Twilight of the Money Gods

Economics as a Religion and How it all Went Wrong

John Rapley

• Publisher: Simon & Schuster UK
• Year: 2017
• Print ISBN: 9781471152740
• eBook ISBN: 9781471152771
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Imagine one day you went to a cash-machine and found your money was gone. You rushed to your branch, where a teller said that overnight people had stopped believing in money, and it all vanished. Seem incredible? It happened, and it could happen again. Twilight of the Money Gods is the story of economics, told not as the science it strove to be, but as the religion it became. Over two centuries, it searched for the hidden codes which would reveal the path to a promised land of material abundance. While its prophets, from Adam Smith to John Maynard Keynes and Milton Friedman, concerned themselves with the human condition, its priesthood gradually grew remote from its followers, until it lost sight of their tribulations. Today, amid a crisis of faith in their expertise, we must re-imagine an economics for a new era - one filled with both danger and opportunity.

CHAPTER 1

I BELIEVE I CAN FLY

Money or God: which is more real?

It seems like a no-brainer. Even if God exists, He or She (or It, or They) is intangible. You can’t prove God’s existence, you simply have to believe, or not. But money? Surely it’s as real as that pound note or dollar bill you can pull from your wallet, rubbing it between your fingers to prove it’s there.

That is to say, it’s no more real than an amulet or a crucifix that you might place around your neck: tangible expressions of a belief that is as potent as the strength with which you hold it. The reality is that money exists in our imagination. If we don’t believe in it, that banknote is a worthless scrap. If we do, we can use it to change the world.

Do we worship money the way some of us worship God? Consider the thought. Our ancestors prayed for wealth, health and happiness. We devote our lives to getting money, often doing work we don’t like, so we can get more of it. Instead of embracing hardship to reach heaven, we do it to get money. We organise our lives around its pursuit and attainment, compose songs to its beauty, achieve lightness and serenity and ecstasy in its presence.

Does that make us religious? Well, think about it. Think of the conversations that arise when you get together with friends or have a family dinner. ‘No politics or religion at the table’ goes the old rule, but we think nothing of speaking of, say, our new jumper, a planned holiday in Tuscany, our kitchen-remodelling, or a possible promotion. In one way or another, the topic will keep returning to how you either make, spend or save money. Now, each time such topics arise, there’s a good chance you’re expressing your innermost religious beliefs. When you say something like ‘you get what you pay for’ you are usually making a declaration of faith much like someone who says ‘God is merciful’. When you click ‘send’ or sign the chit to transfer money into your pension fund, you’re actually engaging in a spiritual act similar to the person who lights a candle in the church or prays before bed.

You see, when you hear the word ‘money’, your mind will probably drift to notes and coins. If you have a bank account, you might picture it like a drawer in a large secure vault in the basement of the building. Make a withdrawal and the drawer empties a little. Make a deposit and it fills back up. Build up enough savings, like that pension fund, and it might even fill a room, like the cavernous hall where Scrooge McDuck goes swimming in his lake of coins, and which you’ll only run down when you retire and start living off your accumulated riches. And the bank’s job is to provide you with a safe space where burglars in black balaclavas can’t reach your hard-earned stash.

In fact, all of that – and not just the bit about Scrooge McDuck – is little more than make-believe. Any cupboards that might exist at the bank are filled only with IOUs, which are about as good as we think they are. The same goes for any bonds, shares or annuities you hold: it’s all ethereal. Instead of regarding money as something physical, think of that fiver in your pocket as a promise or claim. That slip of paper entitles you to someone else’s resources, of which the most important is usually their labour: you’re in credit when someone owes you work, and in debt when you owe them work. It’s kind of ironic, when you think of it, because while we often believe that money frees us from others and makes us ‘independent’ it’s really a written testament of our bond to them.¹

It may come as news to you, but you help to create money all the time, with little more than an act of will and a show of faith. Say you ask your grocer if you can pay next week for today’s shopping. To all intents and purposes you’re promising to set aside some of your labour time for them over the next week. And suppose your grocer takes your IOU to their butcher and, in return for some meat, offers to transfer your debt to him. Voilà, you’ve created a rudimentary form of money.

