Beyond Liquidity

The Metaphor of Money in Financial Crisis

Brad Pasanek, Simone Polillo, Brad Pasanek, Simone Polillo

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781317979999
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

'Liquidity', or rather lack of it, lies at the heart of the ongoing global financial crisis. In this collection of essays, the metaphor of money as liquidity, and the model of crisis it entails, is deliberated by a range of scholars from economics, history, anthropology, literature, and sociology. This volume offers a rhetorical explanation of the social, cultural, and historical contexts in which metaphors of money are produced, circulate, and fail. These essays, first presented at "After the Crash, Beyond Liquidity, " a conference on money and metaphors held at the University of Virginia, USA, in October of 2009, were drafted in the wake of global uncertainty, TARP bailouts, the Great Recession, programs of stimulus and austerity, and recurrent threats of sovereign default in the EU. They question the language of liquidity and flows that is characteristic of everyday business, exposing what metaphors of money hide and explaining why the idea of liquidity has proved so durable.

This book was originally published as a special issue of the Journal of Cultural Economy.

Introduction

After the crash, beyond liquidity

Brad Pasanek and Simone Polillo

Money, claims Georg Simmel, is a metaphor of modernity: its value allegedly depends not on the character of its possessor, but on its power to transform qualitative differences into quantitative ones (Simmel 2004, p. 148). As the archetypal ‘universal equivalent’ (a term popularized by Karl Marx) or commodity standard, money refigures relations between men as relations between things (Marx 1990, p. 162). Money symbolizes modernity’s claim to erode previously held social identities and replaces them with identities that are more fluid – or ever more readily convertible. The ‘value’ of the modern individual depends not on ancestral bonds to community but on the autonomy gained through the establishment of multiple affiliations. Adam Smith calls money, ‘the great wheel of circulation’; it revolves, is revolutionary (Smith 1976, p. 306). Modern social elements are increasingly isomorphic, and modernity’s element figured as liquid. Held out as the most promising instrument of modernity – the promise to pay – money is impersonal, equalizing, emancipatory, transcendental, both fictitious and objective.

The parallels between money and modernity have a long history in social theory. Yet, as the anthropologist Bill Maurer is quick to remind us, the attention traditional analysis has paid to money has been somewhat one-sided, for the analysis of monetary metaphors should not stop with the highlighting of core features of modernity (Maurer 2006). Metaphors of money inform many of the theories of meaning and representation that the social sciences rely on to explain money’s functions. Money, that is, is an integral and unacknowledged part of the critical apparatus that the social sciences have developed to understand modernity. What people do with and to money cannot be easily captured by sweeping generalizations about the power of money to create equivalencies: we require more nuanced accounts of the complex ways in which economic, social, and cultural relations overlap and prove mutually constitutive. Money is a universal commodity as well as particular pieces of metal and paper in circulation; sign and substance both. Associating the closed circle of money as metaphor and metaphor as money with the habits of structuralist semiotics, Maurer (2006) suggests we might do more than just turn a coin over and over again, considering first the obverse and then the reverse, first sign and then substance.

If we pay more attention to ‘money’s pragmatics’, understood as the material practices through which money is imbued with meaning as it is exchanged and circulated (Maurer 2006, p. 16), money may be more completely described as a set of material practices, of social relations, as well as a metaphor. Intersecting practices, relations, and figures are best treated in concert; and this journal volume, which collects revised papers from a conference on liquidity and financial crisis (held at the University of Virginia in October 2009),¹ would bring competing disciplines and perspectives together and put them in dialogue in order to explore ‘cultural economy’. To wrench Milton Friedman’s well-known paraphrase of Clemenceau further out of context: ‘Money is too important a matter to be left to central bankers’ (Friedman 2002, p. 51). Or to orthodox economists. Conceptions of culture, society, and the economy are not neatly separable. Our treatment of money as metaphor, social relation, and economic instrument is meant to account for the origins and circulation of the monetary metaphors as well as their employment in theoretical descriptions of money; further, to demonstrate how these descriptions give content to social forms and record how they belong to economic activity more fully. Specifically, we seek to reflect upon and destabilize understandings of money as ‘liquidity’ by uncovering the social and historical conditions that make monetary metaphors possible in the first place.

