The crisis of the world economy is not merely financial, a moment in the historical cycle of credit and debt. In what follows I approach the crisis more generally as a moment in the history of money. The removal of political controls over money in recent decades has led to a situation where politics is still mainly national, but the money circuit is global and lawless. The crisis should be seen as the collapse of the money system that the world lived by in the twentieth century. This has been unravelling since the US dollar went off gold in 1971, a new regime of floating currencies emerged and money derivatives were invented in 1972. As the need for international cooperation intensifies, the disconnect between economy and political institutions undermines effective solutions.

2011/12 is the political consequence of the financial crisis of 2007/8. There is still a tendency to see the potential disaster we are living through in economic rather than political terms. In this respect, neoliberalism’s detractors often reproduce the free market ideology they claim to oppose. The euro is by no means the only symptom of this crisis, but it may well be seen in retrospect as the decisive nail in the coffin of the world economy today. One way of approaching our moment in history is to ask not what is beginning, but what is ending. This is not straightforward.

What is ending is “national capitalism”, the synthesis of nation-states and industrial capitalism. Its main symbol has been national monopoly currency (legal tender or central bank money). It was the institutional attempt to manage money, markets and accumulation through central bureaucracy within a cultural community of national citizens. National capitalism was never the only active principle in world political economy: regional federations, empires and globalization are at least as old or much older.

National capitalism’s origins lay in a series of linked revolutions of the 1860s and early ‘70s based on a new alliance between capitalists and the military landlord class.  These ranged from the American civil war and Japan’s Meiji restoration to Italian and German unification, Russia’s abolition of serfdom, the French Third Republic and Britain’s second Reform Act. Amongst all this, Marx published Capital and a revolution in transport and communications (steamships, continental railways and the telegraph) took place.

These new national governments launched a bureaucratic revolution in the late nineteenth century and then sponsored large corporations in a drive towards mass production. The national system became generalised after the First World War when states turned inward to manage their economies in war and depression. Its apogee was the social democracy built after 1945, what the French call les trente glorieuses.

Money as a source of nationhood

Money expands the capacity of individuals to stabilise their own personal identity by holding something durable that embodies the desires and wealth of all the other members of society. People learn to understand each other as members of communities and money is an important vehicle for this. They share meanings as a way of achieving their practical purposes together.

Nation-states have been so successful in a relatively short time that it is hard for us to imagine society in any other way. Five different types of community come together in the nation-state:

•        political community: a link to the world and a source of law at home

•        community of place: territorial boundaries of land and sea

•        imagined or virtual community: the constructed cultural identity of citizens

•        community of interest: subjectively and objectively shared purposes in trade and war

•        monetary community: common use of a national monopoly currency

The rise and fall of single currencies is therefore one particular way of approaching national capitalism’s historical trajectory.

Money is the principal means for us all to bridge the gap between everyday personal experience and a society whose wider reaches are impersonal. According to Georg Simmel (in The Philosophy of Money, 1900), it is the concrete symbol of our human potential to make universal society. At present national politics and media frame economic questions in such relentlessly parochial terms that we find it hard to think about the human predicament as a whole. But money is already global in scope and the need to overcome these limitations is urgent. My fear is that only a major war and all the losses it would bring will concentrate our minds once more on fixing the world we live in.

Karl Polanyi’s The Great Transformation (1944) is enjoying a major revival today for the good reason that our crisis is strongly reminiscent of the disaster he sought to explain then, namely the collapse of the Victorian free market ideal, resulting ultimately in The Great Depression. He listed money, along with land and labour, as a “fictitious commodity” whose unregulated exchange came close to the buying and selling society itself. He held that money and markets originate in the extension of society beyond its local core; society has to become more inclusive since none was ever self-sufficient. But conflict between the internal and external dimensions of an economy is often highly disruptive. This is why, historically and anthropologically speaking, societies have traditionally held markets at arm’s length and why acceptance of market principles at the core of modern societies invites disaster.

Mainstream economics says more about what money does than what it is. Its main function is held to be as a medium of exchange, a more efficient lubricant of markets than barter. Another school emphasizes money’s function as a means of payment, especially of taxes to the government and hence on “purchasing power”. It is also a standard of value or unit of account, with the focus again on government’s role in establishing the legal conditions for trade; while John Locke conceived of money as a store of wealth, a new form of property that allowed the accumulation of riches to escape from the limitations of natural economy.

In a little-known article, “Money objects and money uses”, Polanyi later approached money as a semantic system, like writing. He argued that only modern money combines the four functions (payment, standard, store and exchange) in a few “all-purpose” symbols, national currency. By contrast, primitive and archaic forms of money attached the separate uses to different symbolic objects or “special-purpose” monies.  Polanyi argued against the primacy of money as a medium of exchange and for a multi-stranded model of its evolution.  For him and for Keynes, it was above all a means of payment or the “purchasing power” of citizens which drives modern economies, not so much a medium of exchange for buying and selling as such.

Although this analysis was intended only to illuminate the history of money, Polanyi’s approach offers profound insight into the causes of today’s global economic crisis. Our challenge is to conceive of society once more as something plural rather than singular, as a federated network rather than as a centralized hierarchy, the nation-state. The era of national monopoly currencies is very recent (from the 1850s); it took the United States, for example, half a century to secure an uncontested monopoly for “greenbacks”; and “all-purpose money” has been breaking up for four decades now, since the US dollar was de-pegged from gold.

