An Interview with Miguel Palacios on finance and fiction (or the fiction of finance) by José Luis Falconi

Nashville, January 2014.

José L. Falconi: As a professor of finance at a top business school in the United States, what comes to mind when you see someone utilizing paper currency the way that Santiago Montoya does (defacing, breaking, cutting it)?

Miguel Palacios: The first thought is, even though he is defacing and cutting the currency, it is still a good use of the bills because he is giving them a different use than what someone in finance is accustomed to. He is basically making us look at the aesthetic and the material aspects of the bill. And that is not something that the finance community is worried about.

JF: Why not?

MP: Because, truthfully, most of the things that you buy, you don’t buy them with bills.

JF: What do you mean by that?

MP: Well, when you buy a house, for example, you never see a bill going in or out. Huge sums of money change accounts, but you don’t see a bill. If you use credit cards, you are not using bills; if you use checks, you are not using bills. And in fact, if you measure all of the transactions that take place in an economy, maybe two percent take place with bills.

JF: Nonetheless all these transactions seem to be “backed” by bills. But I guess if I tell you that, you will reply that the bill is not backed by anything; that the bill is just a bearer of value, but does not have intrinsic value. Maybe this is a good segue into the history of currency itself–what are the origins of money? How, on the one hand, is it such a fetishistic object, and yet, on the other hand, almost an empty fiction which is really worth nothing at all?

MP: Well it’s not true that it isn’t worth anything. You can still go buy things with bills, so the “fiction” works. But in order to understand this fiction, we need to look back at the history of the bill itself, which starts with mechanisms of exchange. Before bills we had seashells, tobacco leaves, salt, corn, gold, silver and others. Did you know that the word “salary” comes from being paid in salt? Gold and silver are hard metals, so they were particularly convenient because they were hard to destroy, they didn’t decompose, and they were easy to divide. As a result, they became widely used. Rulers recognized that it was to their advantage to control the mechanism of exchange. At some point, a ruler decides to put a seal on one of those things. And that’s an important moment because that’s the moment when some type of authority officially backs and enforces this medium of exchange.4

JF: That’s the very beginning of what we might call a central bank?

MP: Not really a central bank, but it is the very beginning of a government-backed currency.

JF: But it standardized all of the exchanges that occur in a particular territory, just like a central bank…

MP: Well that is one consequence. Really what the king wants is to be able to collect taxes and get as much as he can. The seal of the king on the coins is his way of ensuring that all the currency is equal and uniform—one pound is really one pound, not half a pound, etc.

JF: With the seal you move from pure intrinsic value to an added value that is physical. If you melt the coin, you can have the metal but not the “seal” and therefore your metal will be worth less than exactly the same amount bearing the seal.

MP: Certainly, the coin with the seal was worth more than a coin without the seal. Whereas before you had something that you could use to pay taxes to this particular king, once the coin is melted, you cannot pay your taxes. In fact, this makes the melted coin less valuable to anyone who trades with you, so you will be able to buy less things with it than before. The value is not intrinsic, it stems from the approval and restriction that the king puts on the coin.

JF: But it’s already an interesting moment because this already implies an object which holds no real worth beyond its value as a convenient form of payment. You can do more things with a coin that has a face than with one without a face. It’s just the mere convenience—the use of it—that allows it to become valuable.

MP:  Yes. But now lets take a closer look at gold’s value.5 When people talk about the “intrinsic value of gold,” what does that actually mean? You cannot get pleasure from gold, you cannot run faster with gold, you cannot lose weight with gold. Basically the only way you might be able to argue for an intrinsic value of gold is by acknowledging its aesthetic character. For example, if you see people wearing gold and you believe that it is beautiful, you might call this intrinsic value. In any other respect it is mostly useless (gold does have some applications in electronics).

''[Santiago] is basically making us look at the aesthetic and the material aspects of the bill.''

- Miguel Palacios

JF:  So the “intrinsic value” of gold is determined entirely by the conventions of value and exchange we have all agreed to.

MP: Exactly. It’s a purely imagined order. I think that you and everyone else are going to accept my gold, and that you are going to do some work for me in exchange for gold. But if Martians were to observe this, they would be absolutely disconcerted as to how it is that we ended up believing this metal had any “intrinsic value.”