Our contributors’ arguments are premised on an appreciation of the liquidity metaphor – of the dimensions of economic action and market processes that liquidity captures quite well. The durability of conceptions of money as liquid speaks to its usefulness, and a brief genealogy of the metaphor of money as a liquid in early modern England might begin more than a half century before the publication of Adam Smith’s Wealth of Nations in 1776, when conceptions of money’s movement were structured by medical metaphors. With reference to William Harvey’s discovery of pulmonary circulation, early modern metaphors of circulation both defined and illustrated the mercantilist model (Glaisyer 2005, p. 287). For Daniel Defoe and other early writers on commerce, coinage circulating within a country was a sign of economic health; valuable coinage flowing out of a country, especially if it was to finance the importation of luxury goods, looked like bleeding to death. In time, classical political economists, like David Hume and Smith, made the case that a country’s money supply must increase with its production of goods and services – that money is derivative of material production but also acts as a useful lubricant to it. The currency crises of the late eighteenth century forced the question of the nature of money. In 1797, a period of Restriction was enforced during which, for the first time in the history of the Bank of England, bank-notes could not be converted into gold or silver. Paper money printed to finance war with France circulated, and the British learned to use money as a metaphor for other things.

In the century that followed, money became the object that professional economists began to use to model value. By thinking of money and prices as mere reflections of a ‘value’ intrinsic to individual actors’ dispositions and endowments (utility), the social nature of the creation and preservation of value as an institution could be bracketed away from other considerations and economists could go on to model an autonomous economic domain (Mirowski 1989). The success of the liquidity metaphor was not restricted to academic matters: it was institutionalized in the international monetary regime of the Gold Standard, with the workings of money theorized explicitly in line with Hume’s ‘price-specie flows’ model. As the international economy came to look more and more like a hydraulic system, alternative models, metaphors, and ways of thinking about money were discredited and discarded. Even an economist as distant from the neoclassical economic tradition as Keynes, when witnessing the dismantling of the Gold Standard, came to rely on a model of money as the expression of ‘liquidity preference’.

The metaphor of liquidity borrows from the seemingly continuous flow of commodities, which serve as a precondition for the setting of prices. Indeed, a focus on the circulation of money makes it appear as if the setting of prices is a precondition for other economic flows. This abstraction systematizes and generalizes commodity flows. What seems primarily to flow is money itself, lending flows of currency and credit the appearance of a natural and automatic process. Just as the flow of water in a river is a function of the size of the riverbanks, so the flow of money is only a function of the size of the market; so interpreted, the metaphor of liquidity reinforces laissez-faire models of equilibrium and circulation, rather than models which recognize and recommend more interventionist principles of economic organization. The metaphor obscures material conditions and the pragmatic considerations. It both figures and obscures the infrastructure that gives money its specific nature – an infrastructure pictured now, if at all, as the economic channels and pipelines, the gates and dams through which ‘liquidity’ would flow. But liquidity is, in fact, constituted by infrastructures: those literal canals, riverside mills, and transoceanic crossings appealed to in Hume’s and Smith’s writings. In sum, the metaphor of liquidity locates the power to flow in the very nature of money, which distracts from its actual origins in social power.

The 2007 financial crisis – initially described as a liquidity crisis – called forth a new set of figures in journalistic and academic analysis: toxic assets, zombie banks or shadow banking, and financial weapons of mass destruction, among others. In the past few years, the metaphor of money as a liquid may have quietly lost some of its purchase, remaining confined to the more technical assessment of the interbank money market – invariably described as ‘frozen’. (Or, the metaphor returns only paradoxically through the extended connotations of ‘bail-out’.) As the crisis evolved, in place of the language of liquidity calls for ‘stimulus’ or ‘austerity’ were made in the EU, UK, and US. In some of the folksier passages of his stump speeches, Barack Obama invoked a range of car metaphors: the economy needs a jump-start, we’ve driven into a ditch, we have to get back on the road to recovery. Here the student of figurative language remembers I. A. Richards’ description of metaphor in terms of ‘tenor’ and ‘vehicle’; and reminds us that both the economic order and its standard metaphor (liquidity) have broken down (Richards 1936, 99ff.). The more apocalyptic metaphors circulating in the fall of 2008 exposed an arid, bleak economic landscape characterized by high unemployment. At the moment of crisis, two responses became possible: first, a reassertion of normalcy (and liquidity) that would reinstall ideas about liquidity and re-naturalize the monetary metaphor and the economic modeling with which it is associated. This seems to have been the path actually taken by policy makers and pundits. The US Government’s TARP program, initially an acronym for a Toxic Asset Relief Program quickly became the Troubled Asset Relief Program. A second response remained, and remains to this day, underdeveloped: it was to challenge the very metaphor of money as liquidity.

