Yahoo's failure and the emotional web

Yahoo has just announced that it is positioning itself for a potential sale of its assets. The term “potential” is important. It is likely that several companies have expressed an interest in buying some or all of its assets; the press has identified Verizon, the wireless provider, as one possible purchaser. But there is as yet no actual offer. One reason Yahoo made this announcement is that many of its investors and shareholders believe that its CEO, Marissa Mayer, having failed to grow its revenue since her arrival from Google in 2012, has no sure plan for restoring it as a valued Internet company. In the final third quarter of 2012 — Mayer’s first three months as chief executive of Yahoo— the company made about $1.2 billion in revenue, most of it from advertising. Three years later, in the same quarter, its revenue was still $1.2 billion.  While Yahoo attracts millions of visitors to its site each month, it garners only 6.5% of U.S. online search revenue, while Google gets 77.7%. As one journalist writes, “Yahoo, which still has a billion people using its apps and websites, is an afterthought in many ad budgets.” By early February 2016, Yahoo’s share price was at a new 52-week low, about 50% off its November 2014 highs.

One reason Yahoo’s search revenues have declined is because Facebook’s growth flooded the display advertising market with inventory. “Demand from marketers could not keep up with all the new supply—ad budgets were not increasing at the pace of Facebook’s growth—and the average price the industry, including Yahoo, was able to charge declined steeply.” In addition, Google’s superior search algorithms and its method of auctioning off ad-positions on a web page, meant that it could charge significantly more for its advertising space. A 2012 study comparing the cost of a “click” on Google versus Yahoo shows, for example, that a click-through for “shopping and classified” search terms was 72 cents on Google versus 44 cents on Yahoo. Similarly, a click-through for computer and Internet search terms averaged $1.08 on Google, versus 40 cents on Yahoo. This is one reason why Google’s revenue has grown so rapidly. Yahoo once excelled in attracting advertisers with display or banner ads. But while in 2000 such ads accounted for 78% of online advertising revenue, by 2008 they accounted for only 33%, just as search-based ads accounted for 45%.

One reason Yahoo lost the search wars to Google, (and now Yahoo relies on Microsoft’s Bing search-engine), is because, since its inception, its executives saw Yahoo as a front-end company. They thought of it as a consumer-friendly user interface for the web, while imagining that search engines were at the back end; much like the way in which Intel provides chips for laptop computers. Yahoo, they thought, could buy the services of search engine specialists while focusing on creating front-end products, such as email applications and financial news sites. In this sense, like a television network with programs, Yahoo was a media company with products. This led to a lack of focus, with a suite of products ranging across entertainment, finance, news, celebrities and games. Yahoo was in effect a “mini Internet,” which made sense in 1999 when a user, “could open Netscape Navigator and use the Internet all day and never leave Yahoo and never want to.”

Reporting on a meeting of Yahoo employees, one author describes how a facilitator asked group members the first word that occurred to them when they thought of a particular company’s name. “He said, ‘PayPal.’ People wrote down ‘payments.’ He said, ‘Google.’ People wroteTop of FormBottom of Form down ‘search.’ He said, ‘eBay’ and they wrote down ‘auctions.’ After a few more companies, he said ‘Yahoo.’ He collected thirty pieces of paper on Yahoo. Everyone had a different word. What was Yahoo trying to do? No one inside the company knew.”

Many analysts have complained that Marissa Mayer, who was a successful executive at Google, has not answered this question. Instead, in trying to turn Yahoo around she has “opted for tiny bolt-ons” of new products to the Yahoo site, without clarifying its singular raison d'être. For example, she developed a suite of 15 online magazines devoted to topics like food, autos, real estate, travel and technology that she is just now shutting down. In her first year she acquired 20 startups, some quite small. In March of 2013 she acquired Summly, a news-reading app for $30 million, and in August of 2015 she acquired Polyvore, a visual search engine for fashion for $200 million. Her biggest acquisition at $1.1 billion was for Tumblr, a micro-blogging site. But at the time of its acquisition Tumblr had 100 million users, but only $10 to $15 million of revenue.