JF: So how did we end up with a bill then? If that happens with coins with at least some basic “intrinsic value,” then the bill will be a doubling of the convention… It is kind of baffling to think how many conventions we need to secure in order to believe in the bill…

MP: A problem with gold or silver coins is that they were too heavy and there were a lo of problems transporting them around. You might be traveling through the forest and Robin Hood might come and take them away…

JF: Also they make holes in your pockets…

MP: Certainly! Too heavy, too complicated to carry in massive quantities. So, at some point in history, to get around that problem, two people who were conducting a transaction agreed that instead of exposing themselves to thieves by transporting a large amount of coins, one will give the other a piece of paper stating that the gold stored somewhere—maybe in a cave—belongs to the bearer of that paper. The point is: instead of going to that cave, bringing the gold, taking the gold to the seller, and the seller taking the gold back to another (or the same!) cave, they compose a piece of paper with a signature that says the gold that is in that cave actually now belongs to a new owner. The piece of paper was not addressed to a particular individual, becauseits recipient might want to use this piece of paper to pay someone else.6 This is the story that economists think makes sense on how currency developed. There are others who hold different accounts, usually from disciplines outside economics.7 Somewhere down the line, someone decides to build a business around caves that store money. They are called bankers. Once the figure of the banker appears, things are easier for all of us. I take my gold to the banker, and the banker hands me a piece of paper which says that whoever owns the paper is the owner of the gold… so now I have a piece of paper that I can take around, and that I can use to pay you. You will take this piece of paper only if you trust the banker. So, if I try to pay you with the piece of paper, you see the banker’s signature and you go, “oh yeah, this is a serious guy and I’ll take this piece of paper. Youdo it because you know that at any point you want you can take this paper to that banker and that banker will give you the amount of gold I have stored with him. The names of many currencies reflect that bills referred to a specific amount of gold. That is why Latin currencies are “pesos.” “Pesos” means “weight” in Spanish. And that is why British have “pounds.” Again, it is a measure of weight against the gold that was supposedly stored in the cave.8

JF: Why do you say “supposedly”? Wasn’t there a direct correlation between the number of bills printed or written and a pound of gold you could find at the “cave” bank?

MP: At the beginning, there certainly was. But at some point the bankers realized that they don’t have to hold all of that gold at the same time to function like a bank, and that they can actually lend some of the gold to others. As a result, they end up having less gold in their vaults than all of the little pieces of paper that are circulating around. In fact, they could usually lend up to ninety percent of the gold they kept. That is, if there were a thousand kilos of gold in little pieces of paper going around, banks did not hold a thousand kilos, they would only hold a hundred kilos.9

JF: So what you are saying is that at some point the value of that bill came to be determined in terms of the value of a debt?

MP: Correct. The bills stopped being exactly one for one in terms of gold, to being something that is backed by some gold. People very quickly stopped going to the bank to get their gold and began to rely primarily on the little pieces of paper—bills—and stopped worrying whether or not their gold was going to be there. The only exception is when a rumor spreads that a particular bank is “low in gold.” This shatters the belief that the particular bill the bank issued is going to be accepted by everyone else.

JF: That’s what you call una corrida, a bank run…10

MP: Yep. So if I hear this rumor that this or that bank is low in gold, I immediately realize that such rumor is going to shatter this imagined order…

JF: At that moment, everyone is going to go to the door of the banker, who only has ten percent, and who can’t find the other ninety percent of the gold because they are all debts.

MP: Exactly. The people who owned these bills went to the banker, the banker said, “sorry I don’t have your gold.” The people who had borrowed the gold would probably not have it either, and afterwards could take advantage of the bank disappearing. They could keep the gold! The “depositors”—those who deposited the gold—were the ones that lost. The bank run implies some sort of wealth redistribution: from the people who had saved the gold, to those who had borrowed the gold and end up keeping it. This pattern repeats itself afterwards in all financial crises. Bank runs happened quite frequently during the entire modern era and it was a source of economic instability. Because of this, bankers were very conservative and careful about their reputation. Noone stored their gold with a banker without a reputation, so bankers needed to project that they were “solid.” That is why they built these skyscrapers and huge buildings: they project confidence, soundness—to show they were a great place to store your gold.

JF: But skyscrapers ultimately did not prevent us from bank runs… Something else in the system itself was needed to stop them.

MP: Yes, the modern fix came after the financial crisis of 1907, which was particularly bad. It happened here in the US, and the response of the US government was to regulate the financial markets by creating a bank of banks: a central bank.11 The special characteristic of the central bank is that it lends to other banks facing a run. But to be able to do this, it must control the currency; otherwise it will be unable to credibly support banks during a crisis.

JF: That’s why money today is insured in case of a bank run for up to two hundred and fifty thousand dollars, at least in the US.12

MP: Exactly. Now the moment that you create this backer you create a huge problem: bankers previously had incentive to maintain their reputations, now they don’t have that incentive. Something we saw very clearly…

JF: A hundred years later!

MP: Yes, though the financial crisis in 2008 is only the most recent example. We’ve seen it several times over the twentieth century. To counteract the loss of incentives that bankers face, central banks imposed limitations on what banks could do, basically forcing them to be more conservative.These limitations regulate, for example, how much of a bank’s deposits it can lend: the ninety percent we discussed before. Over the last fifty years, as a response to globalization, these rules have been tweaked by committees of central bankers. Yet, bankers keep finding ways to go around those rules, and the crises still happen. Central banks became the ones in charge of storing gold, and banks were only allowed to keep bills. When a bank faced a run, people would no longer try to get their gold out, instead they would try to get their bills out. During a bank run, the central bank would send bills to the affected bank, not gold. In effect, being able to get “your gold” was supplanted by being able to get “your money” from the bank. Once this started, it would be just a matter of time before central banks quit delivering gold altogether. This happened in the 1930s in the US, and in 1971 around the world. Since then, what keeps our faith in bills is just that everyone else accepts them, regardless of the fact that we can no longer convert a bill to gold.