Humans began doing this thousands of years ago, in the earliest civilisations.² Over time, as societies grew larger and more complex, village economies evolved into regional economies, and IOUs, which may have been written down or simply kept as a word, began circulating. Inevitably, some entrepreneurs came along who simplified the process by keeping accounts, disbursing some agreed medium of exchange – anything from shells to pieces of silver or bronze, as long as it was not easily forged. Once they’d chosen their unit of exchange, these entrepreneurs would then measure the value of each type of labour in that unit. Because these middlemen often sat on a bench in the market where they could keep everyone’s accounts, they became known as benchers – or, using the Latin word for bench, bankers. And when their proposed unit of exchange gained widespread acceptance, and buyers and sellers began listing their prices and keeping their own accounts in that medium, its free-flowing character gave it the term we use for money: currency, like the current in a river or breeze.

Governments then realised that if they issued their own currency, and required their subjects to tender taxes in it, they could get a handle on trade and use it to raise revenue. So they devised ‘legal tender’. Once again, traders and bankers overtook them. Rather than weigh themselves down with heavy coins or the knives that were used in ancient China, they began issuing paper or cloth certificates, which were backed by money. This made currency move even more freely – or, as economists like to say, it became more liquid.

And so it’s gone on ever since. Today, while governments regulate banks and watch over them with their own bank – the so-called central bank – the vast majority of the money we use is little more than figures on ledgers or digits in cyberspace, and no government can say with certainty how much money is circulating in its economy. It’s like aeroplane engineering. You don’t really know how that 400-ton tube of steel you’re sitting in can lift off the ground and get you across the ocean, but you trust that someone else does.

Because it gives us command over people we’ll never even meet, money has assumed almost mystical properties. And for as long as we believe that power is real, money enables us to create stuff out of nothing. Want to see how? Go ask your banker for a loan. She won’t actually take money from one account to place in yours. Instead, she’ll effectively promise to find cash equal to that figure should anyone want to see it – which hardly anyone ever does, since they trust the bank and take payment in a cheque or an alteration to the figures on their own ledger. The banker, meanwhile, will assume you’ll either buy a house or another asset equivalent to the value of the loan, or at least keep your job and pay back the loan from future work. It’s like she’s found a way for you to harvest the fruits of tomorrow’s labours, today. Needless to say, this whole system depends on everyone having faith in one another: faith there will be a future, and faith in the bank’s ability to convert this ethereal, almost spiritual entity – our faith and promises – into matter (or what we prefer to call ‘assets’). This transformation of nothing into something drives our modern economy forward, and though we take it for granted, to ancient eyes it would have looked like a miracle.

In truth, it pretty much is a miracle. Try this experiment. Go and withdraw a wad of bills from your cash machine, then wave it around in public. Watch how people react. When you reflect on that experience, it won’t come as a shock to you to hear that when Melanesian islanders first encountered Westerners on their shores and saw how they would cross the world and kill one another over little slips of worn paper, they assumed the parchments had magical powers. As a result, just as medieval European alchemists had once done, their own scientists began experimenting with paper to uncover its secret code.

Like Peter Pan telling children to simply believe they can fly in order to make it happen, we can literally will money into and out of existence. If you take your bank loan to buy a house, and everyone believes the house will rise in value, well, it does. Wild, isn’t it? It is as if by getting everyone to believe that gravity no longer exists, we could float heavenwards.

However, the moment we all stop believing, everything comes crashing back down to earth. That, too, happens. It happened just a few years ago, and it could happen again. Because you have to believe in this god for it to have power, and we seem to be losing our faith.

Where there is widely shared belief, religion often follows. So yes, perhaps without realising it, you quite possibly have a religion. It’s called economics.

Start with some of the beliefs you hold most dear. That you work for what you earn. That if you paid for it, it’s yours. That it would be therefore wrong for someone else to take it from you. That rich is better than poor. That a growing economy is therefore good and a recession bad. These are a few of what can be called the commandments of economics. They may or not be noble convictions, but it’s difficult to call them facts, or truths, of the sort on which we are meant to build our lives.

