Quotulatiousness

March 4, 2024

Japan’s Meiji Restoration, 1868-1912

Filed under: Government, History, Japan — Tags: , , , , , , , — Nicholas @ 03:00

Lawrence W. Reed outlines the end of Japan’s Shogunate Period and the start of the reign of Emperor Mutsuhito, known as the Meiji Period:

The Imperial Household Agency chose Uchida Kuichi, one of the most renowned photographers in Japan at the time, as the only artist permitted to photograph the Meiji Emperor in 1872 and again in 1873. Up to this point, no emperor had ever been photographed. Uchida established his reputation making portraits of samurai loyal to the ruling Tokugawa shogunate.
Wikimedia Commons.

In the 15 years that followed [American Commodore Matthew] Perry’s venture, the grip of the military dictatorship in Tokyo declined. Civil war erupted. When the smoke cleared in the first few days of January 1868, the shogunate was gone and a coup d’etat ushered in a new era of dramatic change. We call it the Reform Period, or the era of the Meiji Restoration.

That seminal event brought 14-year-old Mutsuhito to the throne, known as Emperor Meiji (a term meaning “enlightened rule”). He reigned for the next 44 years. His tenure proved to be perhaps the most consequential of Japan’s 122 emperors to that time. The country transformed itself from feudal isolation to a freer economy: engaged with the world and more tolerant at home.

In 1867, Japan was a closed country with both feet firmly planted in the past. A half-century later, it was a major world power. This remarkable transition begins with the Meiji Restoration. Let’s look at its reforms that remade the nation.

For centuries, Japan’s emperor possessed little power. His was a largely ceremonial post, with real authority resting in the hands of a shogun or, before that, multiple warlords. The immediate effect of the Meiji Restoration was to put the emperor back on the throne as the nation’s supreme governor.

In April 1868, the new regime issued the “Charter Oath,” outlining the ways Japan’s political and economic life would be reformed. It called for representative assemblies, an end to “evil” practices of the past such as class discrimination and restrictions on choice of employment, and an openness to foreign cultures and technologies.

After mopping up the rebellious remnants of the old shogunate, Emperor Meiji settled into his role as supreme spiritual leader of the Japanese, leaving his ministers to govern the country in his name. One of them, Mori Arinori, played a key role in liberalizing Japan. I regard Arinori as “the Tocqueville of Japan” for his extensive travels and keen observations about America.

The Meiji administration inherited the immediate challenge of a raging price inflation brought on by the previous government’s debasement of coinage. The oval-shaped koban, once almost pure gold, was so debauched that merchants preferred to use old counterfeits of it instead of the newer, debased issues. In 1871, the New Currency Act was passed which introduced the yen as the country’s medium of exchange and tied it firmly to gold. Silver served as subsidiary coinage.

A sounder currency brought stability to the monetary system and helped build the foundation for remarkable economic progress. Other important reforms also boosted growth and confidence in a new Japan. Bureaucratic barriers to commerce were streamlined, and an independent judiciary established. Citizens were granted freedom of movement within the country.

The new openness to the world resulted in Japanese studying abroad and foreigners investing in Japan. British capital, for instance, helped the Japanese build important railway lines between Tokyo and Kyoto and from those cities to major ports in the 1870s. The new environment encouraged the Japanese people themselves to save and invest as well.

For centuries, the warrior class (the samurai) were renowned for their skill, discipline, and courage in battle. They could also be brutal and loyal to powerful, local landowners. Numbering nearly two million by the late 1860s, the samurai represented competing power centers to the Meiji government. To ensure that the country wouldn’t disintegrate into chaos or military rule, the emperor took the extraordinary step of abolishing the samurai by edict. Some were incorporated into the new national army, while others found employment in business and various professions. Carrying a samurai sword was officially banned in 1876.

In 1889, the Meiji Constitution took effect. It created a legislature called the Imperial Diet, consisting of a House of Representatives and a House of Peers (similar to Britain’s House of Lords). Political parties emerged, though the ultimate supremacy of the emperor, at least on paper, was not seriously questioned. This nonetheless was Japan’s first experience with popularly elected representatives. The Constitution lasted until 1947, when American occupation led to a new one devised under the supervision of General Douglas MacArthur.

February 24, 2024

Never mind the unfunded liability … money printer go brrrr!

Filed under: Economics, Government, USA — Tags: , , , , , , — Nicholas @ 05:00

Kulak at Anarchonomicon points out that the US government’s debt situation — which was alarming 20 years ago — has continued to get worse every year:

Libertarian Economists have been predicting this collapse of the federal system would happen “By About 2030” since before 2008. I remember in high school in the early 2010s listening to Ron Paul lectures and visiting USDebtClock.com, this was a hot button issue after 2008 … (then of course there was no political will to do anything and everyone just stopped talking about it)

I honestly forget that everyone around me doesn’t already know this, this is so common and accepted in libertarian and economic circles, and everyone who knows it got bored of eyes glossing over when they tried to explain it (in an autistic panic) decades ago.

US Unfunded liabilities:

Social Security, Medicare, Medicaid, US Debt, and Federal employee benefits and pensions, are all basically intergenerational ponzi schemes that require constant 1950s level population growth amongst the productive tax paying middle-class to maintain. By 2000 it was obvious this population growth was not happening, that population was beginning to age and collapse, and NO, the illegals at the border weren’t adequate replacements … (they weren’t adequate to prop up federal expenses in 2000 when they were still Mexican, now that they’re Guatemalan, Haitian, and Senegalese they’re almost certainly a net drain).

The Specter of Mass Boomer retirements with few to no children and grandchildren to replace them and pay for all the costs of their retirements and healthcare was maybe the slowest but most assured crisis ever to be seen in human history … Demographics is destiny.

