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Abstract
Today’s financial system essentially relies on the pledge of collateral. A closer look at this uniquely cross-disciplinary instrument not only reveals a remarkable absence in the modern disciplines but also a close relationship with money. This connection is brought into theoretical perspective by analysing the role of pledge in three historical configurations. In ancient Greece, symbola and horoi stones emerge as two distinct devices to secure contract that become entwined in seventeenth–eighteenth century pledge-theories of money as witness and object of exchange. Together these throw new light on the contemporary form of shadow money as a distinct marriage of security and safety.
Acknowledgements
This research has been supported by a visiting fellowship at the DFG-funded Collaborative Research Centre Dynamics of Security (SFB/ TRR 138) at the Universities of Marburg and Giessen.
Disclosure statement
No potential conflict of interest was reported by the authors.
Nina Boy is currently a WIRL-COFUND Fellow at the Institute of Advanced Studies (IAS) and Department of Politics and International Studies (PAIS) at the University of Warwick. Her work studies the politics of financial security and safety.
Daniela Gabor is Professor of Economics and Macro-Finance at the University of the West of England and a leading scholar on shadow banking, collateral and critical central banking.
Notes
1 A less prominent, yet radical – pre-crisis – engagement with collateral is Heinsohn and Steiger’s (Citation1996) claim of collateral as the missing explanatory variable in the theory of interest and foundation of economic activity as such since the emergence of the legal institution of property. A growing literature on the subject in financial economics since 2010 also shows increasing awareness here that collateral has economic significance and assets derive value not only from future cash flows but also from their ability to serve as collateral (e.g. Brumm et al., Citation2015).
2 While collateral is mentioned intermittently in compelling emerging studies of money as legal institution (cf. Desan, Citation2014; Fox & Ernst, Citation2016), a sustained theorisation of collateral is as of yet lacking.
3 The two primary forms of legal security are real security, referring to property, and personal security or surety.
4 Lloyd (Citation1917, p. 41) quotes Hershey’s International Law in saying that the last treaty secured by hostages was that of Aix la Chapelle in 1745.
5 This is being remedied by a surge of historical studies of hostageship within the Collaborative Research Centre Dynamics of security: Types of securitization in historical perspective jointly held by the Universities of Marburg and Giessen. See Carl and Valerius (Citation2019) and Thijs (Citation2019).
6 Cf. Antonio in The merchant of Venice: ‘My bond to the Jew is forfeit’. (Shakespeare, Citation1853, p. 172).
7 Many thanks to Mairi Gkikaki for invaluable suggestions for classical literature.
8 Technically, tokens as (ac)counting devices date to the prehistoric Neolithic period and the empires of Mesopotamia (Schmandt-Besserat, Citation1992) but there is no continuity to later civilizations.
9 ‘First, rings were among the most common symbola before the introduction of coinage. Second, some of the first coins were ring-coins. Third, the die by which coins were minted was originally the seal of the ring of the king. To some Greeks, a coin (as money) may have appeared to play the same role as a symbolon. In fact, however, coins and symbola (and the economic classes they served) were quite different’ (Shell, Citation1978, p. 35).
10 This also however leads to a somewhat imprecise definition of money: On the one hand, monetary exchange refers to transactions made ‘invisible’ by the absence of witness or symbolon (Citation1978, p. 34) and money is early on identified with coinage (p. 13), on the other hand the ‘minting and purchase of coin … do not fully represent the money form’ (Citation1978, p. 49).
11 ‘Deposit’ originally means ‘warning’ (Liddell-Scott-Jones).
12 A further meaning of real security as enechyron, thought to be the precursor for pignus in Roman law and pledge as movable chattel, is only found in literary sources (Harris, Citation2013).
13 This corresponds to ‘equity of redemption’, that is, the right of a mortgagor over the mortgaged property, especially the right to redeem the property on payment of the principal and interest.
14 While Finley (Citation1951) describes hypotheke and ‘sale on condition of release’ as different types of real security in ancient Greece, Harris’ (Citation1988) claim that the difference is not in substance but only in terminology ‘demolished most of the sophisticated discussions [on the Athenian law of real security] that had taken place among generations of legal historians’ (Thuer, Citation2009, p. 173).
15 In debt tokens such as tally sticks the relationship of value is unequal, but not explicitly backed by equivalent value.
16 Relations of friendship or kinship (philia) oblige to loan without security or interest, and eranos loans were redeemed when possible or not at all.
17 One feature that ritualized friendship (disappearing in late antiquity) shared with kinship was the assumption of perpetuity: ‘Once the relationship had been established, the bond was believed to persist in latent form even if the partners did not interact with one another’ (The Oxford classical dictionary, Citation2012, p. 591). At the same time however symbola are characterized by singularity, that is, the property to spend and discharge themselves through usage (Crisà et al., Citation2019).
18 ‘The stamp is a mark, and as it were, a public voucher, that a piece of such denomination is of such a weight, and of such a fineness, i.e. has as much silver in it’ (Locke, Citation1824 [Citation1695], p. 142).
19 Bills are ‘liable to unavoidable doubt, dispute and counterfeiting and require other proofs to assure us that they are true and good security, than our eyes, or a touchstone’ (Locke, Citation1824 [Citation1691], p. 23).
20 ‘Credit will supply the defect of it (money) to some small degree, for a little while. But, credit being nothing but the expectation of money within some limited time, money must be had, or credit will fail’ (Locke, Citation1824 [Citation1695], p. 148).
21 Both quotes authors’ translation.
22 Lehman Brothers and MF Global were both culpable of this prior to the crisis.
23 Suggestio falsi (suggestion of an untruth) = misrepresentation without direct falsehood – suppressio verio (suppression of the truth) = a tacit misrepresentation, a silent lie.
24 To be distinguished from ‘Scheinkauf’ as criminal investigation tactic in black markets.
25 Safe assets ‘can work as conventional legal fictions, for example, when it comes to the legislative, regulatory, or judicial designation of certain financial contracts as risk-free’ (Gelpern & Gerding, Citation2016, p. 367, note 11). Nonetheless these authors ‘hesitate to sweep the entire safe asset phenomenon under the heading of legal fictions because the role of market practice in the life of safe assets goes beyond the familiar realm of legal fictions’ (Citation2016, p. 367, note 11). The fiction of creditworthiness underlying safe assets is less a negation of given affairs by the ‘as if’ principle than the result of a complex process of historical accreditation in which literary genres of fiction have played an important role (cf. Brantlinger, Citation1996; Boy, Citation2014).