Economics and similar, for the sleep-deprived

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Friday, February 28, 2003

The Economics of Pound's Canto 45

It appears that I've procrastinated so long that the post with the text of XLV has fallen off the front page, so here it is again:

Canto XLV -- "With Usura"

With usura hath no man a house of good stone
each block cut smooth and well fitting
that design might cover their face,

with usura

hath no man a painted paradise on his church wall
harpes et luthes
or where virgin receiveth message
and halo projects from incision,

with ursura

seeth no man Gonzaga his heirs and his concubines
no picture is made to endure nor to live with
but it is made to sell and sell quickly

with ursura, sin against nature,
is thy bread ever more of stale rags
is thy bread dry as paper,
with no mountain wheat, no strong flour

with usura the line grows thick

with usura is no clear demarcation
and no man can find site for his dwelling
Stone cutter is kept from his stone
weaver is kept from his loom


wool comes not to market
sheep bringeth no grain with usura
Usura is a murrain, usura
blunteth the needle in the the maid's hand
and stoppeth the spinner's cunning. Pietro Lombardo
came not by usura
Duccio came not by usura
nor Pier della Francesca; Zuan Bellin' not by usura
nor was "La Callunia" painted.
Came not by usura Angelico; came not Ambrogio Praedis,
Came no church of cut stone signed: Adamo me fecit.

Not by usura St. Trophime

Not by usura St. Hilaire,

Usura rusteth the chisel
It rusteth the craft and the craftsman
It gnaweth the thread in the loom
None learneth to weave gold in her pattern;
Azure hath a canker by usura; cramoisi is unbroidered
Emerald findeth no Memling

Usura slayeth the child in the womb
It stayeth the young man's courting
It hath brought palsey to bed, lyeth
between the young bride and her bridegroom


They have brought whores for Eleusis
Corpses are set to banquet

at behest of usura.

I promised some thoughts about the economic ideas in this poem, so here they are. I'd note at this point that I am not a Pound scholar, or indeed a scholar of any kind. But I will defend what I'm doing here as being a valid approach to criticism of this poem. Canto 45 is clearly not just an economic argument, but equally clearly it is an economics argument. It makes a difference in one's reading of the poem and its imagery if you know the kind of economic worldview that it is supporting. Furthermore, one doesn't have to be Jacques Derrida to think that you will read this poem differently depending on whether you fundamentally agree with the argument or not; count the number of people who find Ayn Rand's prose style constipated and boring, but are captivated by Richard Wright's Native Son, the entire last third of which is basically one character making a political speech. Anyway, here goes. Thanks to these guys for providing me with enough Pound references to get a handle on what he's saying here, particularly the fact that "Usura" here refers specifically to the practice of charging high interest rates rather than its medieval (and current Islamic) sense of the practice of lending money at interest per se.

It strikes me that there are four separate aspects to Pound's critique of usury here. First, he seems to be arguing that usury is bad for the general provision of basic goods of decent quality (housing made out of stone). Second, it retards or makes impossible the production of works of great art. Third, it has a generally debilitating effect on human life in general, and on sexuality in particular. Fourth (and I found this one difficult to spot, and only noticed it after reading up a bit on Silvio Gesell and the Social Credit school), he has a macroeconomic argument; that in general, "usura" causes underproduction and unemployment of productive resources ("wool comes not to market" and "stonecutter is kept from his stone"). I'll take them in order.

Claim One: Usura is bad for the housing and baking industries

On this claim, as far as I see it, Pound is just flat out wrong. In terms of the provision of houses made out of good stone, the financial industry has performed fantastically well ever since the beginnings of the Building Society movement in the middle of the nineteenth century. If you want to live in something better built than a shack, you need a large sum of capital to pay for the construction of a house. If you don't have that sort of capital lying around and you can't borrow it, then you're going to have to go on living in a shack, and there really isn't any solution to this problem at the level of the whole economy, which doesn't involve something like the practice of lending money for interest.

