Cataclysmic Money and the Urbanization of Capital Revised: Evidence from Detroit’s Turbulent Financial History

David Bieri

 

The spatial dislocations of the recent financial crisis and their ongoing economic consequences are stark reminders of the disruptive forces of what Jane Jacobs (1993) referred to as “cataclysmic money”. Adopting Jacobs’ lens of a perpetual tension between cataclysmic and gradual capital flows across the urban hierarchy, this paper examines urban development and the evolution of the financial system as a joint historical process. I argue that money and finance are never “neutral” with regard to space, principally because the institutional arrangements of finance matter for how the built environment evolves. Indeed, the particular historical reality of the American metropolis is that “form follows finance” (Willis 1995). Indeed, within the purview of a larger research program on “money and the city”, Bieri (2013, 2015) emphasizes the linkages between the institutional evolution of money, credit and banking and urban spatial structure.

 

Focusing on the spatial effects of the U.S. financial system since the 1830s, I argue that a general theory of urban rise and decline must establish explicit linkages between money, credit and banking and urban spatial structure. Against the background of an inherent hierarchy of money within a globalizing economy, I examine the case of Detroit as a financial center and its significance for Michigan’s unique role in both the urban history and the monetary history of the United States. This research develops an understanding of the structure and function of the American urban system as one that is closely linked to the evolution of the U.S. financial system. For example, the instability of the Free Banking Era cannot be understood without considering the rapidly developing urban hierarchy along the (Mid-)Western frontier. Similarly, the process of post-war suburbanisation must be viewed as inextricably tied to the passage of the U.S. monetary hierarchy from a system dominated by government debt and managed by the government to one dominated by securitization, shadow banks and private debt and managed by no one in particular.

 

This research privileges the money economy and its relational implications as the force shaping modern urban society over the role of industrialization. In doing so, I recognize that – always and everywhere – monetary systems are both hierarchical and planned. I develop a new financial-spatial narrative that links a historicized reading of Detroit’s rise and decline to Michigan’s turbulent process of financial development. The institutional origins of financial instability and banking-led crises in Michigan begin with the Free Banking Era in the 1830s and the state’s default on infrastructure bonds in 1840 and 1841. Roughly century later, Detroit is at the epicenter of 1933 banking crisis and, within another eight decades, sets a national municipal bankruptcy precedent in 2013 – an event that was, at least in part, precipitated by highly complex financing deals that went wrong. Across different historical regimes, the intrinsic instability of the financial system governs a dialectical relationship between financial regulation and urban development, in turn leading to financial innovation which opens up both new financial and spatial frontiers.

 


REFERENCES

Bieri, David. 2013. “Form Follows Function: On the Relationship between Real Estate Finance and Urban Spatial Structure,” CriticalProductive, 2(1): pp. 6–19.

———. 2015. “Crowdfunding the City: The End of ‘Cataclysmic Money’?,” Environment & Planning A, 47(12): pp. 2429–2435.

Jacobs, Jane. 1993. “Gradual Money and Cataclysmic Money.” In The Death and Life of Great American Cities, pp. 380–416. The Modern Library, Random House.

Willis, Carol. 1995. Form Follows Finance: Skyscrapers and Skylines in New York and Chicago. Princeton Architectural Press.

 


 

David Bieri

David Bieri is Research Associate in the Global Forum on Resilience and Associate Professor in the School of Public and International Affairs. His current research examines the dynamics of money, credit and banking and their respective roles in the processes of urbanization and financialization. He also writes about regulatory aspects of international finance and global monetary governance. Prior to joining the faculty at Virginia Tech, Bieri was a faculty member at Taubman College at the University of Michigan, Ann Arbor. Before his return to academia, Dr. Bieri held various positions in central banking at the Bank for International Settlements in Switzerland and in investment banking in London.