This was a foreseen problem in 2000 when US Debt to GDP (just the portion that’s already been spent and interest has to be paid on) was 59% of GDP. Today the US Debt to GDP ratio is 122% of GDP whilst just in the past 24 years. Absolute US Federal Debt (not including state or local) has grown from 5.6 trillion dollars to 34 trillion dollars (102k per citizen: man, woman, and child). just the interest that has to be paid out of your tax dollars on that debt is set to eclipse ALL US Military spending sometime this year … And by 2028 Debt to GDP will be 150% (46.4 Trillion, 132k per citizen, 12 trillion more in 4 years, with no additional spending bills) and the Interest (at current estimates) will be over 2.5 trillion dollars, over a third of all Tax Dollars brought in will be spent on just interest, because dollar confidence has collapsed and the only way to keep inflation from destroying the dollar has been to radically raise the interest rates the Federal Reserve offers.

Now all that, That catastrophic state of things, is just the debt, the money that’s been spent … The real crisis is the Unfunded liabilities, all the promises the US has made to Boomers (who dominate the vote) and others about money they’re GOING to spend.

As of now total Unfunded liabilities stand at 213 trillion dollars, $633,000 per US Citizen (Man woman, and newborn babe)… These are all dollars the US has promised to pay to someone somewhere at some point: Social Security, Medicare, Medicaid, Federal pensions, VA Benefits, etc. And cannot in any politically feasible way restructure or get out of.

If no one ever contributed another dime to social security, and in so doing was promised in turn significantly more than that dime (it’s a Ponzi scheme, it loses money in proportion to and at a greater rate than the money being contributed to it (every dollar you contribute you’re promised multiple dollars in return, and your dollar is not invested, it just pays off previous contributors)) … If everything froze and every young person was locked out of ever receiving Social Security, Medicare, or Medicaid, the Unfunded Liability would be $633k per every man, woman, and child … that’d be the debt a newborn American would be born with.

However because it is NOT frozen and it will not be, by 2028 that number will Rise to $837k and an ordinary household of 4 will have seen their, politically unavoidable, family obligation in future tax payments to the federal government increase by $804,000 in just 4 years.

If your response is that your family doesn’t even make 804k in 4 years and there’s no way you could ever pay that much in 4 years given its just going to increase at a faster rate the next 4 years … CONGRATULATIONS! 90% of families don’t make that much, and less than 1% of families could ever afford to pay that much in taxes in a 4 year time.

This has been slowly growing for decades, and in the late 2000s and 2010s Ron Paul types were screaming that those Benefits needed to be reformed NOW (in 2008) or they’d drown America. But of course, cutting benefits is political Anathema to boomers, so nothing was done …

The Course of Empire – Destruction by Thomas Cole, 1836.
From the New York Historical Society collection via Wikimedia Commons.

September 8, 2023

QotD: Rents and taxes in pre-modern societies

In most ways […] we can treat rent and taxes together because their economic impacts are actually pretty similar: they force the farmer to farm more in order to supply some of his production to people who are not the farming household.

There are two major ways this can work: in kind and in coin and they have rather different implications. The oldest – and in pre-modern societies, by far the most common – form of rent/tax extraction is extraction in kind, where the farmer pays their rents and taxes with agricultural products directly. Since grain (threshed and winnowed) is a compact, relatively transportable commodity (that is, one sack of grain is as good as the next, in theory), it is ideal for these sorts of transactions, although perusing medieval manorial contacts shows a bewildering array of payments in all sorts of agricultural goods. In some cases, payment in kind might also come in the form of labor, typically called corvée labor, either on public works or even just farming on lands owned by the state.

The advantage of extraction in kind is that it is simple and the initial overhead is low. The state or large landholders can use the agricultural goods they bring in in rents and taxes to directly sustain specialists: soldiers, craftsmen, servants, and so on. Of course the problem is that this system makes the state (or the large landholder) responsible for moving, storing and cataloging all of those agricultural goods. We get some sense of how much of a burden this can be from the prominence of what seem to be records of these sorts of transactions in the surviving writing from the Bronze Age Near East (although I should note that many archaeologists working on the ancient Near Eastern economy are pushing for a somewhat larger, if not very large, space for market interactions outside of the “temple economy” model which has dominated the field for quite some time). This creates a “catch” we’ll get back to: taxation in kind is easy to set up and easier to maintain when infrastructure and administration is poor, but in the long term it involves heavier administrative burdens and makes it harder to move tax revenues over long distances.

Taxation in coin offers potentially greater efficiency, but requires more particular conditions to set up and maintain. First, of course, you have to have coinage. That is not a given! Much of the social interactions and mechanics of farming I’ve presented here stayed fairly constant (but consult your local primary sources for variations!) from the beginnings of written historical records (c. 3,400 BC in Mesopotamia; varies place to place) down to at least the second agricultural revolution (c. 1700 AD in Europe; later elsewhere) if not the industrial revolution (c. 1800 AD). But money (here meaning coinage) only appears in Anatolia in the seventh century BC (and probably independently invented in China in the fourth century BC). Prior to that, we see that big transactions, like long-distance trade in luxuries, might be done with standard weights of bullion, but that was hardly practical for a farmer to be paying their taxes in.

Coinage actually takes even longer to really influence these systems. The first place coinage gets used is where bullion was used – as exchange for big long-distance trade transactions. Indeed, coinage seemed to have started essentially as pre-measured bullion – “here is a hunk of silver, stamped by the king to affirm that it is exactly one shekel of weight”. Which is why, by the by, so many “money words” (pounds, talents, shekels, drachmae, etc.) are actually units of weight. But if you want to collect taxes in money, you need the small farmers to have money. Which means you need markets for them to sell their grain for money and then those merchants need to be able to sell that grain themselves for money, which means you need urban bread-eaters who are buying bread with money, which means those urban workers need to be paid in money. And you can only get any of these people to use money if they can exchange that money for things they want, which creates a nasty first-mover problem.