Thus the rationale for the conference on money and metaphors (‘After Liquidity, Beyond the Crash’, UVa, October 2009), and of this guest-edited issue of the Journal of Cultural Economy, in which a variety of eminent scholars treat money in its manifold, sociocultural contexts. In these pages the reader will find rhetorical analyses by economists, historians, a sociologist, an anthropologist, and literary historians. In several contributions, authors seek to investigate historical moments similar to this current conjuncture in which metaphors of money have come to be questioned. We also set out to better understand why the metaphor of liquidity has, in fact, proved to be durable. Our authors move between the origins of capitalism and the recent crisis. The volume sets out to answer three questions; and the essays in this volume are paired and framed between a headpiece and a tailpiece.

Infrastructure

Under What Conditions Does Money ‘Flow’, and What is the Nature of That Flow?

In the headpiece to the longer essays that follow, the sociologist Arthur Stinchcombe attends to the movement of commodities in a travel narrative that details those dusty and grimy institutional conditions that underlie ‘liquidity’. He takes issue with the concept of money, arguing that the conditions that give rise to ‘flow’ are material ones, and that what we take to be flow or ‘fluidity’ is in fact a series of disequilibria managed by public institutions (such as auctions), by different kinds of incentives, and by different symbols. A rapid change in the value of a store’s inventory, for example, signals disequilibrium. Stinchcombe implies that the nature of money will not guarantee the flow of commodities – that money may well hinder or stop trade and traffic from flowing when the abstractions from the complex processes of production fail to lend simplicity and continuity to the realities of exchange.

Economist Anne Mayhew takes on the problem of the meaning and nature of money from a different direction, and identifies mystification not in money in general, but in money as liquidity. She searches for another metaphor that would help us capture what an ideal-typical banking system looks like, in which money serves to finance productive, real activities. This is an important vantage point because the metaphor of liquidity is meant to illuminate precisely this relationship – but the implication of money as liquid is that it can accumulate in quantities that exceed the needs of the productive economy, thus creating imbalances (i.e. inflation). Mayhew, building on Morris Copeland’s pioneering work, argues that this is nonsense: money does not accumulate in reservoirs to flood then the pipes and drains of capitalism once released. Money, rather, works like electricity: it is produced on demand; it is not ‘stored’ in any significant sense; it cannot be in excess of demand because it does not exist outside demand. Mayhew’s metaphor also serves to bring out an interesting asymmetry: money can be scarce relative to the need for it, but it cannot be excessively abundant.

Economist Hugh Rockoff makes the opposite argument as he explores Adam Smith’s ‘violent metaphor’ of paper money as a ‘waggon-way through the air’; a metaphor, found in the Wealth of Nations, which in some ways so de-naturalizes the institution of money as to make it appear abhorrent. If for Mayhew there is no such thing as abundance of money (relative to the material goods to which the value of money is allegedly linked), for Adam Smith – on Rockoff’s interpretation – money is defined by excess. Rockoff, in fact, explains that Smith initially thought of money as a ‘waggon-way’ on the ground. But between 1763, when the ground-level highway metaphor was proposed, and 1776, when the metaphor is replaced by that of a fantastical skyway, a financial crisis leads Smith to change his views: the 1772 failure of the appositely named Ayr Bank. The crisis proves all the more dramatic because the Ayr Bank was a Scottish bank, and Smith held Scotland to be the model of sound banking. Rockoff documents Smith’s attempts to devise a new regulatory framework to re-ground money. He then shows that Milton Friedman, some 150 years later, followed Smith by espousing a laissez-faire point of view for the economy, but a regulative one for banking: Friedman wanted banking to be based on a 100% reserve basis, thus effectively turning banks from dealers of liquidity into simple warehouses of money. In an important way, Rockoff’s story shows just how intractable money is from a perspective that values freedom of exchange and productive investment above all. Smith and Friedman would seem ready to eliminate money altogether.