JF: For much of the twentieth century we were working under the same system in terms of dollars vs. gold in the mint (gold in Fort Knox or wherever it is kept).13 Nonetheless, that order was broken with Nixon, is that correct?

MP: Yes. It was 1971 when Nixon declared such equivalence broken.14

JF: What happened? Why? It almost sounds counterintuitive…

MP: After the Second World War, all the major industrial countries agreed to ascribe to one system to regulate monetary relations. It was called the Bretton Woods system.15 It had one basic pillar: all currencies needed to be pegged to the US dollar, and the US dollar was in turn pegged, in a fixed relationship (thirty-five dollars an ounce), to gold. According to this arrangement, countries just needed to have dollars in their international reserve vaults and not gold itself, because dollars were as good as gold. Nonetheless, in case any government wanted it, the US would disburse gold instead of dollars. This was okay in theory, and the system ran without much problem when the Western economies were still recovering from the effects of the Second World War. Yet, by the early 1960s, this pegging of thirty-five US dollars per ounce of gold became untenable. Gold was more expensive than thirty-five US dollars an ounce, and a lot of formerly ailing countries—France in particular—were requesting more and more gold from the United States, and then selling it at higher prices.16 After almost a decade of this, Nixon, rather than destroying bills to restore the value of gold to thirty-five dollars, changed the rules of the game—unpegging the value of the dollar from gold. No longer pressed by the need to match bills to a specified amount of gold, governments discovered they could “print money” (which they would then lend to the central bank). Invariably they printed much more money than was needed—irredeemably devaluing the bills—which resulted in inflation. Still today, the gulf between revenue and debt continues to widen.

JF: So, how are we to determine the value of the dollar?

MP: We need to go back a couple of steps. Bills have never really been based on the value of anything, because we agreed that gold didn’t help you for anything, so that dollars valued in terms of gold are still “fictional.”



JF: But you still have a physical piece of metal there. Whether that metal does anything and is in itself worth anything is another story… Now with this Nixon thing, I don’t even have the metal at the end of my transaction.

MP: You have paper, which is as useful as the metal you had before! The amount of things that a metal like gold buys has always changed over time. When the Spaniards and the Portuguese started bringing gold in large quantities from Latin America to Europe in the sixteen hundreds, the result was inflation measured in terms of gold.17 Its value fell because of its abundance. So, what truly matters is not the material of metal or paper, but how many things you can buy in exchange.

JF: I understand that there are some people that measure exchange value in burgers—the “big mac index”—because that’s the only way they can have a basic commensurability between contexts.18

MP: Yes, some economists compare the price of the same item in burgers. It’s a reasonable comparison, but it’s not perfect. The point is: this measurement has always been relative to other things one can buy, but the value of those things changes over time, and pretty much depends on the moods of millions who exchange things every day. Thus, the measurement is subjective, “fictitious.” Before you had a piece of metal sitting there that represented that value; today the value of our work and the things we buy everyday has become completely detached from this physical marker of value.

JF: So… I guess what I am hearing is that for a finance expert like you, the bill is just the face of the most incredibly fictitious story that has ever been told in the history of mankind…

MP: [laughs] Well it’s fictitious in that nothing tangible captures value. But it is real in the following sense. Suppose I were to say: “José I am going to do you a favor today, but you owe me one.” And so, because I do lots of favors for people and you do lots of favors for people, we write on a piece of paper: “José owes me a favor.” So it’s true that you owe me a favor, but we are not exactly clear how much is owed or what is owed. Once you agree, even though the obligation is not tangible, the obligation is real. It captures a debt that I have, that you have with me.

JF: Certainly. But the “fictional” aspect seems to come when we try to make things measurable and project their value over time. It starts to get really fuzzy to the point that I am not sure if the fuzziness itself is a constitutive aspect of the system. It feels as if the system needs to be unclear at the level of value for it to work.

MP: Absolutely it’s fuzzy! And I think I would agree with you that one couldn’t have a system without the fuzziness. Yet, policymakers are trying to do away with the fuzziness. This can be seen in the new “Volcker Rule” instituted in 2010 after the latest debacle which hopes to prevent another meltdown by providing banks and bankers with a set of very explicit rules specifying what to do when there is a possible bank run. It turns out fuzziness is costly.19

JF: You are reminding me of those pictures of Argentineans in 2001 trying to break into the bank because their money was supposedly there; but there was, in reality, nothing there.

MP: The Argentinian crisis has some interesting points about bills because the provinces started to produce their own currency.