We refer to that entire process as monetization – when I talk about economies being “monetized” or “incompletely monetized” that’s what I mean: how completely has the use of money penetrated through this society. It isn’t a one-way street, either. Early and High Imperial Rome seem to have been more completely monetized than the Late Roman Western Empire or the early Middle Ages (though monetization increases rapidly in the later Middle Ages).

Extraction, paradoxically, can solve the first mover problem in monetization, by making the state the first mover. If the state insists on raising taxes in money, it forces the farmers to sell their grain for money to pay the tax-man; the state can then take that money and use it to pay soldiers (almost always the largest budget-item in an ancient or medieval state budget), who then use the money to buy the grain the farmers sold to the merchants, creating that self-sustaining feedback loop which steadily monetizes the society. For instance, Alexander the Great’s armies – who expected to be paid in coin – seem to have played a major role in monetizing many of the areas they marched through (along with breaking things and killing people; the image of Alexander the Great’s conquests in popular imagination tend to be a lot more sanitized).

Bret Devereaux, “Collections: Bread, How Did They Make It? Part IV: Markets, Merchants and the Tax Man”, A Collection of Unmitigated Pedantry, 2020-08-21.

July 10, 2023

“De-banking” is the financial world’s version of cancelling someone

At the Free Life blog, Alan Bickley considers the recently reported rash of prominent (and not-so-prominent) critics of the British government being refused service by their banks and further refused permission to open new accounts with any other chartered bank. Being “cancelled” by social media companies is bad, but being “de-banked” in a modern economy is worse than being declared a “non-person” by a totalitarian regime:

In the past month, we have heard that various rich and well-connected people have had their bank accounts closed, seemingly because of their dissident political opinions. The same has happened to other people who are much poorer and without connections. Twenty years ago, the same happened to the British National Party. There is a simple libertarian response to this.

No one has the right to coerced association with anyone else. If someone comes to me and asks me to provide him with services, I have an absolute right to say yes or no. If I am uncharitable enough to dislike the colour of his face or what he does in bed, so much the worse. I may lose valuable business. But it is my time, and it is my choice. If anyone starts a whine about the horrors of discrimination, he should be ignored. We have an absolute right to discriminate against others for any reason whatever.

This being said, the position becomes less clear when state power of some kind is involved. Banks in this country require a licence from the State to operate. This protects them from open competition. It also gives them access to services and information from the State that are not given to other persons or businesses. If a bank finds itself in serious financial difficulties, it has at least a greater chance than other large businesses of being saved by the State – by a coordination of support by others or by direct financial help. The State has also made it illegal for many transactions to be made in cash. If I try to buy a car with £20,000 in cash, the car dealership is obliged to refuse my business, or to make so many enquiries that accepting my business is too much trouble. In effect, anyone who wants to spend more than a few thousand pounds in cash is obliged by various actual and shadow laws to use a bank account.

So we have privileged corporations and an effective legal obligation for people to do business with them. This entirely changes the libertarian indifference to commercial discrimination. The banks are a privileged oligopoly. The banks compete for custom among a public that is free to choose one bank rather than another, but that is compelled to choose some bank. For this reason, since the relevant laws will not be repealed, it is legitimate to demand another law to offset some of the effects of the others. Banks should be legally obliged to accept the business of any person or group of persons without question. Limitations on what services are provided must be justified on the grounds of previous financial misconduct as reasonably defined. For example, it should be permitted for a bank to refuse an overdraft to someone who is or has recently been bankrupt, or whose spending habits are obviously reckless. Perhaps it should be permitted for a bank to refuse to lend money for purposes it regards as scandalous as well as commercially unviable. Therefore, a representative of the White Persons’ Supremacy Foundation, or the Vladimir Putin Appreciation Society, should be able to walk into any bank and open an account – with no questions asked. If an account is refused, there should be a legal obligation on the bank to provide a full explanation of the refusal. If the refusal is not made on valid commercial grounds, there should be a right of appeal before a tribunal which does not award costs, and this tribunal should have the power to grant punitive damages against any bank found to be discriminating on any grounds but the validly commercial.

The refusal of banking services is only the beginning of a new and sophisticated totalitarianism. What the banks can do can also be done by supermarkets, by Internet service providers, by hotel chains, by airlines and railway companies, and by utility providers. There is indeed a good case for insisting on a law forbidding any organisation that has the privilege of limited liability from any but obviously commercial discrimination.

June 15, 2023

Thursday tab-clearing

Filed under: Cancon, Economics, Government, Health, USA — Tags: , , , , , — Nicholas @ 23:25

A few items that I didn’t feel required a full post of their own, but might be of interest:

January 21, 2023

When did England become that sneered-at “nation of shopkeepers”?

Filed under: Britain, Economics, Europe, History — Tags: , , , , , — Nicholas @ 05:00

In the latest Age of Invention newsletter, Anton Howes considers when the English stopped being a “normal” European nation and embraced industry and commerce instead of aristocratic privilege:

A meeting of the Anti-Corn Law League in Exeter Hall in 1846.
Wikimedia Commons.

England in the late eighteenth century was often complimented or disparaged as a “nation of shopkeepers” — a sign of its thriving industry and commerce, and the influence of those interests on its politics.

