AARON SAHR is a philosopher turned economic sociologist. He is Visiting Professor at Leuphana University Lüneburg, Germany, and head of the Monetary Sovereignty research group at the Hamburg Institute for Social Research. His research interests include the sociology of money, facts and fictions about monetary policy, the history of capitalism, inequality, and social ontology.

Keystroke Capitalism

How Banks Create

Money for the Few

Aaron Sahr

Translated by Sharon Howe

The translation of this work was funded by

Geisteswissenschaften International – Translation Funding

for Work in the Humanities and Social Sciences from

Germany, a joint initiative of the Fritz Thyssen Foundation,

the German Federal Foreign Office, the collecting society VG

WORT and the Börsenverein des Deutschen Buchhandels

(German Publishers & Booksellers Association).

First published by Verso 2022

First published in German as Keystroke Kapitalismus:

Ungleichheit auf Knopfdruck © Hamburger Edition 2017

© Aaron Sahr 2022

Translation © Sharon Howe 2022

All rights reserved

The moral rights of the author have been asserted

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Verso

UK: 6 Meard Street, London W1F 0EG

US: 20 Jay Street, Suite 1010, Brooklyn, NY 11201

versobooks.com

Verso is the imprint of New Left Books

ISBN-13: 978-1-83976-119-5

ISBN-13: 978-1-83976-121-8 (US EBK)

ISBN-13: 978-1-83976-120-1 (UK EBK)

British Library Cataloguing in Publication Data

A catalogue record for this book is

available from the British Library

Library of Congress Cataloging-in-Publication Data

A catalog record for this book is available

from the Library of Congress

Typeset in Sabon by Biblichor Ltd, Edinburgh

Printed and bound by CPI Group (UK) Ltd, Croydon, CR0 4YY

Alles gehört dir

Eine Welt aus Papier

Alles explodiert

[Everything belongs to you

A world made of paper

Everything’s exploding]

Tocotronic (German indie rock band)

Contents

Introduction

I. Debt

Capital Supply

The Debt Mentality

From Control to Protection

Sociotechnical Innovations

Appreciation and Depreciation Mechanisms

#ownership

II. Ownership

From System to Practice

Economic Practices

Capitalist Practices

#capacity

III. Capacity

Written Values

Distributive Institutions

Capital Producers

#appropriation

IV. Appropriation

The Dualism Within the Political Economy

Asset Inflation – the Para-Economic Complex (I)

Looting Circles – the Para-Economic Complex (II)

Interest Income – the Para-Economic Complex (III)

#change

V. Change

Legitimatory Homelessness

Unstable and Dysfunctional

Should Banks Be Economized?

Should Money Creation Be Democratized?

#keystrokes

Notes

Index

Introduction

The total volume of privately owned wealth in the world today is approximately 418 trillion US dollars. That is almost five times global economic output.¹ In prosperous countries such as the US, the UK or France, private wealth amounts to roughly five or six times annual GDP. Even in post-communist China, it has now risen to four and a half times the country’s economic product.²

This record wealth stands in relation to two other phenomena which together point to a social crisis and, as such, form the subject of this book. Alongside booming private wealth, the world is struggling with an unprecedented level of debt: Governments, companies and consumers were indebted to the tune of almost 200 trillion dollars in 2019.³ That the world can accumulate such a vast private fortune while being simultaneously this deep in debt – unthinkable in the mid-twentieth century – is, needless to say, no accident. One person’s debts are, of course, another person’s assets. A good half of private wealth consists of financial assets in the shape of bank deposits, investment fund or insurance claims, government loans, shares and so on⁴ – in other words, assets whose value rests on someone else’s promise to pay up. And their volume is constantly mounting. Many experts have been warning for years that private and public debt has reached such a peak that it can never be paid off with income from normal economic processes.⁵

Furthermore, there is a dynamic causal relationship between the growth of private wealth and the increasing indebtedness of OECD countries, which, in turn, points to a third phenomenon: the crisis of inequality. Income and wealth as well as debt itself are becoming increasingly unevenly distributed. In world terms, the income of the so-called global middle classes has risen in recent years, and, to that extent, there has been a slight relative reduction of the disparity between nations.⁶ However, a look inside some of the wealthier countries reveals a very different picture. In the immediate aftermath of World War II, the share of wealth concentrated among the highest-earning, richest percentage of the wealth pyramid fell in many developed OECD countries. Yet hopes that this would lead to continuous and lasting progress towards more egalitarianism were disappointed.⁷ Since the late 1970s, the distribution of income, and particularly of private wealth, has once again become increasingly asymmetrical. Between 1978 and 2015, for example, the poorer half of the US population saw the real (inflation-adjusted) purchasing power of its income fall by 1 percent. Over the same period, the real income of the richest 1 percent rose by nearly 200 percent.⁸ In France, a country that arguably is representative of the Western European model,⁹ income has grown by around 1 percent per year since the mid-1970s. If we subtract the 1 percent of the population with the highest income, however, that leaves just 0.6 percent of income growth for the remaining 99 percent. And the situation is comparable in most countries in the OECD.¹⁰

The same pattern is observable for wealth distribution: in the early 1960s, for example, the richest 10 percent of the UK’s population owned approximately 67 percent of private wealth, while the richest 10 percent in France and the US owned around 70 percent. Twenty years later, this share dropped for a time to below 50 percent in the UK, around 50 percent in France, and a good 60 percent in the US.¹¹ Then came the turnaround, and, by about 2010, the UK’s richest citizens had regained almost 54 percent of total private wealth, with France at roughly 56 percent and the US at just under 74 percent – a trend that continues to this day.¹²

Given this state of affairs, modern sociologists cannot, as Pierre Rosanvallon observes, treat economic inequality as a ‘legacy of the past’ amid a long-term global trend toward equality.¹³ On the contrary, we are currently witnessing ‘a spectacular break with the past, reversing the trend of the past century’.¹⁴ And it is the job of social science to establish the causes of that break.

