Like blood in Goethe’s Faust, money ‘is a very special fluid’. It circulates in the body political-economic, whose sustenance depends on its liquidity.footnote1 And it is surrounded by mystery. In fact, money is easily the most unpredictable and least governable human institution we have ever known. Allegedly invented as a general equivalent, to serve as an accounting unit, means of exchange and store of value, it has over time penetrated into the remotest corners of social life, constantly assuming new forms and springing fresh surprises. Even Keynes had to admit that his attempt at A Treatise on Money (1930) ran into ‘many problems and perplexities’. How money came to be what it is today, in capitalist modernity, may perhaps with the benefit of hindsight be reconstructed as a process of progressive dematerialization and abstraction, accompanied by growing commodification and state sponsorship. But how money functions in its present historical form is more difficult to say; where it is going from here, harder still. This social construction has always been beset with, and driven by, unanticipated consequences—caused by human action, but not controlled by it.

Money, the product of finance, is an enigma and always has been. Even the chief engineers of the revitalization of global capitalism by way of its financialization in the late twentieth century, the Alan Greenspans and Gordon Browns, did not know what was growing under their hands. To reassure themselves—and everyone else—they resolved that ‘market participants’ would, if left to pursue their own interests, build the most stable of all possible financial worlds. Public regulators merely had to clean up the mess whenever a bubble burst, as it inevitably would. Debates about the causes and consequences of the 2008 collapse have so far had little effect on the direction of long-term underlying trends. The global money supply continues to expand considerably faster than the world economy, as it has since the 1970s. Broad money was 59 per cent of global gdp in 1970, 104 per cent in 2000 and 125 per cent in 2015; and yet there has been almost no inflation in the leading capitalist economies since the 1980s, even though interest rates are at record lows—close to zero, sometimes even negative. Nobody can really explain this. Indeed, discussions are still ongoing about what caused the high inflation of the 1920s and—less dramatic—the 1970s. What is growing, alongside money, is debt: up from 246 per cent of global gdp in 2000 to 321 per cent in 2016. This includes both public and private debt. Public debt increased markedly after 2008, while private household debt in the United States now exceeds the gdp of China, itself one of the most indebted countries in the world. Debt is a promise of future repayment with interest: a promise that one must believe. While it is clear that there must be a limit to debt—the point at which the promise of repayment becomes unrealistic—nobody knows exactly where this limit is, nor what would happen if it was exceeded.

Joseph Vogl’s The Ascendancy of Finance does not try to settle these questions. What it does do, however, is to lead us into the heart of darkness of today’s financialized capitalism, the place where money is made and whence it spreads. A professor of German literature at Humboldt University, Berlin, Vogl was a translator of Foucault, Deleuze and Lyotard in the 1990s, and has since focused on the inter-relations of political philosophy, literature and economic theory. Kalkul und Leidenschaft (2008) analysed the marriage of Enlightenment-era ‘calculus and passion’ in Leviathan, Wilhelm Meister and Lillo’s London Merchant. Two years later, Das Gespenst des Kapitals (published in English as Spectre of Capital) detected a strain of secularized theodicy within liberal economic thought which Vogl dubbed Oikodizee. Now, in The Ascendancy of Finance, Vogl skips over money’s long prehistory and social anthropology—on cowry shells and camels, see, inter alia, David Graeber, Debt: The First 5,000 Years (2011)—to transport the reader to the early modern period, which saw the rise of both the modern state and large-scale finance. That their births coincided, Vogl argues, is no accident. State power and finance are, in fact, Siamese twins, sometimes at odds with one another but always interdependent. Money is, as it were, the oldest public–private partnership: at one and the same time private property and public good; tradeable commodity and central-bank monopoly; credit and debt; a creature of the market and of the ‘grey area’ between market and state. The relationship undergoes continuous permutation. Yet despite its ever-changing and often downright bizarre forms, money can be traced to just two sources, both located in the force-field between states and markets. One is the creativity of all sorts of traders seeking new devices—in the modern jargon—to cut transaction costs, from promissory notes to bitcoin, assisted and exploited in equal measure by a growing financial sector which buys and sells, for profit, the commercial paper used by traders to extend credit to one another. The second is the need of states to finance their activities through debt or taxes—usually both—and to keep their economies in good health by providing businesses with safe means of exchange and abundant opportunities for ‘plus-making’. How these processes work together to create modern money is impressively described by Vogl over two chapters.

