Webs of money

A 2016 book that was an eye-opener for me was Brooke Harrington’s Capital Without Borders: Wealth Managers and the One Percent. A sociologist, she had trained as a private client wealth manager and worked among/for the global elite – the Ultra High Net Worth Individuals (UHNWIs).  The rich really are different…. and among her striking findings was their deep-seated belief they have that the money is theirs, or their family’s, and governments truly have no legitimate right to take any of it away from them in taxes.

Spiderweb Capitalism: How Global Elites Exploit Frontier Markets by Kimberly Kay Hoang is a sort of companion or follow-up volume. She is also a sociologist, but in this case conducted academic research as a clear outsider. Her focus is also different: her interest is in the ploys the UHNWIs and their delegated High Net Worth Individuals (professional lawyers and PRs etc who act for them, making pretty vast amounts of money themselves but bearing some legal risk) devise to distance themselves from “playing in the gray” – that is on the borders of legality or beyond – in emerging markets Vietnam and Myanmar. These ploys generally involve complex structures with holding companies in the Caymans, Samoa, British Virgin Islands etc, multiple Special Purpose Vehicles to make investments, professional advisers in Hong Kong or Singapore, and local fixers.

More academic (ie. slightly clunky) in style than the earlier Harrington book, it is nevertheless a fascinating read, reflecting five years of interviewing the different categories of people involved in these global money flows, and following some around on their extensive travels. Again, avoiding – or evading – tax is a regular theme. The book documents the various mechanisms involved, from the on-the-ground bribery (including attempts at mutually assured destruction deterrence such as sharing compromising social events with bribed officials) to the setting up of bank accounts and pitching investments to UHNWIs in the US. The scope of the fieldwork involved is impressive.

What to do about the spider’s web of global money flows? That’s less clear. Each individual (whether dominant or subordinate spider) is one element in a system that ultimately traps all. Although an optimistic note I took from the book is that US legislation does seem to be inhibiting some of the practices documented. In any case, it’s super-valuable to have htis kind of rigorous evidence about how the web operates, and how its inhabitants are motivated and incentivised. This is a very impressive book.



Capitalism, property and production

Capitalism: The Story Behind The Word by Michael Sonenscher is an enjoyable short read (with a great cover) that does what the subtitle says. It compares the history of ‘capitalism’ with the history of the idea of ‘commercial society’ and the division of labour, making the case that the two referred to different economic arenas. Capitalism concerned capitalists: people who lent money to governments to fund war and other expenditure. It was thus a concept relating to public finance and taxation, and concerned with private property. Commercial society and the division of labour were concepts used in broader societal debates about the organisation of production, markets and prices – issues that predate the general use of the word ‘capitalism’. The essay argues that the distinction is worth keeping, although this may be a losing battle as ‘capitalism’ has swallowed the wider issues – and much of the wider contemporary literature on these latter has been largely forgotten.

Among other things, a quotation from Hegel struck me: “Money is not in fact one particular resource among others; on the contrary it is the universal aspect of all of them, in so far as they express themselves as an external existence in which they can be apprehended as things. Only at this extreme point of externality is it possible to determine services quantitatively and so in a just and equitable manner.” (This is obviously not the modern usage of the term ‘externality’.) I was surprised to see a rationale for using the measuring rod of money as a common standard from this author.



What is the free market?

There are a couple of important books out in September that I’ve had to restrain myself from writing about too far ahead of publication. Brad Delong’s Slouching Towards Utopia: An Economic History of the 20th Century will be published mid-month. A week or so later – and it can also be pre-ordered now – is Jacob Soll’s Free Market: The History of an Idea. So I’ll write about the latter first.

The premise of the book is that, “We are in an essentially abusive relationship with free market thought,” which has had adverse consequences that finance and big business have stacked the economic system in their favour while the little people take on high debt burdens and pay taxes, in the pretence that ‘the market’ must prevail. To recover from this dysfunctional relationship requires a task of intellectual history. What is this ‘free market’ idea and how has it come to veil a state and regulatory structure favouring the rich over the rest?