What comes after national currencies?

Since the break-up of the Bretton Woods system of fixed parity exchange rates, the world economy has reverted to the plural pattern of competing currencies that was normal before central banks learned how to control national economies in the second half of the nineteenth century through the bank rate, for example. One aspect of the crisis is that the international rule system imposed after the Second World War was systematically subverted by the creation of an offshore banking system which brought the informal economy to the heart of global finance. Nick Shaxson’s Treasure Islands (2011) provides an astonishing account of how the City of London replaced the colonial empire it lost with another based on tax havens. The separation of functions between different types of monetary instruments was also crucial to money’s great escape from the rules of the Keynesian consensus, that was institutionalised in the Bretton Woods system. Central bank control was eroded by a shift to money being issued in multiple forms by a global distributed network of corporations, not just governments and banks.

Some brief examples must serve to indicate the momentous changes that have overtaken money in the last few decades. In Switzerland today, euros are commonly accepted in shops alongside the national currency. If you pay with a card, you can often choose the unit of account (Swiss franc, euro, pound sterling, US dollar). But only francs are acceptable for payment of local taxes.

Are national currencies a store of wealth? Hardly -- they have all been radically depreciated and may even disappear; hence the flight to gold. But gold could turn out to be the biggest asset bubble of them all. As for real estate, the collapse of subprime mortgages got us into the present mess. And we have not even touched on what credit default swaps and collateral debt obligations are used for or who issues them. The shadow banking system -- hedge funds, money market funds and structured investment vehicles that lie beyond state regulation – is literally out of control.

Simmel considered money’s twin anchors to be its physical substance (coins, paper etc.) and the social institutions supporting the community of its users. He predicted that the first would wither away, making the second more visible. Radical cheapening of the cost of transferring information as a result of the digital revolution in communications has been transforming money and exchange for two decades now, confirming Simmel’s prophecy. But globalization has made national society seem a lot less self-sufficient than it did a century ago.

This process whereby markets, money and telecommunications have extended society rapidly beyond national boundaries, even as they have invaded the core institutions of domestic society, is fraught with danger. We need to extend systems of social rights to the global level before the contradictions of the market system collapse again into world war. But local political organization resists such a move. After centuries of a unipolar divergent world economy ruled by the West, ours is a multi-polar world whose plurality of associations and convergent income distribution resembles the medieval period more than any since.

The legacy of past mistakes

The monetary crisis that has overwhelmed the eurozone of late needs to be seen in this context. The apparent triumph of the free market at the end of the Cold War in 1989/90 induced two huge political blunders, both of them based on the premise that society should be shaped by market economy rather than the other way round. Radical privatization of Soviet bloc public economies ignored the common history of politics, law and social custom that shored up market economies in the West, thereby delivering the economy into the hands of gangsters and oligarchs. And the European single currency was supposed to provide the social glue for political union without first developing effective fiscal institutions or economic convergence between North and South.

The big mistake was to replace national currencies with the euro. An alternative proposal, the hard ecu, would have floated politically managed national currencies alongside a low-inflation European central bank currency. Countries that didn’t join the euro, like Britain and Switzerland, have in practice enjoyed the privilege of this plural option. Eurozone countries cannot devalue and so must reduce their debts through deflation or default. Argentina’s example of default after the peso crashed is directly relevant to countries like Greece and Spain today. The euro was invented after money was already breaking up into multiple forms and functions. The Americans centralized their currency after a civil war; the Europeans centralized theirs as a means of achieving political union.

The infrastructure of money has already become decentralized and global. A return to the national solutions of the 1930s or to a Keynesian regime of managed exchange rates and capital flows is bound to fail. Where are the levers of democratic power to be located, now that globalization has exposed the limitations of national economic management? The cultural logic of national capitalism leads the political classes who got us into this mess to repeat the same mistakes. Politics is a dialogue of the deaf, between those who deny the need for any political regulation of markets and others who remain trapped in the outmoded model of central bank money.

The idea of world society is still perceived by most people as at best a utopian fantasy or at worst a threat to us all. We need to build an infrastructure of money adequate to humanity’s common needs. “Economy” has multiple meanings, but the idea of putting ones house in order in a world shaped increasingly by markets combines several of them. In this conception, economy is pulled inwards to secure local guarantees of a community’s rights and interests; and outwards to make good local supply by engaging with outsiders through the medium of money and markets of various sorts, not just our own.  The trick is to manage this dialectic of internal and external forces effectively.

Our societies are becoming increasingly emancipated from their territorial base. Three things count above all in these societies -- people, machines and money, in that order. But money buys the machines that control the people. Our political task – and I believe it was Marx’s too – is to reverse that order of priority, not to help people escape from machines and money, but to encourage them to develop themselves through machines and money. To the idea of economic crisis and its antidotes, we must add in 2011-12 the possibility of political revolution. Europe has become the main focus once more of a world revolution. The euro crisis is a Sophoclean tragedy in which good intentions cannot remedy the consequences of past mistakes.