The point is that the interest rate is at least partly compensation to the lender for the default rate. If you aren't able to charge rates of interest which compensate you for the risk you're taking, then as a lender, you're only going to do business with people familiar to you, which means that the typical working man is not going to find anyone who is prepared to lend to him. This means that the working class is denied one of the principle luxuries of the capitalist class; the ability to make decisions about the timing of purchases of goods independently of the fixed timing of the arrival of one's income. And it turns out that this is a very valuable advantage to enjoy. Usury has been very good in this regard. Pound is possibly in this passage and in the "bread made of good flour", thinking of the obvious association between predatory lending practices and poverty, but it seems to me that if he is, he has confused cause and effect here. Loan sharks seek out poor neighbourhoods; they don't create them, and the fact that extremely poor people are nevertheless prepared to pay extortionate prices for the ability to move consumption around in time just confirms what a great thing it is to have access to debt.

This is a topic I'll come back to lower down, and a genuine weakness of a lot of economic commentary, including Pound's; a fixation on "finance capital" without putting it in the context of a capitalist economy. If you believe that poor people are poor because the system exploits them, then you need to blame the system, not the particular exploiters. George Orwell saw a similar tendency in Dickens; the belief that the only thing wrong with Victorian capitalism was that some employers were cruel people, and if they only changed their hearts, happiness would be universal. Similarly, there is a tendency to believe that if you remove the loan-sharks from a slum, the slum-dwellers will be richer to the tune of their weekly interest bill, and this is poor general equilibrium analysis. If part of the cost of living in a slum is that you end up paying 10% of your wages to the money-lenders, then the wages of the slum-dwellers will reflect that; otherwise, the workers wouldn't be receiving a subsistence wage and there soon wouldn't be any workers. If you take away the loan sharks, then the most likely outcome is that the slum-dwellers get used to a life without credit, and over time, wages in the slum get bid down 10%. But as I say, this fixation on the "contra naturam" nature of money-lending as distinct from other forms of capitalist enterprise is part of a general deficiency in the economic school which Pound followed.

Claim Two: Usura is bad for the production of art

Pound has much more of a point here. The passage beginning "Pietro Lombardo came not by usura" is more or less correct as a description of the state of fine art in the age of mass reproduction. One of the things that makes some of the great works of Rennaissance art so inspiring is the realisation that it is pretty much impossible to conceive of anything of their like being attempted today. You simply couldn't paint a Sistine Chapel in the modern world.

Part of the problem here is that great works of art will systematically tend to be underproduced because there is a missing market. If one considers the market for chapel ceiling paintings in 1512, then ... well, first of all, one is doing an intrinsically ridiculous thing, but put that on one side for the minute. Imagine that you are the Pope, that you face a smooth production function for artistic quality (ranging from two coats of white emulsion to Michalangelo's work), a twice-differentiable utility function with respect to art, and you're deciding how much money to spend. What (economically) is wrong in this picture?

Basically, there's a huge positive consumption externality. Michelangelo's work will be enjoyed not just by the Pope, or by the devout faithful who'll be asked to pay for it, but also by untold numbers of future generations. And it is clear that this externality is unresolvable; as those future generations, we can't send money back in time in order to pay the Pope to choose a more expensive decorating solution. Problems of this sort crop up all the time in environmental economics (note that future generations also don't get a vote on things like the Kyoto summit, so democracy suffers this problem too), and they generally fall under the heading of what's known as the "Social Discount Rate", the rate at which future pains and or pleasures should be regarded as less important than present one's simply because they are in the future. The philosopher Derek Parfit has a decent argument or two to the effect that the Social Discount Rate ought to be zero (as future generations are people just like us). Other people, including most economists, would argue for a positive SDR (on the basis of the by no means rock-solid assumption that each successive generation will, more or less monotonically, be richer than the last). But almost everyone agrees that the SDR is substantially less than market rates of interest on money.

Which creates the real problem, and the one that Pound is correct to identify. Note that the missing market problem in production of great works of art is one which exists under any form of economic organisation; it is not specifically a problem of Usura. The reason why art is specifically more difficult to produce under a modern capitalist economy is that under capitalism, you have to pay the opportunity cost of the artist's time and effort, which is a constant for the economy in the form of the rate of interest (this is quite a difficult one to get your head around, so let's think about it this way; why does a 15-year old bottle of Scotch cost more than a 10-year old? Partly supply and demand, but partly because a 15-year old bottle costs more to produce, to the tune of five years' interest on the money you could have got by selling the 10-year old bottle. I've got an article ready to write about the "Malt Whisky Yield Curve", but I need to crunch some data before doing it).