But when did England start seeing itself as a primarily commercial nation? When did the interests of its merchants and manufacturers begin to hold sway against the interests of its landed aristocracy? The early nineteenth century certainly saw major battles between these competing camps. When European trade resumed in 1815 after the Napoleonic Wars, an influx of cheap grain threatened the interests of the farmers and the landowners to whom they paid rent. Britain’s parliament responded by severely restricting grain imports, propping up the price of grain in order to keep rents high. These restrictions came to be known as the Corn Laws (grain was then generally referred to as “corn”, nothing to do with maize). The Corn Laws were to become one of the most important dividing lines in British politics for decades, as the opposing interests of the cities — workers and their employers alike, united under the banner of Free Trade — first won greater political representation in the 1830s and then repeal of the Corn Laws in the 1840s.

The Corn Laws are infamous, but I’ve increasingly come to see their introduction as merely the landed gentry’s last gasp — them taking advantage of a brief window, after over two centuries of the declining economic importance of English agriculture, when their political influence was disproportionately large. In fact, I’ve noticed quite a few signs of the rising influence of urban, commercial interests as early as the early seventeenth century. And strangely enough, this week I noticed that in 1621 the English parliament debated a bill that was almost identical to the 1815 Corn Laws — a bill designed to ban the importation of foreign grain below certain prices.

But in this case, it failed. In the 1620s it seems that the interests of the cities — of commerce and manufacturing — had already become powerful enough to stop it.

The bill appeared in the context of a major economic crisis that, for want of a better term, ought to be called the Silver Crisis of 1619-23. Because of the outbreak of the Thirty Years War, the various mints of the states, cities, and princelings of Germany began to outbid one another for silver, debasing their silver currencies in the process. The knock-on effect was to draw the silver coinage — the lifeblood of all trade — out of England, and at a time when the country was already unusually vulnerable to a silver outflow. (For fuller details of the Silver Crisis and why England was so vulnerable to it, I’ve written up how it all worked here.)

The sudden lack of silver currency was a major problem, and all the more confusing because it coincided with a spate of especially bountiful harvests. As one politician put it, “the farmer is not able to pay his rent, not for want of cattle or corn but money”. A good harvest might seem a time for farmers and their landlords to rejoice, but it could also lead to a dramatic drop in the price of grain. Good harvests tended to cause deflation (which the Silver Crisis may have made much worse than usual by disrupting the foreign market for English grain exports). An influential court gossip noted in a letter of November of 1620 that “corn and cattle were never at so low a rate since I can remember … and yet can they get no riddance at that price”. Just a few months later, in February 1621, the already unbelievable prices he quoted had dropped even further.

Despite food being unusually cheap, however, the cities and towns that ought to have benefitted were also struggling. The Silver Crisis, along with the general disruption of trade thanks to the Thirty Years War, had reduced the demand for English cloth exports. And this, in turn, threatened to worsen the general shortage of silver coin — having a trade surplus, from the value of exports exceeding imports, was one of the only known ways to boost the amount of silver coming into the country. England had no major silver mines of its own.

It’s in this context that some MPs proposed a ban on any grain imports below a certain price. They argued that not only were low prices and low rents harming their farming and landowning constituents, but that importing foreign grain was undermining the country’s balance of trade. They argued that it was one of the many causes of silver being drawn abroad and worsening the crisis.

September 10, 2022

Magical Monetary Theory (MMT) – You’re soaking in it

At the Foundation for Economic Education, Kellen McGovern Jones outlines the rapid rise of MMT as “the answer to everyone’s problems” in the last few years and all the predictable problems it has sown in its wake:

“Inflation & Gold” by Paolo Camera is licensed under CC BY 2.0 .

Modern Monetary Theory (MMT) was the “Mumble Rap” of politics and economics in the late 2010s. The theory was incoherent, unsubstantial, and — before the pandemic, you could not avoid it if you wanted to.

People across the country celebrated MMT. Alexandria Ocasio-Cortez, the Democrat Congresswoman from New York heralded MMT by proclaiming it “absolutely [must be] … a larger part of our conversation [on government spending].” The New York Times and other old-guard news sources authored countless articles raising the profile of MMT, while universities scrambled to hold guest lectures with prominent MMT economists like Dr. L. Randall Wray. Senator Bernie Sanders went as far as to hire MMT economists to his economic advisory team.

The most fundamental principle of MMT is that our government does not have to watch its wallet like everyday Joes. MMT contends that the government can spend as much as it wants on various projects because it can always print more money to pay for its agenda.

Soon after MMT became fashionable in the media, the once dissident economic theory leapt from being the obscure fascination of tweedy professors smoking pipes in universities to the seemingly deliberate policy of the United States government. When the Pandemic Hit, many argued that MMT was the solution to the pandemics problems. Books like The Deficit Myth by Dr. Stephanie Kelton became New York Times bestsellers, and the United States embarked on a massive spending spree without raising taxes or interest rates.

Attempting to stop the spread of Covid, state and federal governments coordinated to shut down nearly every business in the United States. Then, following the model of MMT, the federal government decided to spend, and spend, and spend, to combat the shutdown it had just imposed. Both Republican and Democrat-controlled administrations and congresses enacted trillions of dollars in Covid spending.

It is not hard to see that this spray and pray mentality of shooting bundles of cash into the economy and hoping it does not have any negative consequences was ripe for massive inflation from the beginning. Despite what MMT proponents may want you to believe, there is no way to abolish the laws of supply and demand. When there is a lot of something, it is less valuable. Massively increasing the supply of money in the economy will decrease the value of said money.

MMT economists seemed woefully unaware of this reality prior to the pandemic. Lecturing at Stoney Brook University, Kelton attempted to soothe worries about inflation by explaining that (in the modern economy) the government simply instructs banks to increase the number of dollars in someone’s bank account rather than physically printing the US Dollar and putting it into circulation. Somehow — through means that were never entirely clear — this fact was supposed to make people feel better.