In a trenchant critique, a columnist for the New York Times, Farhad Manjoo, argues that Mayer failed because she could not “bet the farm,” that is, make a big bet decision on the future of the company. As he writes, “Three years ago, when Ms. Mayer first took over, she sparked excitement about the future of a company that had, by then, put everyone to sleep. Finally, Yahoo was getting an executive who seemed to understand the web, who was infectiously excited about the possibilities of new technologies, and who had a pretty good track record of ushering in new things.” Yet, as he notes, “Over all, Yahoo remains much the same business it was three years ago. She appears to be building a better Yahoo — with debatable results.”

Manjoo speculates, that had Marissa been ready to make a big bet, one that would bring new focus to Yahoo’s identity, and give it a plausible trajectory, she might for example, have “ditched the web portal and plunged into television” by purchasing Netflix. “The timing was perfect: In 2012, a visionary might have guessed that cable bundles would soon be on the wane, that people would increasingly favor on-demand entertainment, and that there was an appetite for new business models in an aging part of the media. At the time, the stock market doubted Netflix’s streaming future, and the company’s shares were less than a tenth of their current price — in the ballpark of what Yahoo would have been able to afford.” He goes on to note that, “In the time Mayer was at the helm,” Pinterest, a site festooned with web images that users identify and “pin,” has established a “new kind of online commerce,” Facebook invested in the messaging app, “what’s app,” and Vine created a popular site for six-second user-generated videos.

Manjoo’s argument, while not definitive is nonetheless suggestive. Mayer, according to this line of thinking, was not in touch with the currents of popular taste that have shaped what people wanted from their online experience. Indeed, Mayer’s frame of reference, as she has repeatedly emphasized in many talks, has been on the infrastructure of the web; that is, the way in which mobile, video, native advertising and social networks, are changing how content is carried. She has focused on the medium not the message; perhaps a perspective she finds more comfortable as a software coder and a web engineer.

Manjoo’s critique raises the question of when CEOs will make big bets. One hypothesis is that CEOs are more likely to do so when facing crises. For example, when Lou Gerstner became the CEO of IBM in 1993, IBM faced the prospect of selling assets to improve its cash flow. Many in the company believed that in fact IBM should break up so that its constituent divisions--mainframe, storage devices, operating systems and databases-- could compete more effectively in their own submarkets. This concept was consistent with an industry narrative that an integrated computer-system provider like IBM was becoming obsolete.

Gerstner, in a gutsy move, argued against the narrative, insisting that big corporate customers needed an integrator who could pull all of these pieces together. He posited that IBM’s Mainframe, the 390, was the machine to integrate and harmonize all the products in its customers’ IT ecosystems. He then cut the price of the 390 drastically, actually accentuating the cash crisis, which in turn required that he fire thousands of employees.  But his big bet paid off. The price of a unit of mainframe processing fell 96% while mainframe shipments increased twelve times between 1994 and 2001.

Gerstner not only responded to a crisis by cutting prices. He in fact exacerbated it. This put enormous pressure on the company to sell many more mainframes. As a result, the company’s executives had the “freedom of no choice.” This link between crisis and big bets is why startups are the source of so many innovations, and why of course so many fail. By definition, they are big bets and are in state of permanent crisis, racing for results as their funding diminishes. 

