In A Political Theory of Money, Anush Kapadia examines money’s political, social, and economic dimensions, from its hierarchical nature to its interconnection with state politics and global power dynamics. This lucid, timely book is essential reading for anyone interested in understanding money in all its forms, writes David Hollanders.
A Political Theory of Money. Anush Kapadia. Cambridge University Press. 2023.
Money has so many aspects, so many incarnations and so many functions, that it is easy to make a claim about it and argue its truth. Anthropologists might identify money as a social construction. Political scientists could conceptualise it as state-coercion. Mainstream economists view it as a non-political mean to facilitate barter. And many “finfluencers” hold that anything not backed by (crypto-)gold isn’t money to begin with. This is all true. It is also incomplete, if other aspects are ignored. The job of a reviewer of a treatise on money, then, is usually comfortably straightforward: the author has a point, but (s)he derails so many relevant aspects. If the book happens to systemically discuss all aspects, the reviewer can point to the encyclopaedic lack of focus that inhibits the analytical clarity necessary to capture money’s ontology. For that is indeed a sine qua non to understanding money.
Well, Anush Kapadia pulls off what wasn’t supposed to be possible: a book on money that is at once meticulous, all-encompassing, lucid and timely. It is also accessibly readable, though it will probably be too condensed for those who do not theorise money for a living. For those who wisely consider reading A Political Theory of Money, it is worth highlighting four relevant complications in monetary matters that the book addresses.
In what some consider to be the good old days, money was a promise to gold. Ever since the USA aborted the Bretton Woods-regime in 1973, this is not the case anymore
A first way to approach money is considering how and why it is valuable. Kapadia points out that money indisputably and legally settles transactions. As such it is an inherent part of “the economy”, understood as an interlinked system of economic transactions and concomitant legal claims. Without money, there is, according to Kapadia, not even an economy. The same applies to debt, which escalates the number of possible transactions by promising to pay money later.
As a first complication, debt – a promise to pay money – can itself function as money. Everybody knows this, at least tacitly; bank deposits are strictu sensu not money, “only” constituting promises to hand over cash (ie, money proper) on demand. We nonetheless talk about and think of bank liabilities as money; we accept them as such when for example our employer settles its legal obligations to us by transferring our salary. It is then conceptually more fruitful – as Kapadia does throughout – to think about moneys, plural. He conceptualises a monetary pyramid, at the apex of which stands “central bank money”, which includes cash and is only issuable by central banks. Commercial bank deposits are situated one level lower, as highly credible claims to pay cash.
Whereas domestically moneys form a hierarchy, the global monetary system is a hierarchy of hierarchies.
Private banks’ deposits are credible because banks are the only societal actor that can borrow from the central bank. Commercial banks turn their deposits (ie, their liabilities) into near-money by promising to exchange them for cash at the nearest ATM, knowing that central banks will accommodate this business model by massively lending to banks if need be (as in the credit crisis, reflected in the increase of assets and liabilities of central banks). Consequently, a second complication arises that seemingly commercial “banks have been given a license to print money” (39). Central banks cannot stop commercial banks from issuing debt by creating deposits. They can only discourage private banks by increasing the interest-rate against which the latter borrow cash.
A third complication arises as not only debt, but also money itself – be it cash or not – constitutes a promise. In what some consider to be the good old days, money was a promise to gold. Ever since the USA aborted the Bretton Woods-regime in 1973, this is not the case anymore. Nowadays money is backed by both more and less – or so Kapadia proposes. It is backed by less as it cannot be redeemed for any commodity. However, the “national economy would replace gold as the reserve asset” (54). Money does not constitute a legal, but a political claim on the wealth of the nation issuing the currency. This is also why we ultimately accept money; it is embedded in a political settlement that promises that money is a material claim. The political anchoring of the currency with monetary and fiscal policy both socialises and materialises money. This, then, is the gist of the book. Money is social and material: it is political.
Here, Kapadia deviates from commodity-fetishists, as well as from social constructivists who hold that money is sustainable by the self-enforcing social praxis that we all accept money because we (anticipate that we) all accept money. The book resembles somewhat, but fundamentally deviates from, so called modern monetary theory. This approach gained traction in recent years, and holds that inflation is the only limit to a state’s ability to create money. Otherwise, states can create as much money as they like. Kapadia disagrees, stating that “We ought not to believe that mere state declaration (‘fiat’) can create value” (37). State-issued money derives its value from a monetary-political constellation, carefully crafted and sustained by the state as well as by commercial banks.
Whereas domestically moneys form a hierarchy, the global monetary system is a hierarchy of hierarchies. And this constitutes a fourth complication. The global, monetary super-pyramid is – of course – politically anchored as well; the global acceptance of the currency of the hegemon – nowadays, the dollar – is “predicated on an imperial contract de facto or de jure” (91). The hegemon has “the privilege of having its own liabilities function as world money” (175). Oil has to be paid for in dollars, and virtually all other international trade deals can be settled in dollars as well. That is an imperial privilege indeed, resulting from both economic dominance and military might.
the most informative, most lucid book on money since the credit crisis
The four complications are at the heart of A political Theory of Money, but the book casts its net wider and delves deeper. It discusses why cryptocurrency is solving the wrong problem. (It fixes money, thereby blocking debt, thus disabling “the economy”.) It vivisects the perverse situation that money has been nationalised, while banking has been privatised (“What we have presented earlier is in the end of one long argument for bank nationalisation”, 221). And it neatly weaves in the work of – among others – Marx, Weber, and Minsky.
The book is not entirely without flaws. The chapter on the euro reproduces too much the common narrative about the actions of the European Central Bank (ECB) and the European Union (EU). The ECB might have wanted to help “EU’s periphery”, but supposedly couldn’t, as “the European people do not want to be the United States of Europe” (213). Maybe they don’t, but neither did the European hoi polloi want their governments to bail out commercial bank(er)s in the financial crisis. And they also did not want the ECB to prop up commercial banks by taking over assets at inflated prices and by lending against zero interest-rate. This, however, is what happened. Kapadia does not seem to fully appreciate the sui generis character of the Economic and Monetary Union, in which monetary and fiscal policy is removed from the democratic and even the parliamentarian process, and is in the hands of the Eurogroup and the ECB.
That, however, does not affect the achievement that A Political Theory of Money represents. It is the most informative, most lucid book on money since the credit crisis. It brings home that monetary systems constitute a pyramid of hierarchical claims, held together by a political contract that is constituted by legal codifications, material claims and social practises –without being reducible to any of those pillars. In other words, money is all kind of things. And if it is one thing, it is political.
Note: This review gives the views of the author and not the position of the LSE Review of Books blog, nor of the London School of Economics and Political Science.
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