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Part I
Worlds Apart
Before Keynes
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1
The Birth of Economic Productiveness
It is of no little interest, and importance, too, to observe how economists have denied productivity now to this class, now to the other.
Lewis H. Haney (1911)1
What is the contribution of banks, and in particular their services of financial intermediation, to the production of wealth? It is the answers that have been given to this question, and the various representative technologies through which such answers have been crafted, that I begin to probe in this chapter. Doing so will, I hope, offer already at this early stage a clear demonstration of what later develops into a central theme of the book as a whole: the importance of boundary placement in regimes of economic representation. Thus we will see, amongst other things, that opinions as to banking’s “worth” have very often been based upon the assignation of banking activities to one side or other of the productive/unproductive boundary – and, indeed, to either side of various other closely-related conceptual borders.
The period covered in this chapter is a formidably vast one, starting in the pre-Christian era and leading all the way up to the 1930s and the key figure of John Maynard Keynes. There are three important reasons for casting the net this expansively. First, and most obviously, it is vital to forestall the tendency to presume “it was ever thus.” The representations most familiar to us today are almost inevitably those of most recent vintage and those granted the most substantial and sustained public exposure. As I will go on to argue in Parts II and III, the representations of productiveness emanating from national accounts have, over the past 70 or 80 years, assumed a particular and heightening significance. But, vitally, they are far from being the only representations that history has bequeathed to us. On the contrary: all manner of different perspectives on the contribution of banks and financial intermediation have been offered up at different times and in different places, and it behooves us to treat these with the same seriousness as those which happen to enjoy pre-eminence in the narrow historical-geographical conjuncture that is the early twenty-first century here-and-now.
Second, and related to this point, is a question of understanding. Not only would a restricted focus on more contemporary representations risk endowing such representations with a veneer of naturalness or universality, it would also make the task of understanding those representations themselves a difficult if not impossible one. We cannot understand without context. Representations developed and propagated in the post-war era may be different in various ways from those that have come before, but they are not independent of them: they build upon them, even if sometimes through opposition. To enrich our comprehension of what national accounts and other contemporary fields of representation say about economic productiveness, therefore, it is necessary to identify and interrogate their long-term conceptual lineage.
Third, and most important of all, there is the matter not just of boundary placements, but of boundaries per se. The “production boundary,” as we will see, is one of the most fundamental theoretical concepts in the national accounting canon; where activities are placed in relation to this notional boundary essentially determines, for national accountants at least, whether such activities are deemed “productive” or not. But this boundary, we should be clear, is not something with an objective, pre-existing substance of its own – something simply waiting “out there,” as it were, to be discovered, and then to have economists, politicians and other “authorities” place different activities on either side of it. Placements can only be made once the boundary underpinning such placements has itself been conceptualized into existence; and the “production boundary,” in turn, depends upon the prior construction of something called “productiveness.” Where does this concept come from? Who created it, and why? What will become clear in this chapter is that twentieth-century national accounts created neither productiveness nor the boundary separating it from the unproductive.
While my emphasis in this chapter is very much on the economic dimensions of historical representations of banking (and especially the core question of economic productiveness), the emphasis is not an exclusive one. I also consider what might be termed moral or social perspectives on what it is that bankers are perceived to do. Part of the reason for this is that, particularly the further back in time one goes, it is often hard to disentangle purely “economic” considerations from “non-economic” ones. Indeed, one could argue, as both Max Weber and, latterly, Jürgen Habermas have famously done, that modernity is defined precisely by the gradual processes of differentiation between such “spheres.”2 Another part of the reason for looking beyond the economic is that economically-oriented representations, with a few notable exceptions, barely existed in the form we tend now to understand them prior to the birth in the eighteenth century of the tradition of political economy and its central inquiry into the sources of wealth creation; yet the “economic” representations of banking that did then begin to proliferate called upon, in various ways, different representative themes that had been evolving since long before – not least the centuries-old excoriation of usury.