But despite Yahoo’s protracted difficulties --revenue had been stagnant since 2011 -- Mayer paradoxically faced the opposite of a crisis. She took up the CEO role under the protective umbrella of the company’s big ownership stake in Alibaba, China’ biggest Internet supermarket, its own Amazon and then some.  Before Alibaba went public in 2014, the only way investors could go long on it was to invest in Yahoo. Anticipating an eventual Alibaba IPO, investors bid up Yahoo’s stock price so that it rose from a starting point of $15 just before Mayer assumed office, to $39 dollars, two weeks before the IPO itself.  After going public, Alibaba was valued at some $25 billion. Yahoo sold 140 million of its shares in the company, earning a windfall profit of $9.4 billion, while retaining 383 million shares, which at $87 a share, were worth $33 billion two weeks after the IPO. To keep this in perspective, Yahoo’s operating earnings in 2014, before subtracting interest and taxes, and excluding unusual expenses, was $220 million. The Alibaba “umbrella” was extraordinary. It enabled Mayer to take act judiciously, and proceed cautiously when acquiring a series of ventures and startups. As sensible as this may have seemed, this strategy never compelled Mayer or her team to address the underlying issue of identity and purpose.

I think Mayer was hobbled in another way. She tended to focus on processes rather than ideas. Abraham Zaleznik, the psychoanalytically informed organization theorist who taught at the Harvard Business School, argued that executives with a managerial rather than a leadership orientation, emphasized business processes --how to use and improve them --while neglecting the underlying ideas that animate these processes and make them meaningful. 

For example, Mayer describes with considerable pride in a video interview how in her first year she implemented a program for eliminating bureaucratic “jams” that people believed were obstructing work.  An employee would describe a jam and “people would go online and use a moderator tool to vote the jam up or down,” as an issue worth addressing.  As a result, the company eliminated the parking gate in the parking lot, the need to use an employee badge to get into the gym, and improved the product shipping process. As she notes, “We changed a thousand things in the first year of using the system. It really empowered us.”

Executives who focus on process are often attracted to the idea that a good leader is what management theorists call a “servant-leader.” In this way of thinking, a leader’s primary task is to eliminate the organizational obstacles that prevent employees from making the best of use of their talents. There is, in this conception, the idea that organization actually interferes with productivity, it is really just bureaucracy, and without a formal organization people would spontaneously coordinate their work to great effect.

Similarly, as she reports, when she first joined the company, employees would ask her, “When are you going to have your big strategy rollout-- your meeting for a grand vision for Yahoo.” She replied, “I am not going to have a big dog and pony show. I am going to the cafeteria and listen because you people have been here for a lot longer. You know what has worked or not.  Maybe we will have a strategy meeting sometime this fall and I will need your help in shaping our strategy.” She adds, “That was a more comfortable way for people to accept me and I view that my role is to listen and get things out of the way.”

I think one aspect of the servant-leader idea that attracted Mayer, was its fit with her concept of a company as a culture. “Culture,” she says in a video interview, “Is something that is hard to change.” Likening culture to the DNA of a company, she says that you can’t inject new genes into DNA, but rather you can facilitate the expression of its good genes. The question was, “how do you turn these genes on, how do you ‘hyper-express’ them.” Stepping into the role of CEO, she said that it was important, “that we not try to change Yahoo into something else. It is a great company. We have great assets. How do we make it the best version of itself?”

This stance is sympathetic and reflects a welcomed humility. But her phrase “that was a more comfortable way for people to accept me,” may also mask a certain discomfort with aggression, and a wish to be part of the group rather than its leader. Mayer put great store in her hanging out in the cafeteria when she first joined the company She notes that when people would talk to her in the cafeteria they would ask her at some point, “is it time to go?” and she would reply, “ No, No, please don’t go, please give me a chance.” As she herself has noted, she is very shy.

This penchant for process is revealing in another way. Like many leaders in the technology industry, Mayer focused on cultivating, supporting and evaluating talent. For example, early in her tenure, she gave the employees free meals and smartphones, “To increase the employees’ energy and output and change the culture of the company.” Of course, companies in Silicon Valley have no choice but to create good working conditions for talented engineers, coders, product designers and marketers. Processes for ensuring these conditions, are necessary though not sufficient for success.