From Risk to Crisis to Austerity

What Metaphors are Mobilized When the Flow Suddenly Stops and the Institution of Money Loses its Self-evident Grounding and is Contested?

Shifting our attention from money to insurance, John O’Brien offers an analysis of what he calls ‘the sentimental public sphere’ – a ‘structure of feeling’ characterizing discussions of financial crisis through concepts of sympathy and imaginative identification – as a way to understand the representational difficulties entailed by insurance. Insurance produces risk, according to O’Brien, in the specific sense that it classifies potential events and so tames them (in this respect, O’Brien echoes Frank Knight’s classic distinction between risk and uncertainty). But insurance also produces risk because, once insurance’s institutional role becomes visible, it has failed as an institution to tame risk. Because, more than money, insurance requires a transcendence of boundaries between objects (and events) and people, it thus resists critiques that would reveal its intimate relationship with risk. Unlike discussions about money that emphasize impersonality, neutrality, and rational calculation in regard to preferences and values, discussions of insurance, forced to confront its deep involvement with different societal visions, tend to involve the kind of sentimental rhetoric that money, on the contrary, repels. O’Brien discusses both contemporary accounts of the role of AIG in the financial crisis, and the Tobias Smollett’s 1751 novel The Adventures of Peregrine Pickle in which issues of chance and risk are constitutive of the very identity of its protagonist.

Nicky Marsh investigates metaphors of financial crisis first by treating regulation and degeneration of bodies in economic discourse broadly and then, more specifically, in Alan Hollinghurst’s novel The Line of Beauty and Lawrence Chua’s Gold by the Inch. Marsh shows how deep the intersection between desire and disease is, with homophobic, economic rhetoric serving to stigmatize this intersection, and the rhetoric of sexual liberation serving, by contrast, to promote emancipatory potential and risk-taking. Discontented with the idea that metaphors simply facilitate critiques or reconstructions of ‘pre-existing economic normality’, Marsh explores the specific ways in which different metaphors open up a variety of opportunities and possibilities. In figures of disease and degeneration, Marsh discovers an ambiguity which dispenses with the liberal sovereign subject and relocates attention to an epidemiological system of contagion, boom, bust, and crisis. Does disease result from membership in a community of risk or ‘risk group’, as public health policy targeting the spread of AIDS emphasizes? Or is it the result of individual choices and decisions, foregrounded by concepts such as ‘risk-adversity’ and exposure to risk? Ambiguity, Marsh reminds us, is intrinsic to the neo-liberal order, which valorizes the role of the individual struggling against the regulations of the state even as it disciplines those individuals who do not obey neo-liberal scripts. Ultimately, financial crises mete out punishments to those who were not supposed to speculate to begin with. Whether those punishments are sufficient to restore some neo-liberal status quo, however, remains contingent on the historical and social context. Marsh sees no teleology at work here.

Materializing Social Relations

On What is the Proliferation of Monetary Metaphors Grounded?

This issue’s final pairing works with two American fantasies of self-making and valorizations of individual effort: Ben Franklin and Ayn Rand. First, literary critic Matthew Garrett treats Ben Franklin’s Autobiography. Garrett probes the extent to which metaphors of money serve as metaphors of selfhood because of the narrative accomplishments such analogies make possible. In Garrett’s deft discussion, self and money are symbolically joined by the representation of time they both entail – a symbolic opportunity not lost to Franklin. The self in time can be understood as ‘career’; money in time as ‘credit’. A focus on temporality and narrative serves to tame and exorcise, if only at the representational level, the social conflict that a focus on the origins of money and self would inevitably, by contrast, be forced to foreground and potentially intensify. Franklin’s use of the autobiographical narrative form thus serves both to accommodate social antagonism and to recast it as a phenomenon that, through self-discipline and industriousness, can be controlled. Not wealth, but creditworthiness, thus becomes central to the question of value. But Franklin goes further than this. In the course of his autobiography, he reveals five ‘mistakes’ he committed, ranging from clashing with his brother to squandering money – which he refers to as ‘errata’. And his narrative presents these errata in the form of ‘circuits of error and amendment’: just as credit must be repaid on a specific date with interest, so must errata be amended with due consideration of the debt to others they create. The implica...