Observers whose social instincts veer towards economic liberalism sometimes criticize research on inequality for disregarding the interests of real people. According to them, instead of getting worked up over the fact that almost all the world’s capital is concentrated in the hands of a few people and thereby stoking envy-fuelled debate, we should focus our critique on poverty, not inequality.¹⁵ On this front, they argue, a little can go a long way. Even small investments can have a far greater impact than costly, complex and normatively controversial redistributive policies, for instance. While there is certainly some truth to this, the suggestion that poverty is the ‘real’ evil points to a problematic theoretical construct of (neo) liberalism: the idea that economics is essentially a function of individuals – and not, as economic sociology would have it, a matter of structures. Liberal economic theorists from Adam Smith to Milton Friedman regard economics as a function of autonomous households using capital to improve their financial situation. According to this tradition, combating poverty means improving the ‘market potential’ of households without capital through transfer payments and education aimed at enhancing people’s ‘marketability’. As such, the call to focus on poverty rather than inequality, which – not by chance – came into vogue with the dawn of the neoliberal age, assumes a classically liberal (political) economy that simply ignores structural factors such as asymmetrical capital ownership or the unequal distribution of advantages arising from economic systems or social circumstances.¹⁶ This is not in any way to deny the often life-threatening urgency of poverty as a social problem. The fight against poverty saves lives and needs to be escalated. But to expect the social sciences to stop worrying about economic inequality for that reason is not a scientific demand but a political one that plays into the hands of those who benefit disproportionately from the system. Indeed, attempts to divert attention from inequality by talking about poverty actually hinder effective anti-poverty measures, as highlighted not least by the World Bank.¹⁷ The way forward, therefore – and the intended purpose of this book – is to identify the structures that favour the few and disadvantage the many. One of these structures is the financial system.

Financial wealth is even more unevenly distributed than wealth as a whole. In the US, over 90 percent of company shares, bonds and receivables from investment funds and trusts belong to the richest 10 percent, as do a good 60 percent of life insurance policies, bank deposits and pension claims. In short, a relatively small minority owns a substantial majority of financial assets – and it is more or less the same story the world over.¹⁸ The higher up the wealth distribution pyramid you go, the higher the ratio of financial to material assets. This is all the more significant because the holder of a financial asset – the creditor – is entitled to interest and principal payments from the borrower. In other words, unlike material goods such as houses, cars, machinery, land and so on, all financial assets are also transfer relationships. Income from these relationships grows in size and proportion to total income the closer you get to the top of the pyramid.¹⁹

The majority of borrowers in these transfer relationships are at the poorer end of wealth distributions. While citizens of the eurozone, for example, including the richest 10 percent, hold an average debt of 20 percent of their assets, the lowest-earning 20 percent owe roughly 110 percent of their assets, and are thus on average hopelessly overindebted.²⁰ In the early 1980s, the lowest-earning 95 percent of the US population recorded lower average levels of debt than the top 5 percent. By the mid-2000s, however, the 95 percent had doubled their debt ratio and were significantly overindebted, while the highest-earning 5 percent had actually reduced their debt levels.²¹ It is a fact that the financial system has become increasingly asymmetrical over the past twenty-five years. Because financial assets (mostly concentrated among the few) and debts (mostly among the many) are two sides of a relationship shaped around the promise of payment, the system of financial investment has intrinsic wealth effects: the prosperous tip of the wealth pyramid and the poorer lower half are not unrelated, with the ‘haves’ on one side of the fence and the ‘have-nots’ on the other; rather, the minority at the top, by holding the bulk of financial wealth, are the creditors of the majority. As promises of payment, financial assets channel interest and principal payments from the borrowing majority to the lending minority. In other words, the financial system acts as a mighty transfer system from the bottom up. In order to get to grips with the trinity of private wealth, record debt and rising inequality, we therefore need to understand how the financial system managed to get so large and powerful while at the same time becoming increasingly asymmetrical.

In point of fact, the growing financial assets of the few, which also constitute the growing debts of the many, reflect a restructuring of global capitalism in the second half of the twentieth and the early years of the twenty-first century. This restructuring began with the process of financialization: triggered by a relaxation of the rules governing the financial industry and the invention of innovative products, the financial system has, since the late 1970s, become an increasingly attractive place to accumulate capital. More and more capital income has been generated by investing in debt and less and less by investing in labour, industry and other sectors of the real economy. If you want to understand why there is so much private wealth, and why it is so unevenly distributed, you first have to look at why so many financial assets – and hence so many debts – are produced in the first place, and why these investments have become so profitable. Chapter One lays the foundations for this inquiry, pointing to the peculiarity of the driving