However, what is peculiar in this regard is that Mayer put great store in an employee evaluation system, called the “Quarterly Performance Review (QPR) through which managers force-ranked their employees on a scale of 1 to 5. It proved unpopular and divisive. As one author writes, “Even on top-performing teams, someone always had to get a poor score. Poor and sometimes even average scores made it nearly impossible to transfer jobs, earn full bonuses, or get promotions. The system made employees feels like they were working against each other, not with each other.”

Observers were puzzled that Mayer, who put such great store in employee morale and elevated the role of teamwork, would introduce such a divisive system. One hypothesis is that she embraced this system, despite opposition, because it distanced her securely from the work of re-assessing Yahoo’s basic business idea, what Peter Drucker once called a executive’s “theory of the business.” This work provoked too much anxiety.

Look at it this way. A leader focused on ideas would select people whose talents were joined closely to the products and services the company wished to develop. For example, had Mayer decided that Yahoo had little future as an internet portal -- Facebook and Google had “won” the race, --but could compete in the media/entertainment business, she would have laid-off thousands of employees and hired people whose experiences, interests and talents were focused on the internet as an entertainment vehicle. Absent such an idea, and understandably pressed by her investors to control expenses—after all revenue was not growing- she relied on a mechanical process that severed the link between the company’s purpose and its employees’ talents.

In psychodynamic terms, we could hypothesize that Mayer and her top team faced two chronic sources of anxiety. First, the prospect that Google and Facebook had in fact won the portal/platform war, a conclusion warranted by the results of Mayer’s tenure to date. Second, that to shape a new corporate identity they had to make a big bet. The QPR system helped them stave off their anxiety from both of these sources, while paradoxically displacing it onto the supervisors and employees who then had to struggle with the QPR’s divisive and emotionally difficult consequences. Anxiety is like the “hot potato” thrown from one group of people to another.

To be sure, I would be exaggerating if I said that Mayer was only interested in process. After all, she was a computer engineer by training, she could write computer code, and while at Google, she helped develop the clean look of its search page and its Gmail app. She learned to use data and experiments to determine what features of a web page were attractive, and how to design web pages to simplify users’ navigation between them. When she first arrived at Yahoo she set up her office computer so that she could write code with it. Instead of meeting with employees quarterly to discuss financial results, she led a monthly product review meeting.

But I think her focus on products such as email, an online magazine, or the photo-sharing site Flickr, focused her attention at the wrong level of analysis. It is like the distinction between a course and a curriculum. Any course can be evaluated on its own terms as a vehicle for pedagogy and learning, but ultimately the course gains meaning only in relationship to the curriculum of which it is a part. Planning a curriculum is a more far-reaching activity than planning a course. In Elliot Jaques’ terms, it provokes consideration of a longer “time horizon, ” the sine-qua-non of executive level functioning.  This suggests that she had to evaluate Yahoo’s products in relationship to a larger conception of the web as an evolving sociocultural system.

Let me suggest here that Mayer may have been limited by her training and socialization as an engineer.  She graduated from Stanford University with a specialization in artificial intelligence and “for her undergraduate thesis, she built travel-recommendation software that advised users in natural-sounding human language.” Upon joining Google in its earlier years, she learned the discipline of using data to improve websites. As she recounts in a video, while trying to improve the user interface of an application, a mentor told her, “What we do not need now is more opinions, we need data.”