JF: That’s right. They were called patacones.20 Actually, everyone printed money in those days. In the art world there was a very famous group, El Proyecto Venus [The Venus Project], that printed its own money—the “Venus”—which was backed by the signature of a famous artist and by the number of kilos of pot (marijuana) they had in the vaults of their central bank. Then they smoked it all and the currency lost its value. For a while, nonetheless, their bills were used in exchange for goods and services because no other currency was valid.21

MP: That gives you an insight into the value of bills, though smoking the pot need not have led to the devaluing of the currency. As long as people were willing to accept “Venuses” as a medium of exchange, its value would have probably remained strong. But as a more general point, Argentina shows what happens when bills are printed indiscriminately. Eventually their value is destroyed and a crisis follows. Argentina’s case is particularly sad because they had gone through the same process a decade earlier. It seems some lessons are hard to learn.

JF: So, given all these fictions that make “sense” of the bills, what exactly do you think people have in mind when they talk about “money”?

MP: I don’t think people are interested in money for its intrinsic value, I mean what we all recognize unconsciously—maybe only unconsciously—is that we want money only because money can get us things. Which means, we want these dollars only because these dollars are going to be accepted by someone else. The bills are not backed by gold, but by our collective understanding of what and how they are valued.

JF: This brings us, full circle, to the question of Santiago’s use of the bill as the basic material of his art. His work is particularly interesting due to his use of bills—these little pieces of paper—which embody all these fictions. What is interesting—valuable—is the new use given to these pieces of paper. I think I told you the story of when we had hyperinflation in the mid nineteen-eighties in Peru? About when we changed our currency from the Sol to the Inti and the Inti just went up, and up, and up, and up? We had this joke in Peru during those times that you needed to carry a bag of money—I mean a backpack of bills—to get just one tiny little thing you could carry in your wallet.The order of things was reversed. We used to decorate our houses with money! People would literally wallpaper their homes with cash because it was cheaper than buying paint. Anyone who experienced those times first hand understands that bills are just pieces of paper.22

MP: What is interesting is that you can say that about any important piece of paper: the constitution, a novel, etc. Take your birth certificate, for example. Its intrinsic value is zero.

JF: Well! I am recognized as a human being by a community because of that piece of paper!

MP: But we could say something similar about bills, right? You are recognized as a human being with that piece of paper, and you can buy and sell things in an economy with a piece of paper or bill. So what I was trying to get at is this: my birth certificate is a piece of paper which helps me in certain circumstances—for example, if I want to run for president, right? But if someone broke it, I would feel pain, which means it’s not just a piece of paper, it has something of value, and that symbolic value is what that birth certificate represents. If someone breaks it, I would feel more pain than if someone breaks a napkin. I think the same thing is true with the bills. If someone starts to deface or break bills, it immediately catches your attention.

JF: In the case of Santiago’s work there is certainly a violence acted upon the bill, in an almost sacrilegious sense. There is certainly a strong force, which, as far as I can tell, comes from the physical manipulation of those bills.

MP: What I like about Santiago’s work is that he is pointing us to that authority of the king on the seal. Given my financial background, I guess, I should care about the bills but I really don’t. What I care about though, is that every time I see Santiago’s work I can’t stop thinking that the piece of paper is a broken promise—an intended payment of some sort that never happened. One of my mentors had this collection of things that are not bills, but are something like bills—they are called coupon bonds (like promissory notes). He collects them because they were issued by failed entities. He has, for example, coupon bonds from the Panama Canal, which were never redeemed. The term coupon bond stems from the pieces of paper one was supposed to rip-off a bond to claim the coupon payment. The piece of paper was literally a coupon as the ones you use in a supermarket.23

JF: So it’s just like, ah, one of those ads in the Laundromat that has a phone number that you tear off?MP:Yes, exactly like that! If you owned one of those bonds, you would tear them and take them to the headquarters of the company who issued it—in the case of the Panama Canal it was a French company—and you would say, “here is my coupon, give me my money.”

JF: So he has a collection of debt.

MP: He has a collection of unclaimed debt. The bills that Santiago has are the same; they are unfulfilled debt. The difference is that this unfulfilled debt has artistic value, from what Santiago has done.

JF: That is a very interesting aspect of it. Looking at Santiago’s work, it seems that there are two ways in which there is an added value here to the bills with which he works. The first one is through labor: there is a very clear amount of work done here. A painstakingly cumbersome process is evident in all of those pieces; it’s very complicated to construct them. So, there is labor in them, which adds value.

MP: I am not sure this is the best way of accounting for the value in Santiago’s work. It might be better to simply say that the added value comes from the pleasure the manipulation of these bills creates in the viewer. It’s not the work. It is the result of the work.

JF: That brings us to the second way of accounting for value that I had in mind: the aesthetic effect. The problem with this register of value is that we have nowhere to pin it, don’t you agree? What is the value of pleasure?