The book takes this task seriously: “To understand the origins of free market thought, it is first necessary to understand Cicero’s philosophy.” So, not Adam Smith then. Successive chapters go on to the conceptualisation of markets and what we would now call ‘the economy’ in the late Roman period, the Middle Ages, Renaissance Italy, early modern Britain, Colbertist France, the Dutch Republic, and on through the Enlightenment, French Revolution, Adam Smith, Industrial Revolution and age of Empire.

The book identifies a sort of historical pendulum: “When there is political stability and a developed economic system, it can seem as if markets just emerge on their own and sustain themselves. The fall of Rome, however, showed that when society collapses, strong and sustained state intervention may be necessary to build back the market.” The Mediaeval period was one of these. Another was the Netherlands after the Dutch War of Independence: “Windmills were the product of Dutch traditions of communcal investment dating from privately-funded medieval public works…. Citizen investors worked together to create public infrastructure. This long tradition of private-public partnership laid many of the commercial foundations of the Republic.”

The post-Adam Smith version of free market thinking is traced here to paradoxical roots in Colbert, usually thought of as the architecht of mercantilist state management. The seeming endless violence and suffering experienced by the mass of 17th century French people led Colbert’s sucessors – children and nephews – to turn back to Cicero’s vision of voluntaty exchange among Rome’s aristocracy. Add in Christian ethics and here are the foundations of rational self-interest and ordered exchange. As is now better appreciated, Adam Smith’s free market vision was founded on the ethical system he had written about in his Moral Sentiments before The Wealth of Nations. The free market was built not on greed but on social responsibility.

The book then canters toward the post-1980 bowdlerisation of this free market ideal, via ever faster swings of the pendulum for and against state activity. Soll concludes that much free market thinking is simply utopian, markets as magic. “This model, however, no longer seems realistic or relevant. After decades of deregulation and expanding free trade, the world has experienced regular cycles of economic crashes and government bailouts, along with burgeoning wealth inequality, wars, and climate and health disasters. Equilibrium eludes us.” And indeed the state remains a major economic actor, in the US as well as China, albeit in different guises.

So the dilemma remains: the ‘free market’ is a fiction and we get closest to it in historical periods of stability. But governments can be at best inefficient and at worst corrupt and authoritarian. “But the historical record shows that, as economies grow in complexity, so governments grow in response, for better or worse.” The free market? It would be a good idea. But more important than how the economy is organised is the social and moral context in which we carry out our investments and exchanges. The final word: “Faith in the market alone will not save us but hewing to those old virtues might.”

So, a very interesting read – I really learned a lot from the long historical perspective on the origins of what became the modern version of free market thought. Some of it was a bit surprising & perhaps historians of thought will contest it. I’d have liked more on the post-world war two aspects but that’s probably a different book (and indeed Delong covers that period).  I fundamentally agree with the conclusion, though: economies exist in and as part of societies, so the social and moral relations are fundamental. And – for economists – ideas about the right way to behave really matter, not just as innovation or endogenous growth, but (as Deirdre McCloskey has pointed out in her major trilogy) as the enabling or limiting environment for both markets and state to function.



Fitting economics into a theory of justice?

I spent a relaxing week at the Welsh coast doing only light reading, but have a few posts to catch up on about books I read before the holidays – including a couple out in September, Brad Delong’s Slouching Towards Utopia and Jacob Soll’s Free Market: The History of an Idea. First up, though, some thoughts prompted by A Political Economy of Justice, a collection of essays edited by Danielle Allen, Yochai Benkler, Leah Downey, Rebecca Henderson and Josh Simons. That’s a wonderful line-up of editors, and the chapters emerged from a seminar series at Harvard. As with all essay collections, they are variable in quality and cover a wide range of subjects – from ‘Beyond GDP’ to theories of change in a democracy to the US ‘prison industrial complex’. Nevertheless, the book is well worth it for the introduction alone.