One question is, does this data orientation exact a price?  Consider the following. A lead designer at Google, Doug Bowman, quit the company because he was exasperated by the misplaced use of data. In a farewell blog post, he wrote, “A team at Google couldn’t decide between two blues, so they’re testing 41 shades between each blue to see which one performs better. I had a recent debate over whether a border should be 3, 4, or 5 pixels wide, and was asked to prove my case. I can’t operate in an environment like that. I’ve grown tired of debating such minuscule design decisions. There are more exciting design problems in this world to tackle.” In other words, the quantitative approach to design narrows the scope of problems that trigger design thinking. It is like the famous “law of the instrument,” expressed in Abraham Maslow’s felicitous comment, “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”

In addition, Mayer proposed two formative ideas for thinking about Yahoo’s purpose.  First, she identified the typical user’s four “daily habits;” ‘news reading,’ ‘checking weather,’ ‘checking email,’ and ‘photo-sharing,’ and argued that Yahoo should create the best applications for each. Second, she said that a web portal such as Yahoo should focus on four channels of communication -- Mobile, Video, Native Advertising and Social network, or the “MaVeNS.”

Let me suggest these conceptions together-- habits and channels-- characterize Yahoo as an information utility, a kind of infrastructure for supporting internet use that in the main operates in the background as an enabler, rather than as an agent with a purpose. Her thinking lacks an imaginative conception of the web as a repository of experiences, fantasies, anxieties and emotional connections.

Let me describe two experiences I have had that may illuminate this point of view. I learned how to become and then direct an Avatar of myself on a virtual reality website called, “Second Life.” In one session with several colleagues, we all “took to the air” and flew over the landscape of our virtual world. I felt a certain joy in this process, a sense of freedom, as well as a connection to my peers, even as I understood that it was completely contrived.

Now I have also had, like many other people, repeated dreams of flying -- they are very common—in which I try to convince my friends that if they simply let the wind flow beneath their chests they would be lifted up; that it is really that simple!  Freud, in his inimitable way, argued that such flying dreams were bodily representations of the erect penis or clitoris. If we resist this kind of focus on the body – a hallmark of psychoanalytic thinking and its basis in what 19^th century philosophers called “scientific materialism,”  – we can still certainly say, as Freud is suggesting, that flying in dreams expresses a certain potency and reach beyond the constraints and boundaries of the physical world.  So the virtual reality website, Second Life “made my dreams come true,” but of course only virtually true. One central feature of the emotional web then is just this permeable boundary between reality and fantasy. Of course, products of art --novels, painting, films – move along this boundary as well. After all, we really cry at a movie’s happy ending. But the emotional web has accentuated this boundary’s permeability and intensified our experiences of crossing it.

I also recently saw the film “Stutterer,” which is an Oscar nominee for the best live-action short of 2016.  The hero has a severe stutter, so much so that when strangers on the street address him, for example they ask him for directions, he feigns deafness. It is simply too painful for him to try to speak. Yet the movie voices his inner thoughts at those moments, making clear to the viewer that this young man is articulate and intelligent. We learn at the movie’s beginning that he is engaged in a lively chatting relationship with a woman on the web. He sees her picture next to her chat messages. At long last she asks that they meet at the time of her planned visit to London. Of course he is terrified.  But after several days of delay, he musters the courage to arrange to meet her at a restaurant of her choosing. I won’t give away the punch line, except to say that something about her abilities/disabilities complements his. They are a “match made in heaven.” This film is a fantasy about how the freedom that virtual reality provides, by releasing us from our bodies, which is after all the ultimate boundary, brings us love in the real world.*

One hypothesis is that insofar as Mayer inhabited the engineering worldview, she was doomed to thinking of the web as infrastructure and Yahoo as a portal.  This is a one- dimensional conception, and with it Mayer was competing/boxing with “one hand tied behind her back.” Of course Google was built upon this worldview as well, but it turns out that there is room for only one Google. She needs a new narrative of the web in which design is linked to the permeable boundary between fantasy and reality. The question is; could this point of view lead her to some creative business ideas?

*For readers attuned to the cultural revolution of the sixties, we can recognize in these vignettes expressions of what observers at the time called “a new sensibility.” As one author writes, describing that period,  “Performers of the Living Theater, tried to draw the audience into the play or take the performance into the audience. Such forms of involvement at first included actors, still in role, mingling with the audience during intermission; within the decade, cast members would encourage audience members to frolic with them in sexual acts.” The arts, as Mcluhan argued, are our culture’s “early warning system.” In this sense we can say that the artistic impulses of the sixties, their excess, their obliteration of the difference between low and high culture, their attack on boundaries, anticipated the emotional web.