In reality, there is no difference between changing the number in someone’s bank account or printing money. In both cases, the result is the same, the supply of money has increased. Evidence of MMTs inflationary effects are now everywhere.

June 28, 2022

QotD: The economic pie fallacy

Filed under: Economics, Quotations — Tags: , , , , — Nicholas @ 01:00

A surprising number of people retain from childhood the idea that there is a fixed amount of wealth in the world. There is, in any normal family, a fixed amount of money at any moment. But that’s not the same thing.

When wealth is talked about in this context, it is often described as a pie. “You can’t make the pie larger,” say politicians. When you’re talking about the amount of money in one family’s bank account, or the amount available to a government from one year’s tax revenue, this is true. If one person gets more, someone else has to get less.

I can remember believing, as a child, that if a few rich people had all the money, it left less for everyone else. Many people seem to continue to believe something like this well into adulthood. This fallacy is usually there in the background when you hear someone talking about how x percent of the population have y percent of the wealth. If you plan to start a startup, then whether you realize it or not, you’re planning to disprove the Pie Fallacy.

What leads people astray here is the abstraction of money. Money is not wealth. It’s just something we use to move wealth around. So although there may be, in certain specific moments (like your family, this month) a fixed amount of money available to trade with other people for things you want, there is not a fixed amount of wealth in the world. You can make more wealth. Wealth has been getting created and destroyed (but on balance, created) for all of human history.

Suppose you own a beat-up old car. Instead of sitting on your butt next summer, you could spend the time restoring your car to pristine condition. In doing so you create wealth. The world is — and you specifically are — one pristine old car the richer. And not just in some metaphorical way. If you sell your car, you’ll get more for it.

In restoring your old car you have made yourself richer. You haven’t made anyone else poorer. So there is obviously not a fixed pie. And in fact, when you look at it this way, you wonder why anyone would think there was. *

Kids know, without knowing they know, that they can create wealth. If you need to give someone a present and don’t have any money, you make one. But kids are so bad at making things that they consider home-made presents to be a distinct, inferior, sort of thing to store-bought ones — a mere expression of the proverbial thought that counts. And indeed, the lumpy ashtrays we made for our parents did not have much of a resale market.

    * In the average car restoration you probably do make everyone else microscopically poorer, by doing a small amount of damage to the environment. While environmental costs should be taken into account, they don’t make wealth a zero-sum game. For example, if you repair a machine that’s broken because a part has come unscrewed, you create wealth with no environmental cost.

Paul Graham, “How to Make Wealth”, Paul Graham, 2004-04.

April 17, 2022

QotD: How jobs differ from school

Filed under: Business, Education, Quotations — Tags: , , , , — Nicholas @ 01:00

In industrialized countries, people belong to one institution or another at least until their twenties. After all those years you get used to the idea of belonging to a group of people who all get up in the morning, go to some set of buildings, and do things that they do not, ordinarily, enjoy doing. Belonging to such a group becomes part of your identity: name, age, role, institution. If you have to introduce yourself, or someone else describes you, it will be as something like, John Smith, age 10, a student at such and such elementary school, or John Smith, age 20, a student at such and such college.

When John Smith finishes school he is expected to get a job. And what getting a job seems to mean is joining another institution. Superficially it’s a lot like college. You pick the companies you want to work for and apply to join them. If one likes you, you become a member of this new group. You get up in the morning and go to a new set of buildings, and do things that you do not, ordinarily, enjoy doing. There are a few differences: life is not as much fun, and you get paid, instead of paying, as you did in college. But the similarities feel greater than the differences. John Smith is now John Smith, 22, a software developer at such and such corporation.

In fact John Smith’s life has changed more than he realizes. Socially, a company looks much like college, but the deeper you go into the underlying reality, the more different it gets.

What a company does, and has to do if it wants to continue to exist, is earn money. And the way most companies make money is by creating wealth. Companies can be so specialized that this similarity is concealed, but it is not only manufacturing companies that create wealth. A big component of wealth is location. […] If wealth means what people want, companies that move things also create wealth. Ditto for many other kinds of companies that don’t make anything physical. Nearly all companies exist to do something people want.

And that’s what you do, as well, when you go to work for a company. But here there is another layer that tends to obscure the underlying reality. In a company, the work you do is averaged together with a lot of other people’s. You may not even be aware you’re doing something people want. Your contribution may be indirect. But the company as a whole must be giving people something they want, or they won’t make any money. And if they are paying you x dollars a year, then on average you must be contributing at least x dollars a year worth of work, or the company will be spending more than it makes, and will go out of business.

Someone graduating from college thinks, and is told, that he needs to get a job, as if the important thing were becoming a member of an institution. A more direct way to put it would be: you need to start doing something people want. You don’t need to join a company to do that. All a company is is a group of people working together to do something people want. It’s doing something people want that matters, not joining the group.*

For most people the best plan probably is to go to work for some existing company. But it is a good idea to understand what’s happening when you do this. A job means doing something people want, averaged together with everyone else in that company.

    * Many people feel confused and depressed in their early twenties. Life seemed so much more fun in college. Well, of course it was. Don’t be fooled by the surface similarities. You’ve gone from guest to servant. It’s possible to have fun in this new world. Among other things, you now get to go behind the doors that say “authorized personnel only.” But the change is a shock at first, and all the worse if you’re not consciously aware of it.

Paul Graham, “How to Make Wealth”, Paul Graham, 2004-04.

