology and is currently assistant professor at the Faculty of Social Communication of Jagiellonian University. He worked as curator in the Center for Contemporary Art "Bunkier Sztuki" in Kraków and as journalist for Polish Public Radio. He is also co-founder of Korporacja Ha!art Publishing House, and a funding member (along with Jakub de Barbaro and Janek Simon) of Goldex Poldex Cooperative - an independent art-and-theory center in Podgórze, Kraków. In his writing and theoretical work Sowa explores the border of cultural studies, social anthropology, media theory, art and politics.