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The Folk Psychology of Money.

I recently read a blog post about the coming catastrophic collapse of the U.S. economy and the destruction of all our wealth. This genre of writing is familiar, but it author’s errors are nonetheless instructive. While the author may be what Keynes called a “monetary crank,” his errors highlight some of challenges we face in understanding what money actually is. In this post I hypothesize that a folk psychology underlies our theory of money; a psychology based on anxieties about our interdependence, and the conditions of contingency that shape our experience.

The post’s author writes, “You see that 300 percent increase in the money supply we've experienced . . Much of it is sitting in excess reserves at the Fed and with the big banks. These funds haven't made it into the markets and the economy yet. But it's a mathematical certainty that once this dam breaks, and this money passes through the reserves and hits the markets, inflation will surge.” (http://www.moneynews.com/MKTNews/billionaires-dump-economist-stock/2012/08/29/id/450265?PROMO_CODE=110D8-1)

The metaphor of the dam breaking suggests that money is a physical force, not unlike a raging river, which operates under its own mathematical laws, much as a gravitational field exerts an inexorable pull on objects in its field.  But nothing could be farther from the truth. It is useful to ask if this misconception is simply a question of ignorance, or is it motivated? Does it serve any purpose?

It is useful to look at the numbers behind the metaphor. Banks are required to hold a minimum amount of reserves in their own checking deposits with the Federal Reserve Bank (“the Fed”). The following chart traces the amount of excess reserves that banks held in these checking deposits with the Fed since 2009. It has grown by the astounding amount of $1.8 trillion. 

 

 

As the post we quoted suggests, the bank system has been flooded with money. But how did the money get there and what does it consist of?  The Fed buys treasury bonds, bills and mortgage-backed securities from mutual, hedge and pension funds and deposits the money in sellers’ bank accounts. This means that this money is now available to a seller’s bank as the basis for lending to borrowers, and thus counts as its reserves. (Recall that banks can lend out far more than their reserves because it is unlikely that all the depositors will demand their money at the same time. When this happens, we say that there is a “run on the bank.”)

But where did this money and the subsequent reserves come from? The answer is from nowhere. The Fed created it with keystrokes. Reserves are like points in a football game. The Fed bought the bills and bonds and credited the seller by adding points to both the seller’s account and to the bank’s “score,” or the amount of its recorded reserves. When game officials add points on the scoreboard in a baseball stadium, we never wonder where the points came from. We should not in this case either. Moreover, in the first instance this does not change the money available to the public. Bonds and Treasury bills are ways in which institutions, non-profits, households and mutual funds can earn interest on the money they own, much as individuals do with a savings account. When a pension fund sells bonds to the Fed for money, it is in effect moving its money from a savings account to a checking account. The amount of an individual and institution’s financial assets, at least initially, remains unchanged.

There is a common misconception, held even by some economists, that banks are intermediaries, linking people with money to lend, to people needing money to borrow. This is called the “loanable funds doctrine.” This is not right. Instead, banks create money whenever they make a loan. This is why the process is called credit creation. In this of way of thinking, as modern monetary theory emphasizes, loans create deposits, deposits don’t create loans. (See Modern Money Theory, by Randall Wray, Palgrave, 2012). If a bank gives me a loan it does not give me a barrel full of cash. It simply creates an account on its spreadsheet and marks down the requisite “points” in dollars. Keystrokes again. This also means that when the Fed increases a member bank’s score – the measure of its reserves—the banks do not automatically give out more loans. The money is not sitting there creating pressure. It is denominated in keystrokes. Instead, banks lend only when they can identify credit worthy borrowers. One reason that banks had so much excess reserves in the years after the Great Recession is that they were wary of extending credit. This is also why the Fed’s program of “quantitative easing’ – buying bonds and bills and crediting member banks with reserves, has not caused inflation.

