Advice from David Hume

I delayed starting work this morning by re-reading my hero David Hume’s ‘Of the Balance of Trade’ from Essays, Moral, Political and Literary.

“How is the balance kept in the provinces of every kingdom among themselves, but by the force of this principle, which makes it impossible for money to lose its level, and either to rise or sink beyond the proportion of the labour and the commodities which are in every province? Did not long experience make people easy on this head, what a fund of gloomy reflections might calculations afford to a melancholy Yorkshireman ……. Any man who travels over Europe at this day may see, by the prices of commodities, that money, in spite of the absurd jealousy of princes and states, has brought itself nearly to a level; and that the difference between one kingdom and another is not greater in this respect than it is often between the different provinces of the same kingdom.”

Think northern vs southern Italy, and Milan vs Munich.

What matters, Hume argues here, is the “art and industry” of every nation – or province. The equilibrating flows can be blocked – “as any body of water may be raised above the level of the surrounding element” – but real is real and balances balance. If there is a large and persistent trade surplus in one area, and no exchange rate adjustments, the capital account consequence is inevitable.

Still, we are in for a deal more “absurd jealousy” before the Eurozone saga is over.

I have this Hume essay in the Essays volume but also in one of those fantastic old Penguin modern economics readings collections, International Finance edited by R.N.Cooper, published in 1969. The collection runs from Hume’s 1752 essay to 1967. There are tons of handbooks these days that aim to encapsulate the state of knowledge at the frontier (I say encapsulate but they are usually large tomes). It would be great to have the concise historical progressions once again – perhaps as web portals. Income distribution from Ricardo and Marx to Atkinson and Piketty. Financial bubbles from Jevons through Minsky to Farmer?


Not waving but drowning?

“My argument, based on the experience of my years in the Chicago ghetto, is that the poor are actually more resilient and economically creative because they have much bigger obstacles to overcome,” writes Sudhir Venkatesh in Floating City: hustlers, strivers, dealers, call girls and other lives in illicit New York – in a reference back to his previous book, Gang Leader for a Day.

Well, that rings true. The illicit economy manifests countless signs of creativity, enterprise, and the resilience of the human spirit. Floating City is not just a document about the lives of low income – and higher income – New Yorkers engaged in illegal economic activities; it is about the many connections between the legal and the illegal economies. He writes: “Global cities offered new social connections that could be monetized, above ground, and below in the black market.”

Chicago in the 1990s, the subject of the previous book, was a city of local neighbourhoods and dense, localized social connections. New York in the 2000s was becoming a city of new connections crossing all kinds of borders – the boundary between legal and illegal, the boundaries between social classes, breaking down, leaving individuals navigating new social networks with unfamiliar rules. The book concludes: “In the new world, culture rules. How you act, how you dress, and how you think are part of your toolkit for success. … The ability to cross boundaries is vital. New York forces multiple social worlds on you whether you like it or not.” Hence the floating between worlds – although more often sinking. As the Stevie Smith poem puts it, “I was much further out than you thought, and not waving, but drowning.”

The book is fascinating, and anybody with an interest in the illicit economy should read it. That ought to include all economists (although it probably won’t). The public conversation we have about the economy largely ignores the scale and pervasiveness of the shadow economy. From time to time it breaks through, as when the official statisticians announced they would include estimates of illegal marketed activity such as the drugs business and prostitution in GDP. On the whole, though, we politely ignore how big the whole thing is, from the scale of the international drugs and people trafficking trades all the way to rich folks with Swiss bank accounts looking for efficient tax arrangements, or companies that are ostensibly British but have a surprising number of Caribbean subsidiaries.

What I didn’t like about the book – and its predecessor – is the prominence of the author himself in the lives he documents. No doubt it is intellectually honest to underline the presence of the social science observer in the events he is observing, but for me he ends up sharing too much. I found it very uncomfortable, and was only partly reassured by the references to the university ethics committee. Having said that, authentic portraits of life on the margins of our global cities are welcome. And it’s a well-written and even gripping read.

Reading about cities

The essays in Patrick Keiller’s The View From The Train will appeal to anyone who enjoys the psychogeography genre – Iain Sinclair’s London Orbital etc – and I do. They are more interested in the economics of cities, and particularly inequality and public space, than many of the other psychogeography books, however. There is overlap for example with Anna Minton’s Ground Control and Lynsey Hanley’s Estates. Yesterday I wrote about the observations Keiller makes on ports and on housing. Although I don’t agree with all he says, it’s very interesting.


I must be in a cities mood, as I picked up and have now started reading Sudhir Venkatesh’s Floating City, which is an ethnographic approach to globalised, financialised, unequal New York City. As I’ve got flights today and tomorrow, I should be able to report back soon.

Shabby housing and shiny skyscrapers

I had been waiting ages for Patrick Keiller’s The View From The Train to come out in paperback, and it hasn’t disappointed me. There’s even a chapter about ports and containerisation! It’s a very interesting one. Among other points, Keiller notes the transfer of jobs from ports to haulage – ‘logistics':

“Not only do ports and shipping now employ very few people but they also occupy surprisingly little space. Felixstowe is the fourth-largest container port in Europe but it does not cover a very large area. The dereliction of the Liverpool waterfront is a result not of the port’s disappearance, but of its new insubstantiality. The warehouses that used to line both sides of the river have been superseded by a fragmented, mobile space: goods vehicles moving or parked on the UK’s roads. The road system as a publicly-funded warehouse.”

He’s interesting too on the shabbiness of housing compared to the shininess of new corporate spaces. I read elsewhere this week that a quarter of the UK’s housing stock was built before 1910. “Under advanced capitalism it is increasingly difficult to produce and maintain the dwelling,” Keiller writes. This chapter notes the relative increase in house prices and absence of automation in construction. I think this is only partly true – there is far more use of technology in major construction projects even if housebuilding and repair is still mainly done the old fashioned way with (immigrant) labour. And the relative price increase is due far more to land values than the price of construction, which in turn is due to planning restrictions and the limited supply. But that the housing situation in the UK deserves the description ‘crisis’, there is no doubt.

I’m about half way through, will review the whole book when finished.