Take, for instance, that ‘rich is better than poor’ adage. As a rough rule, it’s not a bad start: most of us do want to get more money. Yet when actually looking at how it plays out in the things that make us happy, it becomes terribly complex. Sometimes it’s true, sometimes it isn’t – or when it’s true, it’s only so under a bunch of conditions. That’s what the science tells us. Despite that, many people live their lives by this rule, to the extent they make themselves miserable and even sick to acquire more money. That is not the science of economics but the religion – and more specifically, religious fundamentalism, of the stick-to-basics, don’t-doubt, don’t-question sort.

How about the belief that you work for what you earn? We use that one to justify being among the richest tenth of the planet’s population. Compare what you are paid to what someone in a developing country gets. For instance, you take home ten times what the average Jamaican does, and sixty times what the average African would, for doing the same job. We usually attribute this discrepancy to our superior skill and hard work, and it seems easy enough to confirm this belief. Suppose you’ve holidayed in the Caribbean, or in some other tropical destination. You might have observed that the workers in the hotel you stayed in moved more slowly or showed less initiative than you might have done during the summer jobs you did to work your way through university. You therefore could have concluded that’s why you ended up the client, and they the servers.

However, while your observation would have been correct, in that Caribbean workers do produce less per hour than workers in Western countries, you’d also have been comparing apples and oranges. If instead you’d compared what one dollar of your wages got your employer in output, you’d have discovered you’re much less productive than that Caribbean worker. In fact, economic research tells us that differences in productivity account for only part of our higher earnings. Moreover, at an individual level, our work and investment plays only a minor role in what we earn. Most of what we take home is determined not by anything we’ve done, but by dumb luck³ – and sometimes, too, outright injustice.

It’s no big news that we pick and choose among the facts, and then further tailor them to our interests, so as to craft a belief system which justifies our place in the world. Humans have always done this. Social historians distinguish between the official religion of clerical establishments and this ‘popular religion’ of common beliefs. All through history, theologians have dedicated their lives to studying arcane points of doctrine only to have the folk in the pews flatten out the nuances to adopt simple beliefs and practices that may even contradict the scholarship. But if economics is our religion, would that make economists our theologians, our priests?

By now, any economists reading this book might be spitting out their coffee. Or not: in recent years the number of economists who see the parallels between their discipline and religion has grown,⁴ and even Nobel laureates have been known to use the term ‘fundamentalism’ to describe strands of economics overly wedded to a particular doctrine.⁵ But a religion, and a priesthood?

Well, think of the role economics plays in our lives. It offers a comprehensive doctrine with a moral code promising adherents salvation in this world; an ideology so compelling that the faithful remake whole societies to conform to its demands; a road map to the promised land and riches there far beyond what any god could offer and moral teachings (albeit in a language often intelligible only to a Talmudic caste, complete with its numerology and symbolism). It has its gnostics, mystics and magicians who conjure money out of thin air, using spells like ‘derivative’ or ‘structured investment vehicle’. And, like the old religions it has displaced, it has its prophets, reformists, moralists and above all, its high priests, who uphold orthodoxy in the face of heresy.

‘But,’ an economist might object, ‘we alone among social scientists get a Nobel Prize for “economic science”. Even mathematicians don’t get that!’ Well, yes, but so what? The Nobel Prize in economics exists only because the economists created it, and it’s a science only because – no prizes for this one – the economists called it a science. To burnish the discipline’s credentials, the Bank of Sweden asked the Nobel Foundation if they could use its name to endow a prize in what they called ‘economic science’.⁶ However, it is a Nobel in name only since it is awarded separately from the Foundation’s prestigious prizes. In reality, economics is wholly unlike any other science that exists. In fact, when you look under the bonnet, you’ll see that it hardly resembles science at all.

