Keystroke Capitalism by Aaron Sahr

The Nothing Economy

“What would one of our ancestors have said upon seeing these boulevards lit as brightly as by the sun, these thousand carriages circulating noiselessly on the silent asphalt of the streets, these stores as sumptuous as palaces, from which the light spread in brilliant patches, these avenues as broad as squares, these squares as wide as plains, these glittering trains, which seemed to furrow the air with fantastic speed?

No doubt they would have been astonished; but the men of 1960 were no longer lost in admiration of such marvels; they exploited them quite calmly, without being any the happier, for, from their hurried gait, their peremptory manner, their American “dash,” it was apparent that the demon of wealth impelled them onward without mercy or relief.”

•       Jules Verne, _Paris in the Twentieth Century_, 1863
  

…

In a sixty second Bank of America spot that aired during last year’s NBA playoffs, a woman in a sequin dress dances at a wedding reception. “You know why people are always looking at their phones?” she asks the camera. “They’re banking.” Cut to various guests at the wedding, grinning over their handheld screens. Cousin Jimmy’s girlfriend just caught the bouquet, “so he’s checking in on that ring fund.” The photographer is dreaming of his own yoga studio, pressing a big blue button that reads “Start a Business.” Phil forgot a gift, so he’s wiring the happy couple 150 bucks. The parents of both the bride and the groom are also featured; even during your child’s wedding, “you just can’t stop banking.” Finally, the tagline: “what would you like the power to do?”

From 1978 to 2015, inflation-adjusted purchasing power (or “real income”) for the bottom half of Americans decreased by 1 percent; for the richest one percent, real income nearly tripled^[1]. While this fact alone makes it indisputable that the economy is deeply broken, the culprit depends on who you ask. Keynesians blame austerity and Hayekians blame entitlements; leftists blame monopoly power and union-busting and the right blames woke corporations and the snowflake laptop class they employ. Most likely, the techno-capitalist economy of rich democracies is far too complex for any grand unifying theory; nevertheless, theories abound. In his book Keystroke Capitalism, the philosopher turned economic sociologist Aaron Sahr proposes a new candidate: the unchecked ability of private banks to issue credit, creating money from nothing.

In Sahr’s telling, the history of banking in the West is a series of increasing separation between banks’ lending privileges and their actual currency reserves. Sometime between the thirteenth and fifteenth centuries, “money changers” began the practice of issuing paper receipts like IOUs to replace cumbersome gold and silver coins in monetary transactions. These money changers set up shop on long tables with benches on either side; the word bank comes from the old French_banc,_ meaning bench. Initially, “although the money changers’ paper receipts and book entries could be used as a currency, their production had to be (pre-)financed by savings deposits.”^[2] In order to issue credit, in other words, lenders required an equal amount of coins. But once people became accustomed to paper receipts and book entries over gold and silver, the banks were able to issue credits that exceeded their actual reserves, giving rise to the fractional reserve system, wherein banks keep a predetermined percentage of total reserves on hand. Eventually, even those fractional reserves were outsourced to central banks: “commercial banks’ ‘reserves’ were now merely payment pledges on the part of the central bank, meaning that any trader, company or employee depositing money with a bank no longer received a promise of silver or gold, but a promise of a promise.”^[3] In 1971, the United States terminated the convertibility of the U.S. dollar to gold bullion, marking the collapse of the Bretton Woods Agreement and the emergent era of floating exchange rates. “Today,” Sahr writes, “central bank reserves consist of substance-less book entries just like those in a private bank account. Economists describe this as a ‘fiat money system’, meaning one in which all currency, including reserves, consists of nothing more than written bank debts.” ^[4] This progression – from equal reserves, to fractional reserves, to central bank reserves, to spreadsheets and pure vibes – “has changed capitalism more fundamentally than is generally acknowledged.”^[5]

Sahr is not the first to imply that conventional wisdom is unequipped for the “substance-less” circus of global finance. The heterodox academic and Occupy Wall Street organizer David Graeber wrote in December 2019^[6]:

“There is a growing feeling, among those who have the responsibility of managing large economies, that the discipline of economics is no longer fit for purpose… Yet the language of public debate, and the wisdom conveyed in economic textbooks, remain almost entirely unchanged… Mainstream economists nowadays might not be particularly good at predicting financial crashes, facilitating general prosperity, or coming up with models for preventing climate change, but when it comes to establishing themselves in positions of intellectual authority, unaffected by such failings, their success is unparalleled.”