April 3, 2022

King James I and the problem of gold and silver thread in England

Filed under: Britain, Economics, Europe, Government, History — Tags: , , , , , — Nicholas @ 03:00

In the latest Age of Invention newsletter, Anton Howes began to research what appeared to be a minor economic issue that very quickly took over his time going deep down the gold and silver market rabbit hole:

A hammered silver sixpence of James I dated 1603 from the first coinage with a thistle mintmark. Obverse features a right facing crowned bust with the numerals VI behind and the inscription JACOBVS*DG*ANG*SCO*FRA*ET*HIB*REX. The reverse has a shield with the royal arms and the date 1603 above. The reverse inscription is EXERGAT* DEVS*DISSIPENTVR*INIMICI.
FindID 510696 – https://finds.org.uk via Wikimedia Commons

When England’s Parliament met in 1621, it was mainly supposed to vote King James I the funds to fight a war. His daughter’s domain, the Palatinate of the Rhine, had just been invaded, and the European Protestant cause was under grave threat. As I set out two weeks ago, however, the House of Commons had seized the chance to pursue a scandal. Jealous of the Crown’s challenge to their status as local power-brokers, and hoping to embarrass the king’s favourite, the Marquess of Buckingham, MPs opened an investigation into Sir Giles Mompesson’s patent to license inns.

When it came to inns, I argued that the case against Mompesson was flimsy (making me perhaps the only person to have defended him for over four hundred years). He appears to have been a trusted and able bureaucrat, the source of his downfall being his sheer effectiveness. But the flimsiness of the case against him was not enough to stop the political witch-hunt. Next on the list was a project he had administered for making gold and silver thread.

It sounds obscure, and I was fully expecting to write up a short overview of a niche industry that just happened to be thrust into the limelight of 1620s politics. That was a month ago, when I first started drafting this piece. But pulling on the golden thread revealed a desperate, decade-long battle between the City and the Crown, over who would get to control the financial stability of the realm. I’m sorry for the delay in publishing it, but I hope I’ve made it worth the wait.

March 31, 2022

QotD: Nixon’s 1971 gamble to win re-election also tanked the economy for a full decade

Filed under: Economics, Government, History, Quotations, USA — Tags: , , , , — Nicholas @ 01:00

[In 1971, economist Herb] Stein was saying aloud what they all knew. Prettifying a political grab by dressing it as an economic rescue was precisely the kind of action against which eminences like Burns warned foreign governments when they made grand speeches abroad. Nixon was indeed now preparing to do what Harold Wilson had done in 1967: disingenuously pretend that devaluing a currency would not affect the consumer. Stimulating the economy in this way might win Nixon the election, but inflation would eventually explode, as Friedman sometimes said, like a closed pot over high heat. Wage and price controls and taxes on imports could make the kind of growth America was accustomed to, the old bonanza, disappear for years, even a decade. True scarcity of key goods might suddenly become the rule. And that was true no matter how many times that cowboy Connally went around bragging about tariffs and telling others that America was “the strongest economy on earth”.

[…]

The 1971 run on American gold also, however, reflected foreigners’ insight. Outsiders knew a tipping point when they saw one. America had moved closer to Michael Harrington’s socialism than even Harrington understood. The United States had locked itself into social spending promises that might never be outgrown. Today, interest in Bitcoin and other cryptocurrencies serves as a measure of markets’ and individuals’ distrust of the U.S. dollar. In those days there was no Bitcoin, but gold played a similar role. The dollar was the common stock of America, and foreigners used gold to short it.

The disastrous performance of the U.S. economy in the following years proved the foreigners’ 1971 wager correct. To pay for its Great Society commitments, the U.S. government in the next decade found itself forced to set taxes so high that it further suppressed the commercialization of innovation. Products that could have been developed from patents awarded in the 1960s remained on the researchers’ shelves. Today we assume all markets will rebound given a decade. But there was to be no 1970s rebound for the Dow Jones Average. The Dow flirted with the 1,000 level throughout the decade, but did not cross the line definitively until 1982, an astonishingly long period to stagnate, nearly a generation. While markets languished, unemployment for all Americans rose. High prices, high interest rates, and federal budget deficits plagued the nation. “Guns and butter” had proved too expensive, but so indeed had butter alone. The 1960s commitments required spending that, then and down the decades, would be far greater than for Vietnam or most other wars. Those on the far left who had originally pushed for aggressive public-sector expansion had achieved what they sought, to subordinate the private sector. In 1977, Harrington actually titled a new book The Twilight of Capitalism.

Those who had counted on the private sector to sustain prosperity saw they had expected too much. The nation’s confidence evaporated. Indeed, by the late 1970s, President Jimmy Carter felt the need to undertake a national campaign to restore confidence, the kind of campaign Franklin Roosevelt had launched in response to the Great Depression. From being a nation that could afford everything, America morphed into a country that could afford nothing, a place where the president warned citizens to set their living room thermostats to sixty-five in January, or face catastrophe.

In a supreme irony, many of the people who caused the economic damage found themselves mired in the dirty work of reversing what they had wrought. The task of reducing inflation through punishing interest rates fell to Paul Volcker, who as a junior official aided leaders in the 1971 decisions that triggered the 1970s inflation in the first place. Mortgage rates rose to today incredible-sounding levels, over 15 percent. In the 1980s, the same John Connally who as treasury secretary in 1971 pounded on Nixon’s desk for populist measures that ensured an economic quagmire, went bankrupt, a casualty of the mess he had helped to create.

Amity Schlaes, Great Society: A New History, 2019.