The seeming mystery of how money can come from nothing is resolved by recognizing that economic life is lived forwardly. Businesses have to spend money, before they earn it, and credit, or what is sometimes called “working capital,” makes this possible. This is why sometimes a fast growing company goes out of business. It cannot get enough credit to finance its growing expenses in advance of its hoped for revenues. Credit in this sense is a measure of a bank’s and business owner’s shared conception of the future, which by definition does not yet exist. It is a signal from the future, as the bank and borrowers imagine it together. Money instantiates this signal.

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In this sense credit represents a victory of abstraction. Human culture has found a way of representing numerically something that does not exist materially. It is not unlike, the way in which Newton’s theory of gravity accounted for the observed motion of objects, by abstracting from its physical manifestations and positing a force that could only be described mathematically. We can’t “touch” gravity. Instead, it is instantiated only in the numerical relationship between objects. 

So one question is why do people persist in thinking about money as a “thing,” as a force that can break through a dam, or as an object that is passed like a tennis ball from a lender to a borrower. I can think of two hypotheses that draw on psychoanalytic thinking. Both presume that human culture creates “social defenses” against anxiety, which if experienced directly would be distressing and discomfiting.

Consider the extreme case of “gold bugs.” These are people who believe that the only basis for a national currency is gold, and that the Central Banks of all countries should promise to redeem their national currency into gold upon demand. This was in fact the basis for the historic but now defunct international gold standard. The conviction underlying this idea is that states and their representatives cannot be trusted, that left to their own devices they will “print money” in order to confiscate our real resources; our houses, cars, televisions, coal and gas. If political and economic elites are foresworn to redeem paper into gold they will be constrained by the amount of extant gold and the amount that can be mined. Never mind that the amount of gold available as backing is in some degree arbitrary. Never mind as well that if there is insufficient gold, countries will experience deflation because there is too little paper currency to support the desired volume of exchange. Gold bugs discount the salience of these likely problems partly because their larger vision is tinged with paranoia. They worry that a cabal of unseen forces, call them Jewish bankers or Freemasons, controls us, and that only gold will free us.

I suggest that we can generalize from this extreme case. The gold bug has a fantasy of a social relationship, albeit a paranoiac one. Once we understand that money is nothing but the expression of our relatedness, we must recognize the ways in which we are interdependent in world wide circuit of exchange. So one hypothesis is that we want to see money as thing, as a defense against the anxiety we feel when we see how interdependent we really are.  Karl Marx’s conception of “commodity fetishism” is helpful here. He argued that we tend to see an economic exchange as the relationship between money and goods, rather than what it ultimately is, a relationship between people. We treat money as magical, as if it can conjure up objects without considering the underlying social organization that money sets into motion. Thus for example, we buy cheap clothing from Bangladesh imagining that we are exchanging money for clothing.  But in fact we are setting in motion a social process through which poor people work under unsafe and sometime life threatening conditions.  It could very well be anxiety provoking to acknowledge our personal connection to this social fact. That is why of course activists insist that trade be fair as well as free.

Marx’s use of the term, “fetishism” is also suggestive to the psychoanalytic listener, and may provide some additional insight. For example, many men are comfortable in a sexual situation, at least initially, only if they can focus on a body part, for example, a woman’s breast, leg, buttocks or foot. This is very common, as is evident in most commercial pornography.  In the extreme, a male fetishist may need a prop, for example a shoe, in order to become sexually excited. He endows the fetish or shoe with magical properties. One hypothesis is that the this focus on a part, rather than the whole, and on a material object, rather than on the relationship with the woman,  enables the man to exercise control over the conditions that excite him. Absent the fetish his excitement would turn into anxiety. The conception that money is a physical object, that is separate from the complicated relationships it sets into motion, and from the relationships it exposes, shares some of these features. (Note to my skeptical reader. Invoking sexuality does not mean that people's relationship to money is sexualized  Rather, by drawing on sexual experience in its vividness and specificity we gain insight into motivation and its constituents more generally. This is one way to interpret psychoanalysis' privileging of sex as a key to motivation.) 
 

