A Shared Genealogy

On the Sales of Indulgences & Treasury Bonds

Key takeaways:

1. When capitalism reaches the end of its lifecycle, belief structures advanced by the ruling class will collapse, matching a historical pattern.

2. Science and finance are the authorities that define reality within our modern capitalist paradigm.

3. The historical Sale of Indulgences and the modern Sale of Treasury Bonds are examples of false belief structures advanced by ruling classes.

Structures of Belief

When political and financial systems collapse, structures of belief become collateral damage. Throughout history, ruling classes have used their authority to define reality for lower economic classes. But when the systems they govern stop working—as all systems eventually must—the ruling classes forfeit their authority and those belief structures crumble.

When the slave-based economic system of ancient Rome collapsed, beliefs shifted en masse from pagan polytheism to Christian monotheism. The Roman ruling class first tried stamping out Christianity with violent repression, but it also converted to the new faith during the twilight of the Empire. The Fall of Rome drove Europeans to abandon a whole pantheon of gods in exchange for a new cosmology with a single Christian god sorting souls into heaven and hell. It was nothing less than a wholesale revolution in a popular conception of reality.

When the peasant-based economic system of the Middle Ages collapsed a thousand years later, a similar revolution occurred. Christianity had emerged from the Fall of Rome as the political authority in Europe. But as the feudal system it oversaw lapsed into dysfunction, a Scientific Revolution challenged and unseated the Christian monotheistic cosmology. It was another revolution in a popular conception of reality.

In tandem, the Scientific and Industrial Revolutions gave rise to capitalism and formed our modern world. But when capitalism reaches the end of its lifecycle, its associated belief structures will also collapse. It would be foolish to believe that all of history’s paradigmatic shifts are already behind us; another wholesale revolution in our popular conception of reality lies in store.

A Shared Genealogy

Science and finance are both descended from Renaissance magic. Most people intuitively understand that astronomy comes from astrology, and that chemistry has its roots in alchemy. It’s easy to trace an evolution from the glass retorts and alembics of the Renaissance alchemist to the test tubes and beakers of the modern scientist.

But it’s not so obvious that the modern banking system also comes from alchemy. In 17th-century England, goldsmiths figured out how to fulfill the Alchemical Dream by creating gold. Their invention of Fractional Reserve Lending bankrolled the Industrial Revolution, while scientific innovation provided the labor-saving technology that dramatically increased production efficiency during that time.

The shared genealogy between science and finance is neatly exemplified by the figure of Sir Isaac Newton. No single person contributed more to the Scientific Revolution, yet he was also obsessed with alchemy and currency. Newton wrote more about alchemy than he did about physics and mathematics combined. And he also served as the Master of the Royal Mint for the last three decades of his life.

Another figure who exemplifies this shared genealogy is the infamous Jeffrey Epstein. That disgraced financier was known for surrounding himself with scientists, like the late theoretical physicist Stephen Hawking. Hawking was one of 21 renowned scientists to attend a 2006 gravity conference on Epstein’s private island. The ongoing Epstein affair affords us a rare glimpse into the actual workings of the ruling class within our modern capitalist economic system.

The New Sales of Indulgences

During the Middle Ages, the European population uncritically accepted the Roman Catholic Church’s word as bedrock reality. The Church abused that authority by selling indulgences, or relief from sentences in Purgatory.

We like to think of ourselves as more enlightened than Medieval Europeans. But our modern authorities still define reality for us in ways that are economically convenient for them. Where the Roman Catholic Church once fleeced its flock through the Sale of Indulgences, our modern authorities accomplish the same through the Sale of Treasury Bonds. Neither is economically necessary, but both practices serve the financial interests of the ruling class.

Government finances are the exact opposite of household budgets. A household collects revenue to pay expenses, but governments must first spend before they collect revenue. Currency-issuing governments must first inject money into the private sector by spending it before they can collect anything back in taxes. Understanding this dispels the false belief that the “national debt” is something that can or should be paid off.

After World War I, the US government drew down the war effort in Europe by slashing military spending. But they didn’t change tax rates, causing the government to collect more tax revenue than it spent. That would be a good thing for any household budget. But the budget surplus removed so much currency from circulation that a deep recession struck in 1919.

It happened again to America in the late 1990s, after the Clinton Administration ran another budget surplus. Between 1998 and 2001, half a trillion dollars vanished from the US economy as more money was again removed from the economy via taxation than was added back through spending. The dot-com bubble burst shortly thereafter, and another deep recession ensued.

These two examples illustrate how balancing a government budget as if it were a household budget can have disastrous consequences. The comparison persists because we’ve been hoodwinked into reckoning the total dollars in circulation as a debt that we must pay interest on.

The total volume of money in circulation is the difference between (1) money created through spending and (2) money destroyed through taxation. The US Treasury holds bond auctions to cover budget shortfalls instead of simply printing its own money. It’s all made possible by the simplistic belief that money in circulation is a legitimate national debt. But of course, currency-issuing governments don’t need to raise money by selling bonds, because they can print the money they need to cover budget shortfalls.

Conclusion

The modern priesthood that defines reality on behalf of the public is a nexus of scientists and financiers. They play the same authoritative role that the Church did during the Middle Ages by promoting beliefs that serve the economic self-interest of the ruling class. It may seem unthinkable that we’re still harboring such beliefs today, but it seemed equally unlikely to the inhabitants of the Middle Ages while the Church sold them Indulgences. Today, our modern ruling class similarly collects risk-free interest on unnecessary Treasury Bonds. Like the Sale of Indulgences, this practice is facilitated by popular belief in authority. But beliefs like these are due to be overturned during the next great paradigmatic shift—just as the Church-endorsed belief that the sun orbits the earth was overturned by science during the transition from the Medieval to Modern eras.

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Further Materials

Contrary to popular belief, the U.S. government can’t “just print money,” because American money is not issued by the Federal government at all, but by private banks, under the aegis of the Federal Reserve System. The Federal Reserve, in turn, is a peculiar sort of public-private hybrid, a consortium of privately owned banks whose Governing Board is appointed by the U.S. president, with Congressional approval, but which otherwise operates autonomously. All dollar bills in circulation in America are “Federal Reserve Notes”—the Fed issues them as promissory notes and commissions the U.S. mint to do the actual printing, paying it four cents for each bill. The arrangement is just a variation of the scheme originally pioneered by the Bank of England, whereby the Fed “loans” money to the United States government by purchasing treasury bonds, and then monetizes the U.S. debt by lending the money thus owed by the government to other banks. The difference is that while the Bank of England originally loaned the king gold, the Fed simply whisks the money into existence by saying that it’s there. Thus, it’s the Fed that has the power to print money. The banks that receive loans from the Fed are no longer permitted to print money themselves, but they are allowed to create virtual money by making loans ostensibly, at a fractional reserve rate established by the Fed—though in practice, even these restrictions have become largely theoretical.
David Graeber, Debt: The First 5000 Years, 2011, page 365