Under forms of economic organisation before capitalism, the cost of time passing is purely a theoretical opportunity cost; it's what you might have earned if you were doing something else (say, knocking out 100 portraits of noblemen). Under capitalism, there's a lot more reality to the cost of time passing, because for most of us, it's a cash cost that you have to pay. No wonder that in general, art produced these days is made to "sell and sell quickly". Note that this is the counterpart to the way in which usura allows us to shift consumption about; it specifically does so by putting a money price on the passage of time, and a lot of confusion in economics rests on this point (I might even go so far as to say that more or less everyone except Keynes screws it up at some point or other).

But only half a point for Pound on this one, as he still appears to be picking out the financiers (in later broadcasts, specifically Jewish financiers) as the villains of the piece. Marx had a much more systemic approach to the question, which we'll consider next.

Claim Three: Usura is detrimental to the human enjoyment of life

For the purposes of this section, I'll set aside my earlier argument relating to the provision of material goods and pretend that it would be possible to have anything resembling the lifestyle of a First World citizen in the 1920s if there was no banking system. Pound's claim is that usura, in an absolutely memorable line, "lyeth between the young bride and her bridegroom". All I can say about these stanzas of Canto 45 is that if you don't recognise a fundamental truth about them, then the life you have led up to this date has been sheltered to an almost morally culpable degree. It is absolutely horrible to be deep enough in debt that you worry about it, and this simple truth about modern life is one which is not mentioned anything like often enough. One of the consequences of having a social relation of debt is that it creates fear and worry in the lives of debtors, and this is a cost which ought to be set against the benefits of an expanding credit-based economy, and to be minimised as far as possible. Specifically, although loan sharks provide a valuable service to the poor, they often do so in an extremely destructive way, and they should be regulated as tightly as possible; also, the bankruptcy law for individuals should be easy and free of stigma. Score a big one for Pound here.

But again, the copy book is blotted in other works (particularly the infamous broadcasts) by the obsession with "Loan Capital" and specifically, with Jewish people (by the way, big up to all of my Orthodox readers who'll be out and about in Barnet this evening. If you are ever disposed to believe that humanity has evolved past the territorial pissing stage, just check out the history of this local planning clusterfuck over the issue of some people just wanting to stick up a few bits of poles and string). Marx was also guilty of similar confusions in some of his polemic work, but in the analytical works like Capital, he's much clearer about this subject. The misery of debt and exploitation is not something which is inflicted on the poor by Dickensian bastards in the money-lending industry, or even by capitalists at all. It's a part of the system. Particularly, Marx realises the truth that many capitalists are in debt up to the eyeballs themselves, and even if they're not, they are forced by the logic of the system to constantly turn over their inventory in order to pay off their working capital loans. The accumulation system Money -> Capital -> More Money only works if it keeps expanding at a cracking pace, and the capital owners are, in an important sense, stuck on the treadmill with the rest of us. There are genuine idle rentiers, and they do matter as a class, but they should definitely be distinguished from the people at the sharp end, and aren't really the source of the problem in any case. Marx is right on this one; the real issue is the social relation of production of the capitalist economy. It's a social relation whose power to keep people working productively is unparalleled, and as noted above, it's just the ticket if what you want is a stone house and some bread, but it really hurts if you get on the wrong side of it. But I appear to have drifted off the topic of Pound here.

Claim Four: Usura has detrimental macroeconomic effects

Before getting into this, a little bit (just a little) on the background to Pound's economic thinking (props to decent encyclopedia entry here and full text of Clifford Hugh Douglas's "Social Credit" here, by the way). Basically, the importance of the distinction between (white, good) "Industrial capital" and (bad, Jewish) "finance capital" in Pound's writings is due partly to Silvio Gesell and partly to Major Clifford Hugh Douglas, the inventor of the concept of "Social Credit". Social Credit is a whole economic philosophy, put together by an engineer attempting to reconstruct the political world on the basis of sound scientific thinking (yes yes, I know). These days it reads, as do so many tracts from the prewar era, a bit on the nutty side, but it's an important document of its time and there are some fairly interesting ideas in there. I'm only scratching the surface of Social Credit here, but for the time being we need to note that one of Gesell's most important ideas was that paper money was the expression of state power (as in, you are forced to accept legal tender), and one of Douglas' key ideas was that in allowing the private banking sector to create deposit money, the state had sold out a vital common interest to a small group of profiteers.