Writing in the same magazine one year and one expertly managed global pandemic later, Pankaj Mishra compared the “intellectual trauma” of economic liberalism to Jonathan Lear’s study of the Crow Indians^[7]:

“Forced to move in the mid-nineteenth century from a nomadic to a settled existence, they catastrophically lost not only their immemorial world but also “the conceptual resources” to understand their past and present. The problem for a Crow Indian, Lear writes, wasn’t just that “my way of life has come to an end.” It was that “I no longer have the concepts with which to understand myself or the world…. I have no idea what is going on.”’

In his sweeping_Debt: The First 5,000 Years_, Graeber argued that historically, excessive indebtedness leads to social unrest and revolution. Sahr adds that the much-discussed phenomenon of “financialization” is primarily about debt: “investing debts in more debts is the defining business model of a financial services company.”^[8] Indeed, the total value of loans and other debt instruments exploded from 12 trillion dollars in 1980 to around 240 trillion in 2015, dwarfing the growth rate of the real economy.^[9] Where does all this debt come from?

For traditional economists, the answer is savings; just like the money changers in Medieval Europe, they believe that banks issue loans based on their deposits. Here’s German finance minister Wolfgang Schäuble: “one person saves money; another needs money. This has to be organized. It’s called banking.”^[10] And Nobel Prize-winner Eugene Fama, synthesizing the Chicago school’s position: “People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don’t know what a credit bubble means.”^[11]

Sahr exposes the absurdity of such statements. If available credit is ballooning relative to economic output, the relationship cannot be one-to-one. Instead, as growth and wages stagnate for all but the wealthiest few, ordinary people take on more and more debt – in the form of mortgages, student loans, credit cards, etc. – to afford the lifestyle neoliberalism promised to provide them. This credit, obviously, isn’t financed by their own savings. Instead,

“[P]rivate banks do not even consider whether they have sufficient deposits to cover loans: they simply create new money on credit… If you pay for a purchase with your overdraft, a debit will appear in your account, but the credit transferred to the seller’s account has not been taken from anyone else – it has been created from scratch. All it takes to approve a consumer loan for the purchase of a car (or the purchase of a share by a bank) is to enter a number on a computer keyboard.”^[12]

That number is now a financial asset, which can be securitized, bundled, swapped, and leveraged at the bank’s discretion. Keystroke capitalism, as defined by Sahr, is this “exceptional situation in which capital can be created ex nihilo.”^[13]

…

“David Hume, the greatest skeptic of them all, once remarked that after a gathering of skeptics met to proclaim the veracity of skepticism as a philosophy, all of the members of the gathering nonetheless left by the door rather than the window.”

– Philip K. Dick

From mainstream op-eds to black pilled message boards, it’s often said that the crux of our present crisis is a failure of imagination. Though this sentiment horseshoes ideological poles, its clearest articulation comes from Frederic Jameson, who wrote in 1996 that “it seems to be easier for us today to imagine the thoroughgoing deterioration of the earth and of nature than the breakdown of late capitalism; perhaps that is due to some weakness in our imagination,”^[14] which Mark Fisher famously paraphrased to “it is easier to imagine the end of the world than the end of capitalism,”^[15] a slogan now emblazoned on algorithmically recommended t-shirts and decorative lighting fixtures.

Closely related is Lauren Berlant’s idea of cruel optimism, a condition wherein “something you desire is actually an obstacle to your own flourishing.”^[16] We were sold a dream – of material security, of the end of history, of a rising tide that lifts all boats – by a system that foreclosed the possibility of other dreams. But what happens when even those at the top stop believing? Sahr’s book is a convincing portrait of a financial system where imagination runs wild, so long as it’s in the service of the uber rich getting uber richer. As he puts it, “Not everything that happens in modern economies is capitalist in nature, nor is everything that happens within capitalism economic.”^[17] In fact, by focusing on large banks and financial conglomerates, Sahr stops short of a more radical conclusion. It isn’t just banks that can create fortunes from nothing; it’s anyone with a little money and an internet connection.