For starters, it rests on a set of premises about the world not as it is, but as we – or at least, the economists – would like it to be. Just as any religious service includes a profession of faith, membership in the priesthood of economics entails certain core convictions about human nature. Among other things, economists believe that we humans are self-interested, rational, essentially individualistic, and prefer more money to less. These articles of faith are taken as self-evident. Back in the 1930s, the great economist Lionel Robbins laid down a rule, in language reminiscent of a papal bull, and that has stood ever since as a cardinal rule for millions of economists. He said these basic premises were ‘deduction from simple assumptions reflecting very elementary facts of general experience’ and as such were ‘as universal as the laws of mathematics or mechanics, and as little capable of “suspension” ’.⁷ Now, deducing laws from premises deemed eternal and beyond question is a time-honoured method. For thousands of years, monks in medieval monasteries built a vast corpus of scholarship doing just that, using a method perfected by Thomas Aquinas known as scholasticism. However, it was not the method used by scientists, and this conflict provided part of the backdrop to Galileo’s famous run-in with the Vatican. Scientists since antiquity had elevated observation over deduction, and to this day they tend to require assumptions to be tested empirically before a theory can be built out of them.⁸ Funnily enough, as was mentioned, when the articles of economic faith have been subjected to empirical examination (most often, not by economists), they have been found wanting, or at best terribly nuanced and complicated.

All the same, just as saying ‘Jesus is the son of God’ or ‘Mohammad is God’s prophet’ can affect the way you lead your life, so too can believing in the articles of economics. For instance, research has found that people who study economics tend, over time, to become more self-oriented in their behaviour.⁹ In other words, these beliefs can be used to create a society in the image of economics. That, by the way, is actually the whole purpose of economics. From its birth, it aimed to make the world a better place. Its early practitioners wanted to supplement and sometimes replace existing religious doctrines by helping to guide humans towards a better life not just in the next world, but in this one. We can’t therefore fault economists for trying to make us behave in a way they think will improve our well-being. Believing we are selfish and want to grow richer, they recommend social and political changes to help us reach those goals. They are, in that respect, true idealists.

Still, that doesn’t make what they do a science. Compare economics to physics, not only because physics is often considered the scientific ideal – the true science – but also because most economists have long modelled their own discipline on physics. Physicists strive only to understand nature. They can’t, however, change it. Getting us to all stop believing in gravity won’t stop gravity. On the other hand, if, say, we all stop believing house prices will rise, then lo and behold they will stop rising (since people will no longer see them as a good investment and will stop buying them). Economics thus differs from science in that it goes beyond merely trying to discover the laws of nature, to actually making them.

Economics also differs from science in the way it evolves over time. The progress of science is generally linear. As new research confirms or replaces existing theories, one generation builds upon the next. Newton moved beyond Aristotle’s physics, Einstein improved on some of Newton’s, and so on. The history of science is thus littered with old theorems that died out in the face of scientific advancement. Economics, however, moves in cycles. A given doctrine can rise, fall and then later rise again. That’s because economists don’t confirm their theories in quite the same way physicists do, by just looking at the evidence. Instead, much as happens with preachers who gather a congregation, a school rises by building a following – among both politicians and the wider public.¹⁰

For example, Milton Friedman was one of the most influential economists of the late twentieth century. Yet he’d been around for decades before he got much of a hearing. Outside the academy, he might well have remained a marginal figure had it not been that politicians like Margaret Thatcher and Ronald Reagan were sold on his belief in the virtue of a free market. They sold that idea to the public, got elected, then remade society according to those designs. An economist who gets a following, gets a pulpit. Although scientists, in contrast, might appeal to public opinion to boost their careers or attract research funds, outside of pseudo-sciences, they don’t win support for their theories in this way.

However, if you think describing economics as a religion debunks it, yo...

Table of contents

• Cover
• 1. I Believe I Can Fly
• 2. God of Gold
• 3. Prophets for a Material Age
• 4. The Early Conversions
• 5. Filling the Pews
• 6. Horsemen of the Apocalypse
• 7. The Neoclassical Schism
• 8. The Golden Age
• 9. Into the Valley of the Shadow of Death
• 10. The People in Darkness
• 11. The Keynesian Revelation
• 12. The New Jerusalem
• 13. The End of Eden
• 14. The Great Neoclassical Awakening
• 15. Missionaries in Heathen Lands
• 16. The Return of the Prophet
• 17. There Is No Alternative
• 18. The New Age
• 19. Magic and the Millennium
• 20. ‘Honey, I Shrunk the Economy!’
• 21. Let Them Eat DSGE Models
• 22. The Twilight of the Money Gods
• Acknowledgements
• Notes
• Index
• Copyright