Enough diagnosis. What is the cure? A change of personnel will not do it. The search for chief executives who are not motivated by greed and for regulators who are sufficiently god-like to know how to design rules that cannot be gamed will never succeed. The truth is, the financial system, like the whole of human society, was not designed in the first place; it evolved. And the answer is to allow a better one to evolve.
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Samizdata quote of the dayJuly 11th, 2012 |
 11 comments to Samizdata quote of the day |
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Well, there is “husbandry,” which could involve “selective breeding” & “cross-breeding,” but, (except for just learning) it would have to be toward some objectives.
Briefly, (in advanced social sysytems) analogize the functions of money (medium of exchange, unit of account, store of “value,” etc) to the functions of banking (not “banks” – banking, the activities).
What are the functions for which a need is generated by the “nature” of the systems (cause of evolution)?
Is deposit taking absolutely needed? Probably not. Other forms of security are available, but not cheap.
Intermediation – the aggregation of dispersed surpluses (capital) for re-deployment into production or distribution activities. Absolutley a must ( sort of slow right now!). However, some of that is done by other than banking (but with less “spreading” of risks. (See, REIT -U S).
The list goes on.
But what overrides the prospects of “cures” or the evolution of new facilities within the systems is the likelihood of the continuing dominance of a managerial class for which (like water) no practical substitute is on the horizon.
Ridley points out that evolution requires lots of species competing, but doesn’t mention the fact that it requires not only survival of the fittest, but extinction of those not fitted.
Once more, I offer the thought that many intractable problems could be solved if only society took a more relaxed view of justifiable homicide.
PfP-
How about “justifiable suicide?”
Um, let’s not misuse the word “evolution.” Saying that we should allow such-and-such to evolve connotes sitting by passively while such-and-such upgrades on its own. Ridley does not suggest this, but he should use terminology consistent with his meaning.
Entire financial systems do not evolve. Some are intelligently designed, and they ultimately fail. Most financial systems are not created – their components are created. Governments create currency and rules of commerce, entrepreneurs create businesses and private trade agreements. The systems come about as the components collide with each other and interact according with human nature.
Ridley knows all this, as his call for more government innovation and more room for private innovation demonstrates. But “innovation” and “evolution” are not synonymous. Get the English language straight (says the American to the Brits).
There’s a strange sort of congruence between the progressive faith in eugenics and their equally powerful belief that they can successfully guide the formation and operation of financial systems, among other major factors in society.
If anyone is bemused by the bizarre, Rube-Goldberg-like structures that statists construct with their endless programs and vaguely endowed regulatory agencies, it is well to recall that they have been claiming the knowledge and competence to arrange and control most everything since the mid-1800’s, long before anyone had developed any true knowledge about how these biological/social/economic systems actually worked.
When you know everything about everything a priori, well, reality just gets to be sort of irrelevant, doesn’t it?
“Governments create currency and rules of commerce”
Actually, no. Or at least not always and everywhere. Currencies arise naturally as the commodities most widely tradable, and commercial rules arose as customary practices amongst traders. Of course later Governments did put their boots in and write commercial legislation and seek to create currencies by legislation, but that was later, and not necessarily to our advantage.
Where there is a natural and mutually agreed medium of exchange it all goes fine except where there is dishonesty.
Then the regulatory lot (government, or not) intervene.
(Essentially all they do is make it dishonest – unreal and untrue).
I guess if one has the ultimate power in one’s hands it is very tempting to make it all a self perpetuating system rigged to deliver wealth into one’s lap.
Overwhelmingly irresistibly tempting.
Oh, I think we can throw a sop to the law-and-order folks and insist on the death penalty for that.
Can anyone here direct me to any writing about Ridley’s involvement in Northern Rock? I quite want to like the guy, he seems to have become a respected figure among libertarian sorts, but Northern Rock is a large question mark over him as far as I am concerned, it’d be good to get his or other views on those events.
Standard Mises style objection to overstreatching he Hayekian “evolved” – even in free market (without govenrment interventionism distorting everything) human CHOICES (conscious ones) matter a lot more than the word “evolved” or talking about “the consequences of human action, but not of human design” implies.