March 21, 2022

For some reason, Canadians’ interest in alternative currencies has risen substantially since February

Filed under: Cancon, Economics, Government, Technology — Tags: , , , , — Nicholas @ 03:00

I’m far from alone in taking the Canadian government’s absurd over-reaction to the Freedom Convoy 2022 political protest in February as a reason to be concerned about the Canadian banking system. Until then I’d paid very little attention to alternative currency options like Bitcoin and the like, but I now understand that they may be a key element in future financial planning. At Quillette, Jonathan Kay explains that he realized at the same time he needed to know much more about crypto:

“Bitcoin – from WSJ” by MarkGregory007 is licensed under CC BY-NC-SA 2.0

On February 15th, following weeks of anti-vaccine-mandate protests in downtown Ottawa, Justin Trudeau lurched from complete inaction to absurd overreaction by declaring a national emergency. One effect of this was that banks were suddenly authorized to freeze the personal assets of citizens linked with the protests, civil liberties be damned. Around the same time, moreover, hackers acquired and published identifying information associated with thousands of people who’d donated money to the protest movement. Rather than denounce this apparent criminal data breach, many public figures — including Gerald Butts, who’d been Trudeau’s right-hand man before resigning amid scandal in 2019 — actually celebrated this doxxing. Some media outlets even tried to mine the dox information for clickbait before being stung by a public backlash. While I hadn’t donated to the Freedom Convoy movement, I was sufficiently appalled by these developments that I started educating myself about how one might donate to a similar cause without government officials and social-media hyenas exploiting these transactions as a pretext to attack my assets and reputation.

The easiest way to get into the crypto market, I learned, is simply to open an account at an exchange platform such as Coinbase or Wealthsimple. But while they’re easy to use, exchange platforms also generally require clients to supply government-issued ID when they secure their accounts, and transactions are traceable by authorities. To assure myself of real anonymity and theft-protection, my tutor instructed me, a better (if more complex) option is “cold storage”. This is a real physical device — in my case, something called a Ledger — that acts as a personal crypto wallet.

My Ledger (which looks like a large USB key drive) contains the data required to generate the “private keys” (which look like long passwords, though that isn’t quite what they are) that allow me to send my crypto to other people. And that spending can be done only in those moments when the device is connected to the Internet, after which it can be relegated to a drawer or safe (thus the metaphorical concept of “cold storage”). On the other hand, I can receive money even if the Ledger is offline, so long as the sender has my public key, which (unlike a private key) is generally safe to give to others (such as, say, a prospective donor to any charitable cause that I might establish).

Bitcoin’s basic mechanics were set out in 2009 by the much-mythologized pseudonymous author (or collective) known as “Satoshi Nakamoto”. In a legendary white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System, Satoshi describes the newly conceived electronic coin as consisting of a chain of digital signatures (a blockchain) that build one upon the next through a mathematical mechanism known as a cryptographic hash function — a one-way function whose output doesn’t expose the original private key to reverse-engineering. So once a bitcoin transaction is recorded and added in verified form to the blockchain by everyone — this being the “public distributed ledger” that bitcoin users are part of — the transaction can’t be erased or reversed (with one important theoretical exception, described later on).

Image contained in Bitcoin: A Peer-to-Peer Electronic Cash System, demonstrating the use of public and private keys to verify and sign bitcoin transactions.

Of course, you don’t need to understand how this cryptography works to use cryptocurrency. But it is worth getting your head around an important concept that fundamentally separates crypto from conventional assets such as, say, money that sits in a bank account. Your bank account number doesn’t have any value in and of itself: It’s just an institutional convenience that tells you and your bank where your actual money’s been filed (which is why that account number sits in plain sight on every physical check you sign, assuming you still use checks). But in the case of bitcoin, a private key basically is money — in the sense that anyone with access to such a key can spend the associated funds. And so if you lose your private-key information, or it gets stolen by a thief, there’s no 1-800 helpdesk number. It’s gone forever.

January 25, 2022

The fantasy of a modern economy without money

Filed under: Economics — Tags: , , , , — Nicholas @ 03:00

Jon Hersey and Thomas Walker-Werth consider the claim that we’d all be better off without money in a truly modern, egalitarian society:

Capitalism, to the extent it has existed, has been incredibly successful at lifting most of humanity out of poverty, incentivizing the creation of incredible, life-enhancing technologies, such as those Maezawa used to make his fortune — not to mention, travel to space. But it’s long had its critics, and he is far from the first to propose a sort of Garden-of-Eden world where everything is plentiful and free. Karl Marx envisioned a similar utopia. Communism, he said, ultimately would bring about a world without money:

    In the case of socialised production the money-capital is eliminated. Society distributes labour-power and means of production to the different branches of production. The producers may, for all it matters, receive paper vouchers entitling them to withdraw from the social supplies of consumer goods a quantity corresponding to their labour-time. These vouchers are not money. They do not circulate.

And although “society distributes labour-power” — meaning government planners tell people what to do to ensure that things (such as “free” Ferraris) get made — workers could also all pursue whatever hobbies or occupations strike their fancy. “[I]n communist society,” Marx explained,

    where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, to fish in the afternoon, rear cattle in the evening, criticize after dinner, just as I have in mind, without ever becoming hunter, fisherman, shepherd or critic.

[…]

Although Marx considered himself a social scientist and economist — and although his ideas are still some of the most widely taught — they aren’t much taught in social science or economics departments, except as foils. That’s because virtually all of Marx’s hypotheses have been debunked. For one, who’s going to build the free Ferraris that Maezawa has dreamed up, never mind tackle more mundane tasks, with no incentive? But for those who don’t find such commonsense thought experiments convincing — or who think, as Marx did, that human nature will somehow mysteriously change — the impracticality of Marx’s moneyless state was demonstrated by what Austrian economists have come to call the calculation problem. Ludwig von Mises once explained the problem as follows:

    If a hydroelectric power station is to be built, one must know whether or not this is the most economical way to produce the energy needed. How can he know this if he cannot calculate costs and output?