MP: It is completely subjective, as is the value of everything else! In the end, in terms of money, the value of pleasure is the amount of money someone would be willing to pay to look at the results from Santiago’s work. But we never get to observe this value directly, because people have many different reasons why they pay to look at Santiago’s work. One such reason is just being able to tell others “I have a work by Santiago and get to see it everyday, and you don’t.” Here the value of Santiago’s work is not the pleasure one derives from it, but the status it gives to the owner. Disentangling those two reasons, pleasure and status, is hard. JF: It seems that art itself—those objects which have that pleasure value that is difficult to measure—ends up becoming the ultimate measure of value. For example, consider the spike in purchases of art in recent years, especially since the financial crisis: the wealthy have flocked to something more stable than gold because it seems to have irredeemable “intrinsic” value. The market for a Van Gogh, a Picasso, or a Rembrandt, has skyrocketed up the whazoo, because supposedly those are the most solid investments—much less exposed to the fluctuation of the market in general.24

MP: That’s a source of debate. First of all, the market for art as an alternative investment, one that makes your portfolio better diversified, is relatively new.

JF: But the Rothschilds, and before them the Medicis, and royalty across Europe for centuries have had collections of art. Every king always had a collection of art, and the very rich now have collections of art.

MP: The essential distinction, however, lies in the idea of art bought as a diversified investment. With the Rothschilds, the Morgans, and the Vanderbilts, I don’t think they were seeing the art they had as, “if the world goes down, my art is going to keep me afloat.”

JF: But art has always been seen as the ultimate collateral you can collect from. Take for example the famous 1650s selling of the holdings of the British royalty—Cromwell sold the paintings after King Charles was executed in 1649—in order to pay debts accrued by the royal household and to provide funds for the naval fleet. The collection was filled with Titians, Raphaels, Da Vincis and Van Dycks, among works by other great painters.25

MP: Yes, I can see that, but that doesn’t mean that when the king was buying the art, he was thinking of it as an investment.

JF: Don’t you think that it was basically the case?

MP: Well, it’s speculative. I’ll change my mind if someone presents me evidence to the contrary, but I don’t think so. And the reason is, they had a very different way of thinking about investments back then. We know that the best art holds its value, but what we don’t know is, if we take a sample of excellent art today, how much will it be worth a century from now?

JF: But that is why they go for modernists, and not so much for contemporary: Van Gogh, Picasso—those that are roughly a hundred years old. If you want to buy further back, Renaissance art for instance, it might prove harder to buy. If you attempt to buy the Mona Lisa, you won’t be successful—you simply cannot buy it.

MP: It’s unbuyable.

JF: It’s unbuyable. I mean, those things are unbuyable. It is interesting that something so apparently unstable as art is becoming the ultimate bearer of value itself. It is probably the only place—due to its supposedly intrinsic value—where value is not fictional.

MP: But hold on, remember, I really don’t like the fiction aspect you ascribe to value because it’s not fiction, it’s real. It’s not tangible but that doesn’t mean that it’s not real. Those millions of dollars are backed by all those things that you can buy with them. When people say it’s not backed by anything, it’s true only in some sense.

JF: Yeah, well, it’s true in the sense that the piece of paper only backs our conventions. But if those conventions fail, if we all decide… I mean imagine we all take a poll and we decide that the dollar isn’t going to be worth anything.

MP: Well sometimes that happens. In fact let me tell you when that is going to happen: the day when the Federal Reserve’s treasury auction in Washington fails.26 This might happen in our lifetime. That very same day you will see the value of everything change in a heartbeat. The US hasn’t had that experience yet. It happened in other places such as Argentina in late 2001.

JF: Why might it happen?

MP: Because, as we’ve already discussed, the US government’s spending commitments are larger than its expected future income. At some point those investors filling the gap will see an increased risk of not being repaid. When the risk crosses a certain threshold—and pinpointing where the threshold lies is hard—investors simply stop investing. The process is not a slow one: once a few key players state their unwillingness to invest, a herd follows and then the US, quite suddenly, will find itself unable to fund its gap at a reasonable cost. When that day arrives, default, probably in the form of inflation, will follow.

JF: Lets consider the transformation the bills have incurred in Santiago’s work—how does such transformation add value to them?

MP: Aristotle would be amazed. Santiago made something out of nothing—because he turned a bill of exchange into an object of art.

JF: What in the works of Santiago interests you? We were talking about the Horizon series (pp. 308–329) for a while and the effect those works have through their continuous repetition of bills, of endless bills placed along a horizon, into which your sight simply disappears. It constitutes a sort of “financial sublime.” There is so much money in any of those Horizon works that we ultimately cannot make sense of them as wholes. I don’t know if you would agree with that.

MP: I agree that probably no one can make sense (of this system) as a whole, yet individuals, institutions, and governments, make sense of their own little part. This point is a deep one: no one can make sense of the whole economy because no one has all the information. At best you have a diffuse idea of what is going on, but no one grasps everything. Horizon captures that idea. The consequences of not grasping everything are important; this was one of the central insights from the Austrian School of economics. It means top-down efforts to control the economy are doomed to fail.