Of course a lot of what comes to be was not forseen by anyone – but a lot of it was, and is the result of human beings (not govenrments) making plans and working to achieve objectives they have set.
It is neither one thing (evolution) or the other (conscious choice – by the “I” the reasoning agent, the human BEING) – it is a bit of both.
However, the present financial system is not the result of unforseen evolution or voluntary choice – it is the result of STATISM.
More than any other part of the British economy (far more even than farming – which was almost free of government intervention within the memory of a few people who are still alive), the structure of banking and financial services in Britain (and most other places) are the results of detailed government interventionism (based upon FORCE).
That is why it is so vexing to hear of the “failure of laissez faire” or the “failure of unregulated capitalism” – that one constantly hears. Such claims are not just false – they are wildly (dementedly) false.
The present financial system has been so twisted by government interventionism that it reminds me of a bulldog.
Not the traditional British bulldogs that one can see in old paintings, not even the twisted modern examples of the breed (who have such a hard time breathing and so on) – but some future nightmare version of the bulldog (should the selective breeding continue in the same way) – unable to breeth on their own and totally dependent on artificial support.
As the “fianncial system” is (and was long BEFORE the current crises) on the drip feed of credit money from Central Banks.
The present system must go.
Yes its end wil be terrible – but the terribleness can not be avoided now.
And something decent must be built in its place.
And that is where the reasoning mind (human agency – using logical reasoning) must have a part to play.
There are such things as principles – and they are important.
And one such principle is that lending must be from REAL SAVINGS.
“Cheap money” (lower interest rates than real savings would demand for making the SACRIFICE of consumption that real saving is – by DEFINITION) is fool’s gold.
Should people make a choice to base their work (their enterprises) on fundementally unsound principles – then the “need” for statism (to “save the financial system”) will return.
And each time the financial system is “saved” it becomes WORSE – MORE dependent on government than it was before (that is the story of recent decades).
And this is a CHOICE – borrowing and lending do NOT have to be based on credit bubbles.
People CHOOSE that road – and the can CHOOSE another road. The road of hard work and thrift.
The hard road does not lead to Heaven – there is no way that people can work their way to Heaven, this world is always going to a non ideal place (and so is any other planet we go to). The human condition itself is non ideal.
But the easy road (the road of credit expansion) does indeed lead to “Hell” – to boom-bust and demands for government intervention.
If you can not afford something (such as a big house) – you can not have it. If you take out a mortgage with no realistic (logically reasoned) plan to make the payments (both of interest and principle) then there are two scumbags involved in the transaction.
The banker is a scumbag – for throwing away the money of the depositors (or WORSE – for creating “money” by book keeping tricks to lend to you).
And YOU – yes YOU.
You are a scumbag for taking out a loan you had no real realistic chance of paying back (and do not kid yourself that you did not know – because you did know).
And if you then turn to something like the American “Justice” department whineing about “high interest rates” (the ones you agreed to – and which are not high anyway, it was the size of the loan you could not deal with not the rate of interest) and talking about “discrimination” (basically doing an “Ali G” act) then you are a double scumbag.
And that is NOT the result of “evolution” – you made a CHOICE to be a scumbag, and you could choose NOT to be one.
……………………………………………………………………..
Turning away from consumption – to investment
And if you want to expand your factory (or build a new one) someone must PAY FOR THIS.
Either you must pay for this – from your profits (your SAVINGS – not consuming all the profits your old factory helps you produce).
Or other people must pay for this – from their SAVINGS (by NOT consuming all their income, by giving the funds to you instead).
Trying to finance investment from credit expansion (not REAL SAVINGS – your own, or other the savings of other people) is like relying on a perpetual motion machine – indeed expecting this perpertula motion machine to SPEED UP.
You might as well rely on magic pixie dust.
Bottom line.
What Kipling called the “Gods Of The Copybook Headings” will always win out in the end.
We do not have “freedom” in the sense of being able to change the logical laws of the universe on whims.
Our freedom lies in the choice to willing obey these laws (laws of reason – not government regulations), OR to defy them with bad behaviour. For example trying to borrow (or to lend) more than is actually saved.
But if we reject the path of reason there are consequences.
Terrible consequences.
We are not sent to Hell – we create it for ourselves.