    We may admit that in its initial period a socialist regime could to some extent rely upon the experience of the preceding age of capitalism. But what is to be done later, as conditions change more and more? Of what use could the prices of 1900 be for the director in 1949? And what use can the director in 1980 derive from the knowledge of the prices of 1949?

    The paradox of “planning” is that it cannot plan, because of the absence of economic calculation. What is called a planned economy is no economy at all. It is just a system of groping about in the dark.

In short, without prices, people have no relatable, quantifiable means of comparing and contrasting options about how to spend time and capital, which is vital for determining how best to use these naturally scarce resources. “New Scientist magazine reported that in the future, cars could be powered by hazelnuts,” said comedian Jimmy Fallon, in a skit that captures this point hilariously. “That’s encouraging, considering an eight-ounce jar of hazelnuts costs about nine dollars. Yeah, I’ve got an idea for a car that runs on bald eagle heads and Fabergé eggs.”

October 9, 2021

The incredible growth of London after 1550

Filed under: Britain, Economics, History — Tags: , , , , — Nicholas @ 03:00

In the latest Age of Invention newsletter, Anton Howes considers some alternative explanations for London’s spectacular growth beginning in the reign of Queen Elizabeth I:

John Norden’s map of London in 1593. There is only one bridge across the Thames, but parts of Southwark on the south bank of the river have been developed.
Wikimedia Commons.

As regular readers will know, I’ve lately been obsessed with England’s various economic transformations between 1550 and 1650 — the dramatic eightfold growth of London, in particular, and the fall in the proportion of workers engaged in agriculture despite the growth of the overall population.

As I’ve argued before, I think that the original stimulus for many of these changes was the increased trading range of English overseas merchants. Thanks to advances in navigational techniques, they were able to find new markets and higher prices for their exports, particularly in the Mediterranean and then farter afield. And they were able to buy England’s imports much more cheaply, by going directly to their source. Although the total value of imports rose dramatically — by 150% in just 1600-38 — the value of exports seems to have risen by even more, as there’s plenty of evidence to suggest that for most of the period England had a trade surplus. The supply of money increased, even though Britain had no major gold or silver mines of its own.

The growing commerce was the major spur to London’s growth, with English merchants spending their profits in the city, and ever-cheaper and more varied luxury imports enticing the nobility from their country estates. Altogether, the concentration of people and wealth in London must have resulted in all sorts of spill-over effects to further drive its growth. After the initial push from overseas trade, I suspect that by the late seventeenth century the city was large enough that it was running on its own steam.

But on twitter, economic historian Joe Francis offered a slightly different narrative. Although he agrees that a change to overseas trade was the prime mover, he suggests that the trade itself was too small as a proportion of the economy to account for much of London’s growth. I disagree, for various reasons that I won’t go into now, but Joe brought to my attention various changes on the monetary side. Inspired by the work of Nuno Palma, he suspects that it was not the trade per se, but the fact of an export surplus that was doing the heavy lifting, by increasing the country’s money supply.

An increased money supply should have facilitated England’s internal trades, reducing their costs, and allowing for greater regional specialisation. Joe essentially thinks that I’ve got the mechanism slightly back to front: instead of London’s growing demands having reshaped the countryside, he contends that the specialisation of the entire country is what allowed for the better allocation of economic resources and workers to where they were most productive — a process from which a large city like London quite naturally then emerged.

I have some doubts about whether this process could really have been led from the countryside. The regional specialisation that we see in agriculture, for example, only really starts to become obvious from the 1600s onwards, by which stage London’s population had already begun to balloon from a puny 50,000 in 1550, to 200,000 and rising. I also haven’t found much evidence of other internal trade costs falling. Internal transportation — by packhorse, river, or down the coast — doesn’t seem to have become all that more efficient. Roads and waggon services don’t show much sign of improvement until the eighteenth century, and not many rivers were made more navigable before the mid-seventeenth century either. This is not to say that England’s internal trade didn’t increase. It certainly did, as London sucked in food and fuel in ever larger quantities, and from farther and farther afield. But it still looks like this was led by London demand, rather than by falling costs elsewhere.

Besides, the influxes of bullion from abroad would have all been channelled through London first, along with most of the country’s trade. To the extent that monetisation made a difference to the costs of trade then, this would have made a difference first in the city, before emanating out to its main suppliers, and then outwards. I thus see the Palma narrative as potentially complementary to my own.

June 28, 2021

Pounds, shillings, and pence: a history of English coinage

Filed under: Britain, Economics, History — Tags: , , , , , , — Nicholas @ 04:00

Lindybeige
Published 18 Dec 2020

I talk for a bit the history of English coinage, and the problems of maintaining a good currency. Once or twice I might stray off topic, but I end with an explanation of why the system worked so well.

Picture credits:
40 librae weight
Martinvl, CC BY-SA 3.0 https://creativecommons.org/licenses/…, via Wikimedia Commons

Sceat K series, and others
By Classical Numismatic Group, Inc. http://www.cngcoins.com, CC BY-SA 3.0, https://commons.wikimedia.org/w/index…

William I penny, and Charles II crown
The Portable Antiquities Scheme/ The Trustees of the British Museum, CC BY-SA 2.0 https://creativecommons.org/licenses/…, via Wikimedia Commons

Bust of Charlemagne
By Beckstet – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index…

Edward VI crown
By CNG – http://www.cngcoins.com/Coin.aspx?Coi…, CC BY-SA 3.0, https://commons.wikimedia.org/w/index…

Charles II guinea
Gregory Edmund, CC BY-SA 4.0 https://creativecommons.org/licenses/…, via Wikimedia Commons

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Lindybeige: a channel of archaeology, ancient and medieval warfare, rants, swing dance, travelogues, evolution, and whatever else occurs to me to make.

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