JF: Now, I have this hunch that only a Colombian could have really come up with that. And you are Colombian too. I am always baffled by the amount of stories of caletas [hidden cash stashes] found in Colombia. But besides that, the point is, there is no country with folklore about money, not that I can think of.

MP: I think the idea could come out of any country that has experienced hyperinflation—even just high inflation—because someone who has lived through those situations understands clearly that the bill is just a convention.

JF: But you don’t think the stories about narcos [drug lords] being too cold and needing to burn the money in order to heat themselves provides an extra awareness of the ephemeral value of the bill? I will never forget seeing forty million dollars… I mean when they find some of those narcos and you see the pictures, the pile of money they have is sometimes the size of a building!27

MP: You know there is a movie where someone does that, so I don’t think that is uniquely Colombian.28 I agree with the idea that a Colombian had the background to think of this. But I don’t think it would have been only a Colombian. I think it would have been someone exposed to hyperinflation. […] In general, whenever inflation takes hold, the convention of how much a given bill buys you breaks down.

JF: There is also part of what Santiago does, at least in his earlier body of work, which has to do with a commentary on the “propaganda” side of the bills. This position might be informed by living in a country in which the official propaganda is really devalued.

MP: Ultra devalued, so to speak. And the truth is that I personally would not have thought of Colombian bills as particularly ultra propagandistic ones, but Santiago clearly thought otherwise. He understood the huge gulf between what is preached on the bills and the reality on the ground in his own country, and from there he could move to other bills from other countries. He helps us realize how far official propaganda goes, for example Chinese currency portraying US technology as their own on the one hand, and on the other showing images of the happy peasants in the country (pp. 108–111).

JF: Has anyone done any historical research on what those bills represent? Obviously, when you get your image onto a currency’s bills, you’ve made it. In other words: there is no higher honor than being devalued at some point. I guess that in the scheme of grandeur: you might have a monument, then a small street, then an avenue, then an airport (like John Lennon in Liverpool or Tom Jobim in Rio de Janeiro), then a city or state or country (like Bolivia for Bolívar or Washington State and DC for George Washington).29 Making it to the bill would be almost up there, with having a city named after you, I think.

MP: I think the bill is the higher one, yes. Very few people make it to the bill. Well, depending on how much inflation is in the country. I remember that during the time my father was in the Banco de la Republica in Colombia (Colombia’s Federal Reserve), the bank issued four new bills. They had to figure out four people to put on the bills. I remember very clearly one of them was José Celestino Mutis.

JF: The work of Celestino Mutis is central to all of us. But he was a Spaniard—why was he selected?

MP: The country apparently ran out of people! Because Bolívar made it onto several ones, and then Nariño, Santander…30 They decided on Mutis because the bill commemorated the second centenary of the botanic expedition of 1783—an expedition that was sponsored by the Spanish in their last decades of their Colonial rule.31 Colombia’s case was not extreme as the country experienced high inflation, but never hyperinflation as other Latin American countries (and thus only produced a few new bills each decade). Still, inflation was worrisome and the government had to take important steps at the beginning of the 1990s to prevent it from getting out of control.32

JF: You live in the United States, but you have also lived in Colombia. Do you think that there is a different culture in relationship to cash?

MP: Well I think the big difference is not between countries but between income brackets. I think rich people in the US and rich people in Colombia view bills very similarly.

JF: Which is, they don’t see them at all.

MP: Or very infrequently. They think of bills as the things that you give to the valet when parking—or maybe tips, that’s the only contact they have with bills. But the way a very poor American sees bills, is very similar to the way that a poor Colombian sees bills. Which is, those bills could be most of what they have, and having more bills is what they desire. For them, money is wealth. If a rich guy looses his wallet he thinks, “let me call my assistant and have new credit cards issued,” and that’s that. When a poor guy looses his wallet it’s a disaster. It could be the event that brings him down! The consequence is that bills mean much more to the poor than to the rich.

JF: Do you think the middle class is the same?

MP: Well, the middle classes are quite different in each country. I’d suspect that the Colombian middle class is more cash dependent than the American middle class. I think the key indicator here is how developed the financial system is. The more developed the financial system, the less bills actually matter.

JF: That happens in places like in Peru or Colombia which are filled with informal financial practices, where people carry their cash around in their pockets because they cannot trust anyone, because they don’t trust the bank.

MP: True. I would add here that whether the viewer of Santiago’s work is rich or poor will have an impact on how he or she experiences his work. To a poor person, Santiago’s work might be an affront: it’s like having a sculpture made of rice in front of a starving audience. A billionaire, instead, will focus on the aesthetics.



1 Clement Greenberg, The Collected Essays and Criticism: Perceptions and Judgments, 1939-1944, ed. John O’Brian (Chicago: The University of Chicago Press, 1986), 11.