This last observation leads directly on to a final, related point I need to make here. If, as I argue later in the book, national accounting became over the course of the twentieth century a primary forum for the “making” of economic productiveness – and thus, one might even suggest, of an activity’s deemed inherent worth more generally – it is clear that other representative “technologies” served such purposes in earlier times. Certainly, from the mid-eighteenth century, political-economic theory was one such; but it was not alone. Assessments of banking and the activities of bankers, loan brokers and other financial intermediaries have featured prominently, for many centuries, not only in avowedly “factual” discourses (like, from the eighteenth century, political economy), but also in professedly “fictional” traditions (literature, for example) and in those discourses widely seen to mix fact and fiction, such as religion and philosophy. Tracing the genealogy of contemporary “productive finance” hence necessitates engagement with all these fields. Indeed, a compelling reason for not limiting our research to putatively fact-based discourses has been persuasively put forth by Mary Poovey: namely, that while prior to the eighteenth century there existed a range of different types of writing on money and finance, these neither were consistently differentiated from one another in format or function, nor did they distinguish clearly between what was fiction and what was fact.3
With these preliminary observations in mind, the chapter begins with a relatively brief overview of the evolution in perspectives on “banking” in the centuries prior to the formal development of what we understand, today, as a banking system. The relatively narrow focus in this first section is on the practice of lending money at interest: what was written about it, and what kinds of dichotomies were erected to demarcate positive assessments from negative ones. The second and third sections of the chapter then move onto the “modern” era. Section two is given over to perspectives on banking formulated in literature, in philosophy, and – to the extent that it can be segregated from either of those two, or from political economy – in politics (Western religion had, by this point, effectively put to bed its own quarrels on such matters). Section three explores in turn the conceptual placement of financial intermediation in European, and largely British, political economy: the tradition of the Physiocrats, of Adam Smith, and of Malthus, Ricardo and Marx. Together, these two discussions take us up to the late nineteenth century. The fourth and final part of the chapter is intended to bridge the gap between where section three leaves off (with Marx) and Chapter 3 later picks up (with Keynes): a gap most notable, in the context of this book, for the emergence of neoclassical economics.
Scourging the Money Lenders
There exists in the historical literature considerable debate over the origins of modern banks. Yet upon gaining only a modest level of acquaintance with that literature, one thing becomes readily apparent: the identification of origins depends very much on the definition of “banks” being used. Some authors, thus, argue that what we can think of as banks appeared as early as the fourth century BC, in ancient Greece.4 Others, greater in number, point to twelfth-century Italy, or to the Low Countries in the fourteenth century.5 But if we are interested in the systemic emergence of the type of fractional-reserve deposit banking and associated nexus of credit creation that has come to define modern banking, most scholars would agree that late-seventeenth-century England was the key crucible. Even Raymond de Roover, the author of two brilliant, seminal books on early banking in Italy and Belgium, concedes as much:
It is true that the modern banking system based on the circulation of notes and the discounting of commercial paper was evolved in England during the seventeenth century. This development originated in the exchange, deposit, and lending activities of the London goldsmiths under Elizabeth and James I and culminated in the foundation of the Bank of England in 1695, during the reign of William and Mary.6
In this chapter, therefore, when I turn in the two following sections to discuss social perspectives on the contribution of modern banks per se, England, and the period from the 1650s onwards, becomes my main focus.
Here, meanwhile, we will deal with the much longer historical period leading up to and including the sixteenth century, with our spotlight trained upon the one activity that can be traced with some consistency all the way back into the classical era which does remain central to what banks still do today: issuing credit, which is to say lending money at interest. And while, as we will see, a series of powerful conceptual couplets emerged over time to frame dominant perceptions of profit-oriented money-lending, perhaps the most pertinent observation to make of this period concerns a couplet that did not substantively materialize until later: the productive/unproductive distinction. Indeed, not only was the activity of credit provision not couched explicitly in such terms; but in the English language, at any rate, the word “productive” itself did not enter common parlance, in any of its various meanings, until the early seventeenth century.7
Before examining those representative tropes that were widely mobilized in the representation of money-lending through antiquity and the Middle Ages, however, we must first pause to consider a towering historical figure who discoursed stridently on this activity, and whose words have, in some readings, been taken as a commentary on economic “productiveness.” This figure is the Greek philosopher Aristotle. As the English economic historian William Ashley once remarked, it had become, by the late-nineteenth century, more-or-less accepted scholarly wisdom that Aristotle saw money as “barren” and thus held that “interest cannot justly be demanded for use of it.”8
That Aristotle’s famous monetary critique in his Politics is often seen as a statement on the nonproductiveness or economic “sterility” of credit is understandable. For one thing, his commentary was indeed based at least in part on economic – rather than purely ethical – considerations.9 Moreover, his thoughts on money clearly influenced many of the great modern political economists for whom, as we will see below, banking in general – and lending at interest in particular – was an economically unproductive activity. Not least among these was Marx, and particularly his arguments in Volume 3 of Capital about capital achieving “its most superficial and fetishized form” in the shape of credit money. (Compare, for instance, Aristotle’s “birth of money from money” with Marx’s “money breeding money.”)10
But two caveats are...