Seven months before the scandalous implosion of his cryptocurrency empire, Sam Bankman-Fried was interviewed by Matt Levine, the journalist behind the peerless financial newsletter Money Stuff. At the time, Bankman-Fried was the founder and CEO of the crypto exchange FTX and an associated hedgefund, the “world’s richest 29-year-old,” one of the largest donors to Democrats (publicly) and Republicans (privately), and an emerging face of the Effective Altruism movement, or perhaps just a Mensa member misreading moral philosophy as a divine calling to either befriend the richest people on earth, or become them.

Midway through their April interview, Levine asked SBF about “yield farming”, an opaque cryptocurrency scheme becoming popular at the height of the pandemic’s digital asset craze. Here is Bankman-Fried’s attempt to explain the common practice, “a toy model,” worth quoting at length only because it offers a remarkable view inside the capitalist imagination:

“You start with a company that builds a box and in practice this box, they probably dress it up to look like a life-changing, you know, world-altering protocol… Maybe for now actually ignore what it does or pretend it does literally nothing. It's just a box… It doesn't do anything but let you put things in it if you so choose. And then this protocol issues a token, we'll call it whatever, ‘X token.’

And then you say, alright, well, you’ve got this box and you’ve got X token and the box protocol declares… anyone who goes, takes some money, puts in the box, each day they're gonna airdrop, you know, 1% of the X token pro rata amongst everyone who's put money in the box. That's for now, what X token does, it gets given away to the box people. And now what happens? … In the world that we're in, if you do this, everyone's gonna be like, ‘Ooh, box token. Maybe it's cool. If you buy in box token,’ you know, that's gonna appear on Twitter and it’ll have a $20 million market cap.

At this point, Levine interrupts: “Wait, wait, wait, from like first principles, it should be zero.” By first principles, he means that money is a real thing, procured by toil or genius or worthiness, that markets are reasonably efficient and neutral, and that, as is still taught in Econ 101 classrooms across the world, a society is comprised of homines economici, rational individuals making formulaic decisions.

Bankman-Fried counters that while such a response is “completely reasonable,” empirically, the magic box would have value. His imagination isn’t subject to the same theoretical hemming. He continues:

**“**And now all of a sudden everyone's like, wow, people just decide to put $200 million in the box. This is a pretty cool box, right? Like this is a valuable box as demonstrated by all the money that people have apparently decided should be in the box. And who are we to say that they're wrong about that? Like, you know, this is, I mean boxes can be great. Look, I love boxes as much as the next guy. And so then, you know, X token price goes way up. And now it's $130 million market cap token because of, you know, the bullishness of people's usage of the box. And now all of a sudden of course, the smart money's like, oh, wow, this thing's now yielding like 60% a year in X tokens. Of course I'll take my 60% yield, right? So they go and pour another $300 million in the box and you get a psych and then it goes to infinity. And then everyone makes money.”

Levine is dumbfounded: “I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.” Again, Bankman-Fried agrees that this is “reasonable,” for him a derogatory adjective. After all, he asks, is this decoupling of market value and real value any different than the Reddit posters pumping meme stocks like GameStop and AMC? It’s a clever gambit by the decabillionaire, who as of this writing has entered Bahamian custody in a likely attempt to avoid testifying before Congress. Sure, he may have gotten rich from hyping pixie dust, but everyone’s doing it. At least, everyone smart enough to realize that there’s no such thing as first principles. We can all of us be keyboard capitalists.

…

In March of 2017, I received a late-night e-mail on my dormitory listserv with the subject line: “Like gambling but hate the house edge?”

The body of the missive contained precise, complex instructions for purchasing the cryptocurrency known as Ethereum (ETH). Without context, every step listed seemed transparently fraudulent; acquiring this unknown virtual currency involved handing over my bank account and social security information to websites with sketchy domains, downloading third-party apps for a “secure digital wallet,” and so on. Following the instructions were several indecipherable price graphs with overlapping, jagged lines to support my upstairs neighbor’s investment thesis: though very few people were paying attention, he strongly believed the price of Ethereum was about to skyrocket; there was an almost unquantifiable upside. The e-mail ended with several warnings about the extreme risks of buying cryptocurrency; nobody should risk more than they could afford to lose, though personally, the author of the email implied that he was all in, to use his metaphor.