2 Samuel Taylor Coleridge, Biographia Literaria (Auckland: The Floating Press, 2009), 239.

3 Although the idea that economics is still a “primitive science” has been repeated endlessly across news media, especially after the 2008 crisis, it has been Nobel Prize winner Paul Krugman who has continued to regurgitate this concept since his 1994 bestseller Peddling Prosperity (New York: Norton Paperback, 1994).

4 For a history of gold metal currency from 625 BC through the twentieth century, see Svein H. Gullbekk, Money That Changed the World: A History of Gold Coins and Gold Currencies (Oslo: Scribendarius, 2014).

5 For more on the history of gold, value, and power see Peter L. Bernstein, The Power of Gold: The History of an Obsession (New York: John Wiley & Sons, 2000).

6 The Chinese were the first to use paper currency in the seventh century. Marco Polo is credited with spreading the notion of paper currency to Europe in the twelfth century after his visits to China. See Marco Polo, The Travels of Marco Polo, Milton Rugoff ed. (New York: Penguin Books, 1958). See also Larry Allen, “Ancient Chinese Paper Money” in The Encyclopedia of Money, second edition (Santa Barbara: ABC-CLIO, LLC, 2009), 7-9.

7 For an anthropological history of monetary transactions, see David Graeber, Debt (Brooklyn: Melville House Publishing, 2011).

8 For a broad history of money as a representation of value, see Jack Weatherford, The History of Money: From Sandstone to Cyberspace (New York: Three Rivers Press, 1997).

9 For more on the early history of banking see Richard Hildreth, Banks, Banking, and Paper Currencies; In Three Parts (Boston: Whipple & Damrell, 1840).

10 For more on the history of the bank run, see N. Gregory Mankiw, Principles of Economics, sixth edition, (Mason, OH: South-Western Cengage Learning, 2008), 636.

11 See George Cooper, “Money, Banks and Central Banks,” in The Origin of Financial Crises: Central Banks, Credit Bubbles, and the Efficient Market Fallacy (New York: Vintage Books, 2008), 39-90.

12 “FDIC Deposit Insurance Summary,” Federal Deposit Insurance Corporation, accessed April 27, 2014,

13 “The United States Bullion Depository Fort Knox, Kentucky,” The United States Mint, accessed April 27, 2014,

14 For more on the dissolution of the Bretton Woods agreement and the global impact of the unhinging of currency from a gold exchange standard see David Graeber, “The Beginning of Something Yet to be Determined,” in Debt (Brooklyn: Melville House Publishing, 2011), 361-387. For more on the policies and politics of Richard Nixon, see Allen J. Matusow, Nixon’s Economy: Booms, Busts, Dollars, and Votes (Lawrence, KS: University Press of Kansas, 1998).

15 The Bretton Woods agreement of July 1944 sought to establish a stable, international system of exchange rates (tied to the US dollar) and to ensure post-war re-construction, particularly among the war-torn European economies. The agreement established the International Monetary Fund and the World Bank. The Bretton Woods agreement is often sited as an effective institutionalization of the economic principals of John Maynard Keynes, who served as UK treasury advisor at the time of the Bretton Woods conference. For a brief overview of the 1944 formation of the Bretton Woods agreement and the events leading to its

breakdown in the early 1970s see Steve Schifferes, “How Bretton Woods Reshaped the World,” BBC News, November 14, 2008, accessed April 27, 2014, For a critical take on the global historical significance of the IMF and the World Bank at the end of the twentieth century, see Joseph Stiglitz, Globalization and Its Discontents (New York: W.W. Norton & Co., 2002).

16 At a February 4, 1965 press conference in Palais de l’Elysée, General Charles de Gaulle declared that international trade should be based on an “indisputable monetary base” not “bearing the mark of any one country in particular.” A full recording of the conference is available online: “Conference De Presse Du General De Gaulle,” l’institut national de l’audiovisuel, accessed April 27, 2014, See also “Money: De Gaulle v. The

Dollar,” Time, February 12, 1965.

17 For a discussion on gold and Spanish colonialism after 1492 see Kwasi Kwarteng, “Sweat of the Sun,” in War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt (Philadelphia: PublicAffairs of the Perseus Books Group, 2014), 11-23.

18 The Big Mac index is a method for analyzing international exchange rates based on the theory of purchasing-power parity. It was invented by The Economist in 1986. See D.H. and R.L.W., “The Big Mac index,” The Economist, January 23, 2014, accessed April 27, 2014,

19 Heidi Moore, “Everything You Need to Know About the Volcker Rule,” The Guardian, December 11, 2013, accessed April 27, 2014,

20 See Jorge Schvarzer, “The Costs of the Convertability Plan: The Economic and Social Effects of Financial Hegemony,” in Broken Promises?: The Argentine Crisis and Argentine Democracy, ed. Edward Epstein and David Pion-Berlin (Lanham, MD: Lexington Books, 2008), 73-91.

