Rotman (1987) observes a series of developments in monetary forms95, each complicating the relation of referentiality between monetary signifiers and any external commodity or value as signified referent. His notion of ‘xenomoney’ refers to the creation of money through credit issuance in foreign currencies, being both depersonalised and disembedded from any context of economic reference other than other currency values. Xenomoney assumes ‘a new signifying capacity which […] assumes the priority of objects of signs in order to deny it; a semiosis in which signs are seen to
create the very objects they are taken to be depicting, naming and representing’ (Rotman, 1987,
p.54). Rotman draws on Baudrillard’s (1993) notion of the simulacrum to problematise monetary semiotics and rightly argues that money’s semiotic form is not representative, because this would presume that its signified referent pre-exists the signifier used to denote it. The assumed anteriority of the referent object to the signification system is illusory; rather, it is the monetary signifier (or, more specifically, the system of codification which gives meaning to the monetary signifier) that is ontologically prior to its own object of reference:
‘A dollar bill presented to the US Treasury entitled the holder to an identical replacement of itself. As a promissory note it became a tautological world. The dollar became, in other words, an inconvertible currency with no intrinsic internal value whose extrinsic value with respect to other currencies was allowed to float in accordance with market forces.[…] As both object and medium, thing and token, both a commodity and a sign for a commodity, money is a dualistic and self-reflexive sign.
[…] one can make the self-reflexivity of money, its capacity to act a medium of
exchange for itself, the basis for what it signifies. […] As a sign one can say that xenomoney, floating, and inconvertible to anything outside itself, signifies itself. More specifically, it signifies the possible relationships it can establish with future states of itself.’ (Rotman, 1987, pp.89/ 92).
Leyshon & Thrift (1997) also point to the emergence of ‘virtual money’ that is ontologically distinct from earlier forms, suggesting money has become a matter of double entries of credit/debit inscribed in computer memories. Again, this points to the self-referentiality of monetary forms devoid of any material basis. However, like Rotman, Leyshon & Thrift remain suspicious of reducing monetary forms to mythological imaginaries devoid of any external reference and suggest that
‘Virtual money cannot be reduced to this romance of the unpresentable. It consists of a set of social practices just like any other. It is not just a ghost in the machine’ (1997, p.21, original emphasis).
94
Note that Ganssman’s concern about a communicative approach to money overstating agency is parallel to Jessop’s (2004) (misplaced) misgivings about using semioisis as a basis for developing a cultural policitcal economy framework. In both cases, the potential for codification to act as a structural limitation of social action is not recognised, and both implicitly assume a representative rather than constitutive notion of symbolic forms.
95 Rotman (1987, p. 103) notes several diachronic stages of monetary form: gold (commodity form), imaginary
(unit of account based on commodity form), paper (promissory notes independent of commodity form) and xenomoney (like paper money but disembedded from national economic context, like Eurodollars).
It is evident that ‘virtual’ or ‘xenomoney’ forms operate on a different symbolic basis from commodity-based forms. Contemporary money manifests no intrinsic value in its form, and insofar but its desirability cannot stem solely from an inscribed promise of convertibility into other monetary forms, even if this indexes an increase in future monetary value (such as the redeemable face value of a bond at maturity). The value of money stems not from the denoted use-value of any referent commodity, or from any implied quantum of abstract labour value, but from its capacity to confer abstract purchasing power upon the holder (see Fine & Lapavitsas, 2000). This is the primary referent of the money signifier, designated in a fixed quantum of a unit of account (thus a hundred dollar bill denotes the holder’s right to acquire/consume a hundred dollars’ worth of some other commodity or security). This is what constitutes the social ‘power’ that Simmel (1907/1990) ascribes to money and also the reason for Marx’s C-M-C circuit being instrumentally inverted to M-C-M’ and then compressed to M-M’ (the form of which underlines the point that there would be little point in seeking the return of surplus value [M’] if all it conferred were additional empty monetary signifiers). Insofar as abstract purchasing power also signifies the potential for the acquisition of goods and services with a use-value, this is better understood as a second order of signification because the meaning to the holder as market agent is necessarily ambiguous, depending on their needs and priorities as well as the availability and price of goods on the market. In effect, though, the money’s use-value (or exchange value if the money is invested in stocks or sits in the bank earning interest) remains indeterminate until it is actually used in purchasing transactions.
This account still leaves the question of how the monetary form becomes inscribed with this abstract purchasing power, so as to make money itself a desirable end in its own right. The concept of intersubjective codification is useful here. Money can only act as money if all the market actors comprising an economic network ascribe meaning to monetary forms in a coordinated manner. This involves the implicit/performative form of reflexivity through which basic economic concepts/schemata/models are intersubjectively defined as socially real. This includes recognition of the official unit of account, the legitimate forms money can take, and the channels and modalities of action underpinning its usage in different social contexts. Hence from childhood, we learn that to acquire the goods we see and desire in shops, we must had over special types of tokens to performatively shift legitimate ownership/consumption rights from the shopkeeper to ourselves. The relation between monetary form and codification is mutually constitutive; the codifications performatively manifest the monetary form as a social relation just as the deployment of the monetary form in transactions reconfirms and reproduces the intersubjectivity of the codification.