The term “magical” points to another and perhaps more speculative hypothesis. I came across the following video, which gives a coherent presentation of credit creation, emphasizing for example the creation of credit out of nothing and the system of account settlement and clearing. (http://www.youtube.com/watch?v=KyDU4X8GSmE) Yet the tone and import of the video suggests conspiracy. It is introduced with dark sounding music, and images of a grim reaper type of figure chained to a rock of “debt” and swinging a mallet to break the chain. The video scrolls through a quote by Woodrow Wilson, the 28^th president of the United States, “Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of somebody. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive that they had better not speak above their breath when they speak in condemnation of it.” The video’s central message is that there is something nefarious about the fact that credit is created “ex-nihilo,” or to translate the Latin, “out of nothing.”    

The phrase “ex-nihilo” is in fact linked to the idea of credit creation (http://en.wikipedia.org/wiki/Ex_nihilo),  but was originally a theological description of God’s powers.  In Judeo-Christian theology only God can create ex-nihilo. This is why the Old Testament counsels the Israelites to avoid magic and magicians, “No witch shall you let live,” (Exodus, 22: 17).  Moreover, the economist Fredrick Hayek argues that in the early stages of capitalism, “Activities that appear to add to available wealth ‘out of nothing,’ without physical re-creation and by merely rearranging what already exists, stink of sorcery.” As David Hawkes notes this was one basis for the revulsion against usury in Renaissance England; not that it was simply unjust but that it was supernatural. Money “procreated” so to speak, in the form of interest payments added to capital. Yet it was lifeless. As he writes, “Usury was magic perfected by other means.” (The Culture of Usury in Renaissance England, Palgrave, 2010)

Today most of us do not believe in magic. Instead we enjoy magic shows in which stage magicians makes objects appear out of nothing -- ex-nihilo -- but only in fun, though we are often astonished. I want to suggest nonetheless that there is an experiential basis for our anxieties about "ex-nihilo," particularly in a secular age. If we think seriously about our own existence, it must seem that we came into the world, ex-nihilo. Of course we understand how babies are born, but our own existence is so arbitrary. After all, none of us have existed since the beginning of the universe and yet here we are now, suddenly! How can that be?  

The arbitrary can be frightening. It is a portal to chaos. But we should also remember that the other side of arbitrary is “contingency.” Our world is not determined, and this becomes the basis for creative work of all kinds. That is why credit creation can support entrepreneurship, which is, after all, the creative arrangement of resources in new ways.

One speculative hypothesis is that that we project these existential anxieties onto a “folk-theory” about money. At the extreme, some people develop a theory of money in which “hidden forces,” who create credit out of nothing, use this power to enslave us, in other words to eliminate contingency and the capacity for creative work. This fantasy paradoxically provides relief because it suggests that someone, some shadowy network, is actually in control. All is not chaos, and if we are smart enough, we can control the controllers. A larger number of people, less likely to be drawn to conspiratorial thinking, persists in thinking of money as a physical object that operates mechanically, as a way of avoiding the uncomfortable idea that the course of our lives, like our birth, is entirely contingent and unpredictable. The laws of money like the laws of physics provide scaffolding, an “invisible hand.” This may be one reason why economists did not anticipate the financial crisis that led to the Great Recession. This sense of contingency is also the basis for  the criticism that George Soros, the famous investor, has of modern economic theory. His name for it is "reflexivity." The challenge then, is to accept the arbitrary, and then see the creative opportunities in contingency, both in our individual lives and in the social world we create together. We can use credit and money creatively.