21 For more information on “Proyecto Venus” and its currency see Victoria Noorthoorn and Gabriela Rangel, eds., Beginning with a bang!: From Confrontation to Intimacy: An Exhibition of Argentine Contemporary Artists, 1960-2007 (New York: The Americas Society, 2008), 42.

22 As it is well known Peru suffered during the 1980s one of the worst hyperinflation processes in the history of the world. Only between the months of July and August 1990 the “Inti,” the national currency, suffered a 397% devaluation (5.4% of inflation daily), for which prices doubled every 13.1 days. For more information see Steve Hanke and Nicholas Krus’s August 15, 2012 Cato’s Workingpaper “World Hyperinflations” (Washington DC: The Cato Institute, 2012).

23 For an interesting take on the history and use of bonds today see Ken Belson’s “Coupon Clipping: the Old-Fashioned Way” in The New York Times (Feb. 12, 2006), accessed April 20, 2014,

24 For more on art as investment today, see Abigail R. Esman, “Ten Expert Tips for Investing in the Art Market,” Forbes, March 26, 2013, accessed April 27, 2014,; Ben Rooney, “Is There a Bubble in the Art Market?,” CNNMoney, November 15, 2013, accessed April 27, 2014, ; Tanvi Varma, “The Art of Riches!,” Money Today, September 2011, accessed April 27, 2014—not-trading-but-investment/1/18151.html.

25 Eric Hornell, “Life Before eBay: British Art Auctions at the End of the 18th Century,” The Getty Iris: The Online Magazine of the Getty, June 19, 2013, accessed April 27, 2014, – sthash.tDUTrFxs.dpuf: “The execution of King Charles I in 1649 helped launch the British art market. After the temporary dissolution of the monarchy, the royal collection, which rivaled the best in Europe, was sold off during the 1650s. Thousands of important artworks suddenly went into circulation and the public got its first taste of collecting.”

26 For a comprehensive account of the Treasury auction process and the function of primary and secondary markets in US Government securities, see: “Joint Report on Government Securities Market,” Department of the Treasury, Securities and Exchange Commission, and the Board of Governors of the Federal Reserve System, US Government Printing Office, Washington, D.C., January 1992. For more on the history of the auction process, see: Kenneth D. Garbade, Birth of a Market: The US Treasury Securities Market From the Great War to the Great Depression (Cambridge, MA: MIT Press, 2012).

27 A number of these “folk stories” about cash and “narcos” can be found in José L. Falconi’s essay “To Pay the Bill with Bills” (pp. 9–17) included in this volume.

28 In the 1995 Hollywood Pictures/Caravan Pictures release The Dead Presidents (directed by the Hughes brothers) the protagonists burn much of cash they are trying to steal from an armed truck. Nonetheless, the movie which confronts directly the theory of cash burning as a way of adding value to the remaining currency circulating at a given moment is Mad Money, directed by Callie Khouri and starring Queen Latifah and Diane Keaton (Milennium Films, 2008, 104 min) which is in turn a remake of the British Film Hot Money (ITV, 2001, 90 min).

29 As it is well known the Liverpool airport was renamed and rededicated as “John Lennon Airport” in 2002 while the Rio de Janeiro airport in Brazil (popularly called “Galeão”) was renamed after musician Antonio Carlos Brasileiro de Almeida Jobim, or simply “Tom Jobim,” composer of the “Garota de Ipanema” in 1999.

30 B esides Venezuelan Simón Bolívar (1783-1830) who adorns several of the bills issued by the Banco de la República of Colombia, in 1985 there were two 100 peso bills issued with the face of General Antonio Nariño (political and military leader in the independence of the Great Colombia) printed on their front. Towards the end of the decade, in 1990, the new 500 peso bill bared the face of José de Paula Santander, the fifth president of Colombia and known as the country’s foremost “Man of Laws.” For more information, see

31 José Celestino Mutis (1732-1808) was a Spanish priest and botanist who in 1783 commanded the most important botanical expedition to the region of the viceroy of New Granada (now Colombia and Ecuador). The expedition lasted almost 25 years and though a lot of its findings were lost after Mutis’s death, he left more than 5,000 drawings of plants by his pupils and more than 8,000 plates. For more information, see the very comprehensive history written by José Antonio Amaya, Mutis, Apóstol de Linneo: Historia de la Botánica en el Virreinato de la Nueva Granada. 2 volumes (Bogotá: Instituto Colombiano de Antropología e Historia, 2005).

32 For more information on Colombia’s economic history during the 1980s see Salomón Kalmanovitz, Economía y nación una breve historia de Colombia (Bogotá: Tercer Mundo Editores, 1995).

''To put it bluntly: it seems that our whole economic system is, ultimately, based on something much more akin to conceptual art or a religious leap of faith than on concrete, rational choice''

- Miguel Palacios