However, the processes of monetary codification which underpin the intersubjective recognition of monetary forms and the performative inscribing of abstract purchasing power to them is not unique to contemporary ‘virtual’ or ‘xenomoney’ forms. In fact, it is fundamental to all monetary forms in respect to the fiduciary expectations of its validity in future market transactions. Even in the case of using gold/silver as the commodity to serve as universal equivalent, this still requires intersubjective recognition of its monetary status96. What is substantially different about ‘virtual’ or ‘xenomoney’ compared with earlier forms is its mode of reproduction subsequent to the severance of any relation between the signifying form and a fixed material commodity. Although the political economic significance of this development for the lives of ordinary people has in some respects been profound, in regard to the codifications of money, it went largely unnoticed. The capacity of banks (and, since financial deregulation, many other corporate and financial institutions in the ‘shadow- banking’ system) to issue credit, securitised debt/bonds, and derivatives contracts effectively means
96 Moreover, the recognition that commodity forms like gold or silver themselves are valuable also depends on
codification, not just labour-value or use-value. The fact that they are relatively rare and difficult to access and/or aesthetically attractive compared with other substances is only one factor in this equation. In principle, other shiny, dense metallic substances could also been adopted as a monetary form. However, the discovery of the hazards of radioactivity severely curtail the use-value of metals like uranium and plutonium except in regard to nuclear energy/weaponry. Likewise, until quite recently, asbestos was regarded as a remarkably useful material because of its fireproof properties, but the discovery of its carcinogenic potential radically reduced its use value. Likewise, knowing blackcurrants are edible but deadly nightshade berries are poisonous depends on codifications reflecting human knowledge and social norms. Value is therefore a function of coordinated market knowledge and agency not just an objective quality of a commodity’s physical properties.
private capital is able to generate monetary units and financial assets ex nihilo. These involve performative financial actions enacted using restricted symbolic and institutional resources/ channels that are largely invisible, inaccessible and unaccountable by/to the vast majority of people. The processes of monetary creation are undertaken largely in a ‘black box’ whereby people understand how to use money and interact with the interfaces of the banking and financial system, without actually understanding any of its internal mechanics. The generation of money itself largely depends upon the issuance of credit to those who lack it and are willing (or desperate enough) to go into debt to access it. Private control of the generation and legitimation of monetary signifiers is therefore one of the most fundamental but under-debated sources of power in capitalist society. Once basic institutional and infrastructural preconditions are satisfied, the credit system of banking routinely creates monetary forms out of thin air. Fractional reserve banking systems require a lending bank to retain a cash reserve as a ratio of the quantum of money that they issue as credit equal to the rate at which depositors will demand their money back. As Hoyle & Whitehead summarise:
‘Suppose a customer deposits £100 in cash (of which he [sic] is only likely to request £5 back); this £100 is 5 per cent of £2000. The bank could therefore in theory create £1900 in credit, by making advances to borrowers of that amount. This £1900 would be paid out by borrowers using cheques, and these cheques would return as deposits to the banking system by the traders who received them. Since these traders will only have a 5 per cent cash ratio, they are unlikely to ask for more than 5 percent of £1900 = £95, which is precisely the amount of cash available. ‘ (Hoyle & Whitehead, 1982,
p.92).
Thus when a bank electronically credits a deposit into a borrowers’ account, it is quite literally creating money out of nothing except the symbolic performativity of its own institutional mechanisms. Thus a mortgage loan confers upon a borrower the abstract purchasing power to buy a house, and on transmitting the requisite quantum from symbols in the borrower’s account to the vendor’s account, the payment is performed and legal ownership of the house is transferred to the buyer. Thus the implicit/ performative reflexivity of the underlying codifications are a prerequisite of deployment of monetary symbols that constitutively enact changes of ownership or changes in value (the explicit or transactional form of reflexivity). When the mortgagee spends the credited money in the purchasing of a house, it passes to the vendor who usually deposits the cash in their own bank account. There are two important processes to note here. Firstly, the semiotic commensuration between one unit of money registered in an electronic account and any other means the monetary signifiers are entirely interchangeable. The same abstract purchasing power is attributed to all monetary symbols designated in the same unit of account. Electronic dollars issued through bank credit have the same abstract purchasing power as dollar bills in one’s pocket. The bank has no institutional ‘memory’ of creating those specific monetary units. Consequently, when the money flows back to the original bank that issued the credit, it is received as a new deposit and counts as additional capital to be loaned out. However, the second process most definitely does involve the bank’s institutional memory. The issuance of credit to a borrower is a capital investment by the issuing bank and it is premised not only on the borrower’s repayment of the quantum of money borrowed but on the payment of interest on the loan. Assuming that the borrower is able to maintain payments, then the principal will eventually be paid off, and the credit/debt relationship will be negated on payment of the final instalment. However, the negation of the debt-relation does not negate the continued existence of the quantum of money created by the initial issue of credit; this continues to circulate in the economy.