Money speaks, it is said, and its first words are always: trust me. Given the obscure circumstances of its production, this seems to be asking a lot. As economic exchange became more extended and opportunities for confidence tricks—from John Law to Standard and Poor’s—proliferated, so trust in money, essential for the capitalist economy, had to be safeguarded by state authority. States, or their rulers, have since time immemorial made money trustworthy by certifying it with their stamp of approval. This afforded them an opening to appropriate a fraction of its value in the form of what is called seigniorage, as well as providing manifold occasions for abuse, such as debasing the currency. An important contribution to the credibility of states as stewards of money was the seventeenth-century invention of permanent public debt, in parallel with the transition from personal to parliamentary rule and the introduction of regular taxation. These developments guaranteed the state’s creditors the reliable servicing of outstanding balances. Public debt could now be subdivided into low-denomination debt certificates, and these could circulate as means of payment, because the state could be trusted to accept them in payment of taxes, or in exchange for whatever it had promised to deliver when issuing its debt as currency. Moreover, private credit as extended by banks to trustworthy debtors could be denominated in public debt, making the sovereign state the economy’s debtor of last resort.

Today’s money of paper notes and electronic ledgers represents a complex pyramid of private and public promises of future settlement of present accounts, secured and securitized in virtually unending chains of formal contracts and informal understandings. How could people—and peoples—have entrusted their lives to this dubious co-production of banks and states, this accident-prone social construction, despite the long history of financial scandals and crises extending from the seventeenth century to our own times? In elegant historical-institutionalist fashion, Vogl recounts the long story of modern money’s development, tracing the co-evolution of sovereign states and financial markets—each needing the other in defence of its own credit and credibility. Drawing on impressive historical and philosophical erudition, Vogl sets out from early modern theorists of the state and state sovereignty—we encounter inter alia Montchrétien, Naudé, Malebranche, Leibniz, Rousseau, Smith. They are read in the light of the heavy dependence of public finance and national-economic prosperity on the goodwill of private capitalists—the latter, in turn, reliant on the state’s readiness to use its monopoly of legitimate violence in support of enterprising financial adventurers who, like alchemists, transmute the dirt of debt into the gold of legal tender.

A critical manoeuvre in Vogl’s conceptual strategy is that he radically breaks with the liberal antinomy of states and markets, or politics and the economy, insisting instead on their historical and systemic interdependence: no state sovereignty without credit; no credible finance without sovereign reinsurance. This is why he pays no attention to utopian projects of reform aimed at terminating money’s public–private dualism: either by privatizing it à la Hayek or, as it were, ‘statizing’ it along the lines proposed by Irving Fisher in 100% Money (1935) or the current Vollgeld (sovereign money) movement. Money lives and grows and becomes profitable by what Vogl—in the title of the German original—calls the Souveränitätseffekt, which radiates from the sovereign state onto the wheeling and dealing of the financial marketplace, backing up these contractual transactions with coercive public authority. In this way, Vogl more or less explicitly writes off the good old orthodox Marxist distinction between base and superstructure (indeed, following Foucault, the base—in the sense of the overall organization of production and consumption, is absent from Vogl’s picture). Finance can only be what it is if it partakes in the state, and the state develops into a value-creating economic agent as it extracts seigniorage from its money production and invites the financial industry to cash in. In fact, according to Vogl, states became sovereign by co-opting finance into their emerging sovereignty and parcelling out part of that sovereignty to the markets, thereby creating a private enclave within public authority endowed with a sovereignty of its own. Just as modern society could not have been monetized without state authority, so the state could only become society’s executive committee by making finance the executive committee of the state.

Money, then, emerges in what Vogl calls ‘zones of indeterminacy’, where private and public interests are reconciled by assigning public status to the former and privatizing the latter. The result is a complex interlocking of conflict and cooperation generative of, and benefiting from, what Vogl calls ‘seigniorial power’—a relationship in which the state and finance undertake to govern one another and, together, society at large. Zones of indeterminacy, Vogl writes, ‘have an ambiguous relation to both sides, they are encouraged and restricted by state authority, they can either boost or inhibit the exercise of political power, and they can stimulate or obstruct (for example through monopolization) market mechanisms’. Financial systems need state regulation to remain responsible and trustworthy, but too much regulation drives money away and thereby undermines the viability of the state. States, in turn, don’t just need robust banking systems for the economy but also credit for themselves, for which they must be in a credible position to promise conscientious repayment, with interest. If they default, they may lose access to financial markets, and their financial industry—and perhaps that of allied countries too—may have to default as well.