If one takes it down to operational terms, the practical upshot of this cocktail of views which were the chief influence on Pound's monetary economics, is that the private banking system will tend to set the rate of interest at too high a level, to maximise their own profits, and that what should happen is that the government should take over a monopoly on the provision of credit, setting the interest rate so as to maximise productive output (in fact, a lot of Social Credit is devoted to the belief that this optimal rate of interest might be negative, and the design of measures to penalise "hoarding"). Pound's initial contacts with Mussolini were all motivated by his belief that Mussolini could be persuaded to implement a Social Credit system in Italy; it was about at this time that Piero Sraffa was doing a runner from the fascist carabinieri after having written a few seditious articles about a crisis in the Italian banking system. Right, enough background, on with the show.

The proposition that the rate of interest is too high is not intrinsically a nutty one, and taken with reasonable interpretative charity, the passage:
[...] Stone cutter is kept from his stone
weaver is kept from his loom


wool comes not to market
sheep bringeth no grain with usura
Usura is a murrain, usura
blunteth the needle in the the maid's hand

can be seen as a reasonable description of a Keynesian (even better, Kaleckian) recession; usura is too grasping for the current conditions of production and thus the rate at which savers demand to be compensated for delaying consumption is greater than the rate which current consumers and investors are prepared to pay in order to bring their purchases of goods and capital forward in time, and stagnation results.

But the problem is in believing that this is in any meaningful way the fault of the banks. I think that there are three points that the Pound/Gesell/Douglas axis didn't really get their heads around:

  1. Banks are capitalist enterprises, and are subject to exactly the same pressures of the accumulation cycle that Marx identified in the case of industrial concerns. Banks have to make loans or they go bust (they have to pay interest on the money deposited with them), and they have no real economic interest in restricting the supply of their product.
  2. Banks are big creditors, but they are also some of the world's biggest debtors too, through their deposits, so it is not at all clear that they benefit from high interest rates - since high interest rates are associated with shortages of liquidity, they are actively dangerous for banks, which provide the economic function of insuring everyone else against illiquidity. This is a big difference in the world which came about when the business of lending was industrialised. Savers and rentiers can be assumed to have an automatic desire for higher interest rates, but banks in general don't. A lot of what's wrong in Pound's economic thought comes from a confusion when talking about "loan capital" between stereotypical Jewish "money-lenders" and banks.
  3. Gesell is basically wrong in thinking that fiat money is all about state power. Private currencies can and do perform the role of state ones; Scotland is the example that comes to mind. The power of the state to force you to accept legal tender is not really that significant in a normal economy, since there is usually a plethora of widely accepted instruments (bank deposits, bills of exchange, etc) for commercial transactions. If you implemented a Social Credit model, all you'd get would be a lot of periodic inflation and your economic agents would start inventing their own currency to get round your restrictions. It's a version of Goodhart's Law; as soon as you try to control some monetary variable, it ceases to be the monetary variable of interest because you're trying to use it to make people do something that they fundamentally don't want to do.

So at the end of the day, it all comes back to time and uncertainty. Lots of strange things happen in economics, and many of them have a lot to do with the rate of interest; a single price which has to do a lot of work in equilibrating any number of complicated social realities. The real fallacy in Pound's economics is assuming that the horse moves because the cart keeps pushing it; that the productive relations of the present and people's perceptions of the future are all shaped by the shadowy Jews who set the interest rate in their secret committees, when in fact the causation is the other way round.

Pound was an anti-Semite, which has famously been described by Engels as "the socialism of fools". He was also a follower of Social Credit, which could be described reasonably accurately as the Keynesianism of fools. All of which is rather puzzling, since the man clearly wasn't a fool.

1 comments this item posted by the management 2/28/2003 06:09:00 AM

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