Naked capitalism”Kill the King-Why are we so scared of Fiat Money ?”

naked capitalism




Philip Pilkington: Kill The King – Why Are We So Scared of Fiat Money?

Posted: 20 Feb 2013 10:17 PM PST

By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil

“If it were done when ’tis done, then ’twere well if were done quickly.”
– Macbeth contemplating the killing of King Duncan

If a Martian were to visit planet Earth there is no doubt that it would find it bizarre how we relate to our current monetary system. Reactions to it range from the blithely uninformed commentator convinced that central banks are places before which we have to kneel; to the strident libertarian insisting that fiat money is the root of all evil and will only lead to Apocalypse. These are nice stories but the reality of fiat currency regimes, as the Modern Monetary Theorists have shown so well, is far more banal.

Money is just a token that we use to “keep score” of the debts we owe one another. It is just a unit of account that helps us keep track of who has given who what. Having a central quasi-governmental power in the form of a central bank simply helps us to do this and allows governments to extend deficit-financing in order to keep economic activity stable.

So, what accounts for the visceral reactions we see toward the system? Why do some bow down as if to a deity, while others recoil in horror as if confronted with a demon? The hint to this lies in the way we moderns relate to government and power. The fiat money system is an embodiment of arbitrary power and we in the modern world distrust this. Money is accepted largely by edict in that it is fiat money in which we can pay our taxes and it is also fiat money in which contracts can be legally settled.

Lying behind every dollar, euro and yen is a jailor and a judge who are ready to deprive us of our rights and our freedom should we choose not to play by the rules of the game. It is this aspect of the system that accounts for the strange reactions we see surrounding it. It is this aspect of the system that leads some to hide from themselves the reality of the system and imbue it with an auratic glow and leads others to hysterically attack it as a grave injustice and evil. To get to the heart of this matter we must understand better how we relate to political power today.

Right of Death and Power Over Life

In 1976 the French philosopher and historian of ideas Michel Foucault published what may have been the most important political analysis of the 20th century. Strangely, the analysis came at the end of a book entitledThe History of Sexuality Volume I. Although it may appear odd at first it was in his excavations of the meaning of modern discourses on human sexuality that Foucault found what was likely the most important development of ideas in human history.

Foucault noted that prior to the 18th century and the rise of Enlightenment the manner in which Westerners – and probably everyone else – related to sovereign power was quite straight-forward. Under the system of monarchy there was a King whose power was in theory absolute. In reality, however, such was not the case. Where the Kings of the distant past did indeed have absolute power over the life and death of their subjects, Kings in the more recent past only had the right to their subjects’ lives only should the sovereign himself be under threat somehow. Although this eroded the sovereign’s power somewhat, the relationship between the King and his people was still largely the same. Foucault puts it as such:

In its modern form – relative and limited – as in its ancient and absolute form, the right of life and death is a dissymmetrical one. The sovereign exercised his right of life only by exercising his right to kill, or by refraining from killing; he evidenced his power over life only through the death he was capable of requiring. The right which was formulated as the “power of life and death” was in reality the right to take life or let live. (136)

This is the crux of the issue. In the past the sovereign’s power lay in the right over the life of those under him. The sovereign had the right to send his subjects into battle to die in his name, just as he had the right to have them tortured and killed should they break his laws.

But this was not simply the power to extinguish life. Indeed, the right to seize hold of life itself was only an extreme case of a right to seize the subject more generally, a right to expropriate anything the subject owned – from his life to his land:

Power in this instance was essentially a right of seizure: of things, time, bodies, and ultimately life itself… a right to appropriate a portion of the wealth, a tax of products, goods and services, labor and blood, levied on the subjects. (136)

Here we see the historical precedent behind many aspects of our current systems of government. Our governments too exercise these rights. They, in the last instance, have the right to our lives should the nation fall under threat and, in less extreme form, they have the right to seize our property in the form of taxes. However, they exercise them in a wholly different form and for wholly different ends.