The intro makes the case for considering capitalism as a multi-level system whose economy is institutionally embedded, reflects power relations, depends on social norms and instantiates certain values. It thus argues that neoliberalism as an economic ideology ignores these contextual aspects, claiming an impossible universalism (although the book isn’t particularly interested in the varieties of capitalism literature). The editors also argue strongly for the discussion of social justice and the values of the capitalist economy to focus on the organization of production as well as – or rather than – the distribution of income and consumption. They want economic analysis to rediscover politics and to make explicit issues of justice such as race and gender, or corporate purpose and sustainability.

Individual chapters focus on specific issues and proposals – there’s a clear progressive slant to all, however. Interestingly, the editors note that one area on which they could not reach consensus was the question of effective freedom and property rights in a market economy: does ownership inevitably imply unequal power relations?

There’s also some discussion – interesting to me! – of the implications of economic measurement, the definitions and metrics particularly GDP, for social justice: “Contemporary theories of justice have given these questions little sustained attention.” The introduction takes it as a given that the specific aim of growth in GDP should not guide a fair society. The chapter on this issue (by Julie Rose) takes the perspective of a history of thought about idea of the stationary state, invoking Mill, Keynes and Rawls. It argues for an alternative aim: “To fairly and reliably expand people’s opportunities,” and paints GDP growth as a subsidiary aim. Fine as far as it goes, but not actionable – although I must say I’d expected a traditional ‘degrowth’ argument and was relieved to find Rose doesn’t fall in to that trap. Although an analysis of the argument from a social justice perspective would be telling. Throughout, the book assumes the inadequacy of GDP growth but is vague about alternative metrics, while clearly sympathetic to the capabilities approach.

This and much more. While the focus on institutional specifics is welcome, it means the book is almost wholly US-focused. There’s also an inevitable tension between acknowledging the specificities of time and place and articulating a reasonably universal theoretical framework. The book goes heavily for “historically grounded explanations” involving “socialized or embedded individuals”, and with power and conflict central to economic relations. “There is no Archimedean point on which to perch microfoundational agents….” I tend to agree that economic analysis needs far more history, social relations and politics – but take it too far and ‘political economy’ loses the economics part.



All the Cs but how many Gs?

The title of Fred Bergsten’s latest book is somewhat misleading: it’s The US vs China: the quest for global economic leadership. But the argument of the book goes against the polarisation presumed in the title. Bergsten’s argument is that while the US and China are bound to compete in some economic domains, they should, and will find they must, co-operate in others. Tackling climate change and ensuring global financial stability are two of the examples of the latter. Indeed, he calls for ‘conditional competitive co-operation’, with the formation of a G2 on issues of global public goods, pandemics and other crises.

This all seems super-sensible. But it also has the flavour of a book from a distant era. Although the pandemic had happened, the Russian invasion of Ukraine had not. Nor at the beginning of 2022 might we have expected both China and the US to seem as unstable internally as they do at this moment, with astonishingly bad covid-exit policies on the one hand and the resurgence of Trumpism in public life on the other, alongside what is going to prove the most serious crisis of capitalism for at least a generation. The (geo)political pack has been not just shuffled but thrown up in the air. (And who had a monkey-pox epidemic on their 2022 bingo card??) At least Bergsten does warn about the dangers of a leadership vacuum, a G0 world, with the 1930s as a spectre of what could be.

The author’s knowledge of the international monetary system is legendary, and this is a terrific book to read for the economic insider’s perspective. Alongside Adam Tooze’s books, particularly Crashed, I now feel as informed as I’m going to be about international monetary matters. But the future now looks even more frightening than the most frightening prospect described here. Screenshot 2022-05-20 at 15.53.40