Debt

  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 worshipping 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.106 Marx was well aware that there were far more bootblacks, prostitutes, butlers, soldiers, pedlars, 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.107

  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.108

  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 e
xuded 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.109 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.110

  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 afterward, 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.”111 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.”112 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.113 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.114 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.115

  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.116 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 social
ist 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.

  Chapter Twelve

  (1971–The Beginning of Something Yet to Be Determined)

  Look at all these bums: If only there were a way of finding out how much they owe.

  —Repo Man (1984)