Banks are theoretically limited in the extent to which they can go on creating money through the issuance of credit, partly by cash reserve requirements and partly through fiscal prudence in ensuring that borrowers can repay (since defaults on debt repayments by counterparties reduce the value of the bank’s assets, as compellingly demonstrated by the sub-prime fiasco that ironically stemmed the very CDO instruments intended to manage such risks). In practice, however, the de/reregulation of banking during the 1980s largely removed any legal requirement for a minimum fractional reserve. Rowbotham (1998) notes that the required cash reserve in the UK is just 0.5% (so Hoyle and Whitehead’s [1982] example of £100 in cash reserves becoming the basis for £2000, would need to be multiplied tenfold to £20,000). Meanwhile, state treasuries normally supply cash (M0) to banks on demand, so there is no practical limit to the private expansion of the money supply
other than official cash rates and the potential for defaults on bank loans to risky borrowers. To underline the arbitrariness of the financial power such arrangements confer on the private banking system, Rowbotham quotes Josiah Stamp, (the well-known economist and director of the Bank of England at the time of the Wall Street crash and the ensuing depression):
‘The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of slight 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 want to be slaves of the bankers and pay the costs of your own slavery, then let the bankers create money’
(Stamp, quoted in Rowbotham, 1998, p.36).
Although the debts incurred by borrowers when the loans are issued do not directly create money that the issuing bank can use for its own purposes, it nevertheless gains significant financial benefits. An indirect benefit is that the loan means there is more money circulating in the market, some of which will get deposited back with the issuing bank to be used as the cash reserve for future loans. More importantly though, the issuing bank gains a revenue stream from periodic repayment of the interest and principal of the loan. Although these repayments gradually reduce the quantum of debt, the money flowing back to the bank from the borrower also counts as a new deposit. This means that the debt can be securitised (usually through pooling with thousands of other loans to evenly spread the risk of default and to allow statistically reliable calculations of the risk and returns). Securitised debt in the form of transferable rights to the revenue streams of borrower repayments can be sold as financial assets to third parties, which was the basis of the collateralised debt obligations (CDOs) implicated in the recent sub-prime mortgage crisis and subsequent credit crunch97. Furthermore, the creation of financial assets premised on the future reliability of on an on-going revenue stream over a designated period also has an impact on borrowing, since securitised debt/ bonds constitute financial assets which constitute collateral against which further loans can be leveraged (on the basis that the creditor’s risk is limited if the borrower has other assets that could be liquidated in the event of a default). These basic monetary processes are deeply implicated in the generation of fictitious values and the financial system’s endogenous predisposition to crisis.
As noted previously, the performative inscribing of as-yet-unrealised value into instruments denoted values in a present frames of reference is one of the core symbolic processes in the generation of fictitious capital forms, and indeed, money itself and is therefore central to the functioning of financial markets. Marx’s accumulation circuits (M-C-M’ and M-M’) both depend upon the transformation of a given quantity of money into a larger quantity. The nature of the basic contradictions of capital accumulation that Marx identifies (1859/1973, 1867, 1885, 1894) are now rendered explicit: They arise precisely because of the quantitative incommensuration between M and M’: $10 is not equal to $11. If the money supply represents the labour value in the commodities produced then it cannot simultaneously be used to realise the full exchange value of commodities
and be retained as surplus value. However, the fictitious, interest-bearing capital of which Marx was
so suspicious offers a symbolic solution to the accumulation contradiction, because it semiotically inscribed future monetary value (abstract purchasing power) into present frames of reference. Although debt repayments do extend over time, it is important to recognise that the process through which money and fictitious debt securities are manifested in the present involves performative symbolism within the specific intersubjective codifications of banking and financial institutions. By rectifying the monetary shortfall of the M-C-M’ and M-M’ circuits, symbolic accumulation fixes can
97 The transferability of the pooled mortgage debt meant that the banks were able to create financial assets by
issuing loans to high risk borrowers and then use complex financial math to create ‘tranched’ assets that could gain investment-grade ratings. Ironically, had the banks merely off-loaded these dubious securities to hedge funds willing to take on risky securities and washed their hands of them, the impact of the credit crunch would not have been so severe. However, the banking sector appeared to be convinced of the external validity of the risk calculations implied by the ratings systems that the CDO issuers had factored into the design of their instruments. These securities were therefore bought up in large quantities by the very banks which knew the loans were based on mortgages issued to borrowers at high risk of default.
be manifested, although their ongoing stability and sustainability depend on the coordination of the intersubjective codifications among market agents, since these underpin the shared meanings and value of the symbolic forms in circulation.
The issuance of debt as a financial asset conferring the rights to a regular revenue stream is by no means an uncommon practice, however. In fact it is the basis upon which governments (and corporations) routinely raise capital through the issuance of bonds (government bonds are often called T-bills in the US and Gilts in the UK). The bond is sold at a discount to its face value on a future maturity date when the payment becomes due. (The difference in issuing price and value at