Saturday, November 13, 2010

Follow the Profit

James Adams.  Waffle Street: The Confession and Rehabilitation of a Financier.  San Clemente: Sourced Media, 2010.  ISBN: 9780984106851.

F. A. Hayek.  The Fatal Conceit: The Errors of Socialism.  Edited by W. W. Bartley III.  Chicago: University of Chicago Press, 1991.  ISBN: 0226320669.

James Buchan.  Frozen Desire: The Meaning of Money.  New York: Welcome Rain, 2001. ISBN: 1566491800.

Here are three books that have contributed a great deal to my small understanding of the complex system of trade that delivers food to my table.  While I hope to say more about each individually in the coming weeks (as I have time), here is what I took from each one in brief. 

Waffle Street. As Jean-Baptiste Say recognized many years ago, production drives consumption.  If you make nothing, you sell nothing, or whatever it is that you are selling is in fact nothing (and all attempts to found financial stability upon it are delusional, no matter how many PhDs may tell you otherwise).  Unfortunately, people have a strong tendency to try and make something out of nothing: if we exercise enough faith in our fearless leaders (especially the late not-so-great John Maynard Keynes), we can enjoy brief moments of euphoric "prosperity" during which we treat ourselves to massive shopping binges financed by debt that we (or our shareholders, taxpayers, children) promise to pay it back later, someday, with something (in the vain hope that it is actually consumption that drives production: "if enough people cry loudly for this cool toy, surely someone will give it to them in exchange for pretty green paper").

The Fatal Conceit.  You cannot have a stable human society that does not respect individual integrity (the individual's responsibility to answer for him or herself and his or her moral choices).  Yes, people are idiots (and want to buy the world on credit sometimes), but all attempts to corral them into obedience to one true standard of non-stupid behavior end up failing miserably when the "smart" people in charge are (inevitably) revealed as fools.  As Juvenal has it (Satire 6.347-348), Quis custodiet ipsos custodes? ("Who will regulate the regulators?")The answer to moral problems in human life (including problems with what we call "the economy" these days) is not more external regulation: individual people need to realize that they are the only people responsible for their decisions, which they had better take seriously.  All regulatory solutions are just stop-gaps for idiots: good in the short term (insofar as they prevent us all starving in the streets right away), and bad in the long term (as they accustom us to passing our moral agency on to government stooges who are no smarter or morally conscious than we are).  The fatal conceit is thinking that we can prosper without individual integrity, that our regulation is better, that our leaders are smarter, that our collective ventures are somehow qualitatively different from all the others that have crashed and burned before us doing the same stupid things we are doing (making regulators responsible for our individual moral choices).  

Frozen Desire. The essential message of this book is that money is intrinsically worthless.  It is just a symbol, a pretty bit of paper or metal with a logo on it that people in a very narrow time-frame use to attribute value to other things.  When it cannot be traded for real things (food, clothing, shelter), it is revealed to be nothing (nothing but desire, the longing for things that one does not have).  Buchan would agree with Adams (and Say) that the secret to success in life is producing real things rather than cultivating insatiable desire.  But he goes farther than either of them in radically devaluing the concrete form of desire that is the lifeblood of our current economy.  I confess that I am very sympathetic to him.  (I like to think of the present world economy as someone with a very bad case of diabetes: the Keynesian approach to the disease keeps pumping the patient full of insulin to stave off increasing and increasingly severe bouts of glycemic shock; a more responsible approach is to radically cut the sugar supply, causing an immediate crash that hurts like hell but ultimately puts the patient on a much firmer footing, presuming he survives.  I am not a doctor and have not made this metaphor perfect.  Patience!)  I look forward to the day (which I am still naive enough to envision as a reality) when money is just a toy for me, an idle curiosity that I play with, instead of the only thing standing between my family and starvation.  Meanwhile, I think it is best used very sparingly, preferably no more than absolutely necessary (kind of like sugar!).      


  1. Y'know, if you read only the bold-font phrases, you get the stuff of a pretty interesting haiku:

    Produce to consume.
    Each must own integrity:
    Money is worthless.

    As for the rest, I look forward to the day when money is just a toy for me, too: a plaything to be spent for fun, at will. :)

  2. Cool! I like it. That should have been the post.

  3. I like the haiku title as well. The last book review reminds me of financial guru Dave Ramsey's assessment of investing in gold as opposed to being truly prepared for life's emergencies. To rephrase your statement about "real things," gold/money is worth only whatever people who have access to the food, water, shelter etc. think it's worth. And thus literally having a Midas' touch is in fact a curse unless you are an especially sadistic serial killer.

  4. Now read some Murray Rothbard and Von Mises.