It would not be too much of an exaggeration to say that in the pre-Enlightenment feudal era all state activity was basically geared toward extraction by the sovereign. This was, in many ways, seen as an end in itself. The Lord had the right to extract from the serf; the King had the right to extract from the Lord and so on; this was a divinely sanctioned system and such extraction was, at the end of the day, for the glory the ultimate sovereign: God.

However, as people began to question the justice of this system they began to formulate a new system of governance which is the one we are familiar with today. Enlightenment thinkers began to conceive of a system of governance whose goal would be to foster life rather than to threaten death. In contrast to the negative relationship between the sovereign and his subjects – based as it was on subtraction and extraction – this new form of governance would constitute a positive relationship through which people should grow and multiply. This is a system of governance based upon the fostering of life and the improvement of the species. Foucault referred to this new positive form of power as “biopower” which he contrasted with the old negative form of sovereign power.

Foucault claimed that as biopower came to dominate more and more of our states’ and governments’ functions we tried to distance ourselves ever more from the negative, sovereign dimension of power. This dimension of power gradually became more and more offensive to us. Its last true historical manifestation in the West was the fascist regimes who, in their rhetoric of sacrifice and blood and their appeal to the old symbols of the Kings, tried one last time to place sovereign power rather than biopower at the heart of the modern state. They failed and such dangers now exist in every persons’ mind.

The entire modern project of governance then, with all its dreams of freedom, can be seen at a basic level as an attempt to extract the sovereign powers from our modern state. It can be seen, in a very real sense, as a protracted attempt to kill the King.

Death and Taxes

The reality of modern governance, however, is somewhat different. In fact, a state cannot truly function through the fostering of life alone. A state always needs a dimension of sovereign power. Even if its goals are noble and it shies away from sovereignty as best it can, it still requires a dimension of sovereignty in order to sustain itself. It requires the ability to go to war, to lock up criminal offenders and to fund itself through the imposition of a system of taxation and fiat money creation.

And so we arrive at a central contradiction. Most of us want a state that does away with sovereign power once and for all and leaves us in charge of our own lives, and yet at the same time in order to have such a benign state we need to also imbue it with some degree of sovereign power. It is this contradiction that leads to the strange reactions we see toward modern money regimes the power of which as we have seen are backed by sovereign power plain and simple. Some people simply want to ignore this dimension of sovereign power completely and, if not pretend that it does not exist altogether, at the very least push it to the back of their minds and pretend that it all has something to do with a “science” called economics. Others get neurotically het up about the system and try to concoct fantasy worlds in which such sovereign power is simply not an issue.

Both approaches are dangerous in their own way. If the hysterics had their way the liberal state would lose its means to sustain itself and would begin to fall apart. As it became unable to fulfil its functions of fostering life law and order would break down and there would be a real threat that naked sovereign power of the fascist type would rear its ugly head once more. This is precisely, for example, what is happening in Greece at the moment. As the liberal state crumbles under austerity fascist parties surface carrying with them flags emblazoned on which are the symbols of naked sovereignty. Human beings need some sort of sovereignty in place to function and an attempt to do away with sovereignty altogether by starving a government of its sovereign powers only results in much worse forms of sovereignty rising to power.

The myopic herd, on the other hand, are dangerous because in their blindness they completely misunderstand how the system works. In their naïve idea that they live under a system of “free” markets where the state plays a minimum role – in their ignorance, that is, of the dimension of sovereignty in modern societies – they support policies that generate chaos and mismanagement.

What is needed then is a complete re-evaluation of the system. The system itself can be extremely functional if managed correctly. However, in order to do this we need to come to terms with the dimension of the state’s sovereignty. Yes, in a good society this dimension will be minimised as best we can – extracted resources, for example, will be turned to fostering life rather than building weapons of death – but to completely ignore the sovereign face of the modern state is a grave error.

After the Second World War we managed to come to terms with the sovereign nature of the state with reference to the Cold War. Big government was needed to protect the state and keep the enemy at bay. Today, however, we lack and enemy and while this makes our coming to terms with sovereignty all the more difficult, at the same time it provides a real opportunity to have the sovereign face of the state serve the fostering of life rather than the dissemination of the weapons of death.