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Salon: Seeking the Origins of a Financial Tool

Carl Wennerlind, Photograph by Ruby Arguilla TullThe Casualties of Credit
by Carl wennerlind
Harvard University Press, 2011, $39.95

A Barnard professor’s new book explores credit’s past, shedding light on the problems it causes in the present.

When Carl Wennerlind began work on his first book, The Casualties of Credit, more than a decade ago, he had no idea that the global economy was heading for the greatest credit crisis in more than two generations. Wennerlind, assistant professor of history at Barnard, insists that he was not looking for parallels between the past and the present. His goal as a historian was solely to map the financial revolution that occurred in England beginning around 1620, a time when the need for access to credit was a driving force behind economic thought and innovation. “My book’s timeliness is purely a coincidence,” says Wennerlind.

But, the book makes for fascinating reading at a time when headlines are often dominated by credit-related problems. The wide-ranging narrative—populated by a diverse cast of players including alchemists, tramps, economists, speculators, and kings—reminds us that credit has always carried significant risks as well as benefits. “Credit is an ingenious mechanism,” notes the author. “But it comes at a price.”

Wennerlind, whose wife, Monica Miller, is an English professor at Barnard, joined the College’s history department in 2004 after four years in its economics department. He earned his PhD in economic history at the University of Texas at Austin and taught at Elon College (now Elon University) in North Carolina while writing his dissertation. He’s been studying money—in particular credit—and its philosophical, political, and cultural implications for most of his career, teaching courses such as “Filthy Lucre,” which studies the history of money from Mesopotamian times through 1900. “A lot of big questions about the world can be answered through the lens of money,” says the professor.

Last fall, he taught “History of Political Economy,” and before that, in the spring of 2009, a class called “Merchants, Pirates, Slaves and the Formation of Atlantic Capitalism.” Says Wennerlind, “The virtue of teaching here is that I have some really smart students. The resulting conversations allow me to further develop my thinking.”

His new book’s main purpose is to illuminate the seventeenth-century financial debates that arose in response to economic problems ranging from money shortages and mass unemployment to the collapse of the South Sea Bubble. Such debates engaged the leading political economists, social reformers, and government leaders of the times, along with intellectuals and philosophers such as Sir Isaac Newton and John Locke.

Without a doubt, the seventeenth-century arguments and ideas highlighted by Casualties of Credit resonate with current debates over social and economic dilemmas. Learning of past attempts to resolve fundamental economic problems provides a reminder of the intractability of societal challenges such as poverty, speculative bubbles, and economic slumps. Wennerlind’s book does not deal directly with today’s credit-related issues, but it suggests that credit has always been a slippery tool, subject to variables as intangible as faith, imagination, and public opinion. “I am trying to understand how people became comfortable with the idea that both the state and the economy rested on a foundation—credit—that really is just a figment of the imagination,” he says.

Most economists treat the emergence of modern credit as an inevitable result of rapid economic growth and political change during the English financial revolution. Casualties of Credit offers an alternative account of modern credit, tracing its development back to a specific set of intellectual and political conditions. These conditions arose in the seventeenth century, a time of rapid economic growth for England. At the time, England and the rest of Europe relied on metal currency for the vast majority of commercial transactions, and there weren’t enough coins to satisfy rising demand. Finding a solution to the money shortage became a sort of Holy Grail for many of the day’s most brilliant economists, such as William Petty and Charles Davenant.

A crucial shift came in the 1640s, as men like Francis Bacon and Samuel Hartlib began to promote a new, dynamic view of the world. They envisioned a society in which capital could be created out of thin air, with credit as the foundation for infinite progress. As this vision turned to reality, and credit became central to economies, governments looked for ways to strengthen the public’s trust in its ability to issue, regulate, and fundthe new system. They encouraged the transparency of banks and financial institutions, punished counterfeiters and anyone else who undermined confidence in the system, and hired reputable people to manage the financial institutions and banks that issued and regulated credit. “I’m struck by the fact that these issues of securitization, transparency, character, and punishment are as relevant today as they were 300 years ago,” notes the author.

At the same time, governments played a role in fueling speculative bubbles, such as the South Sea stock sales, and other problems. The governing party hired writers (including Jonathan Swift and Daniel Defoe) to promote the South Sea Trading Company through fictional accounts of the profits to be made by its backers. When the company’s stock collapsed, investors paid the price.

Causalties of Credit is just one of several ambitious projects that have kept Wennerlind busy. He recently finished editing a book on mercantilism, which is due out this summer; its working title is Rethinking Mercantilism. Meanwhile, he’s at work on Scarcity: Historicizing the First Principle of Political Economy, which explores political economists’ ideas about the relationship among humanity, nature, and goods. A second book-in-progress, Science and Economy, examines how political and economic factors affected the work of scientists such as Emanuel Swedenborg.

None of these projects will offer solutions for our current credit problems, but Wennnerlind hopes they will illuminate the inherent nature of those problems. “One thing we’re realizing right now is the limits of our power to control credit,” he says. “Credit allows us to have the growth that we’ve come to depend on in our society. But it’s also unstable by its nature, because it depends on trust—in institutions, markets, and individuals. When that trust is threatened or undermined, the social costs can be profound.”

—Harper Willis