I read the e-mail in bed with delirious intrigue. I did like gambling, and hated the house edge. On the other hand, my only knowledge of cryptocurrency friends using Bitcoin to purchase fake IDs and off-brand stimulants. Then there was the chance that my neighbor had been hacked, overserved, or worse. I deleted the e-mail.

A week later the price of one ETH token broke $20 for the first time; nine months later in January 2018 the price was $1400, a 7000% increase; in November 2021 ETH surpassed $4600, up 23000% or 230x since the time of the e-mail. In more concrete terms, a $100 investment in March 2017 could have been sold for roughly $7000 in 2018 or $23,000 late last year. Even after this summer’s much-publicized correction, the price of Ethereum stands around $1300. One way to read this story is that I was offered a rigged slot machine and detailed instructions for how to pull the lever, and I declined, along with nearly everyone else who received the e-mail.

Alchemy has been a hobby of greedy men since at least Medieval times. Chemistry was merely a prelude to modern financial technology. Mortgage-backed securities, memorably demystified in The Big Short by Margot Robbie in a bathtub, were called “alchemistic” for their ability to turn risky home loans into “secure” assets. There are at least two major cryptocurrency companies named “Alchemy.” At some point between the 1970s, when high finance first untethered itself from the real economy, and the current age, when money (like attention, trauma, et al.) ceased its subjection to constraints of space and time, alchemy became an attainable ideal, an escape hatch, and a rebellion against the established order all in one. Never have the nouveau riche been so visible, numerous, and straightforwardly praised.

Near the end of the schoolyear, as Ethereum entered the early stages of its exponential rise, rumors emerged about my clairvoyant neighbor. The number was inconclusive – hundreds of thousands, or maybe millions – but his bet paid off, big time, and he’d disappeared from the dorm. He was running a high-profile hedge fund, or living in Costa Rica, or writing cryptic blogs on Medium. The truth was more banal. He’d been found in the dorm’s computer cluster overdosing on LSD. When the paramedics arrived he was vomiting but stable, and as they took him away, the monitor still displayed his account balance, a green graph pointing towards infinity.

…

“It is the absence of the threat of individual starvation which makes primitive society, in a sense, more human than market economy, and at the same time less economic.”

• Karl Polanyi, The Great Transformation

To defend the massive wealth disparities stemming from classical liberalism, theorists from John Locke to Freidrich Hayek to Milton Friedman have argued that any income is just so long as it is obtained under just conditions.[22] This circular formulation still depends on the more fundamental question of what constitutes just conditions. One way to think about it is how much someone has to lose. Everyone roots for the gambler, but only the true capitalist roots for the casino.

In his concluding chapter, Sahr warns against framing an analysis of keystroke capitalism with easy dichotomies like economic liberalism and conservatism, or the free market and democracy. “The real question is who is entitled to the privilege of creating money from nothing, or who can be reasonably entrusted with it.”[23]

In the Jorge Luis Borges story “Tlon, Uqbar, Orbis Tertius,” a “scattered group of solitaries has changed the world” by publishing an encyclopedic history of a nonexistent planet. Soon after Borges’ narrator discovers the encyclopedia, the imaginary planet, “with its architecture and its playing cards, its mythological terrors and the sound of its dialects, its emperors and its oceans, its minerals, its birds, and its fishes, its algebra and its fire, its theological and metaphysical arguments,” begins to replace the “real” world.

Borgesian parallels with the global financial system are unmistakable. “In the world’s advanced economies,” Sahr writes, “companies are increasingly generating their income from investments in financial assets, to the detriment of their actual core business, and hence also to the detriment of investments in real capital such as raw materials, machinery or labour.”[24] In the age of keystroke capitalism, tech companies are financial companies, car companies are financial companies, universities are financial companies, web3 projects are financial companies, hospitals are financial companies, and so on.

“Almost immediately,” Borges writes, “reality gave ground on more than one point. The truth is that it hankered to give ground.” Now that the secret is out, there’s no turning back; the creation of debt instruments continues to overshadow output, and anyone looking to get properly rich in our economic system joins in the exploitation and alchemy. Like a balloon snipped from a dumbbell, the value of nothing will rise ever higher, and even the best of us will be excused for looking up.

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