Julian Simon’s life against the grain

I did not meet many of the postwar great thinkers of classical liberalism. There are two exceptions. In 2005 I had a chat with James Buchanan to ask him if I could translate the talk he gave to an audience of graduate students at the IHS summer seminar at the University of Virginia at Charlottesville. He agreed and I translated and published his ideas on ‘the soul of classical liberalism’ in a Dutch liberal periodical.

The other exception is Julian Simon. Perhaps not in the same league as Buchanan, he was certainly a maverick thinker and a classical liberal great. A navy officer, business man, and advertising expert who turned to academia, he is known, to name just a few, for his arguments in the field of population growth, immigration studies and of course the book The Ultimate Resource. In it he argues that all raw materials become cheaper, while humans are the ultimate resource, among many other issues. He also won a famous wager with his critic Paul Ehrlich, stating that the prices of the raw materials Ehrlich could choose (in fact copper, chromium, nickel, tin, tungsten) would decrease (inflation adjusted) over the period of a decade they agreed upon. But that is just the tip of iceberg of this most interesting man. You should really read his autobiography A Life Against the Grain, whenever you have the chance.

In 1995 a friend of mine and I founded the Dutch Benedictus de Spinoza Foundation, meant to group young people educated in (classical) liberalism. In our first public Spinoza-lecture in 1996 Simon agreed to be the speaker. If memory serves right he was on his way to or from a Mont Pelerin Society meeting in Vienna, and was willing to make a small detour. We spent two full days with him, touring The Hague, arranging an interview in a national paper, have a formal dinner with Simon as gues of honor and speaker, and so forth. He was the most congenial guest one can wish. He clearly did not want to be among the hot shots only. In fact he insisted that we should visit ‘the worst neighborhood of the city’. So we went to one of the poorest parts in town, which he found delightful, not because of the (relative) poverty, but because of the multicultural experience and multicultural food at the market.  An other remarkable feature was that in the half hour before we opened the lecture hall, he wished to take a nap on the floor right there!

In his autobiography he is open about his many rejected papers throughout his career, and the way he described how difficult it is to convince academic colleagues of a point that goes against conventional wisdom. No matter how strong the counter-evidence, people will choose to ignore the new facts or insights and keep the author out of the inner circle for as long as possible. I must say it sounds familiar to me, as an author who has attempted to change the views of (classical) liberals and IR theorists on international relations and (classical) liberalism. Even the obvious fact that trade cannot possibly foster peace seems impossible to establish. Alas, reading Simon one also learns to never give up, the truth shall be told, although there is no guarantee of success!

“The German Question” of the 19th century

I know most of NOL‘s American readers are familiar with the German question that puzzled the Allies after World War II, but there was a different German Question that puzzled statesmen and policymakers in the 19th century:

From 1815 to 1866, about 37 independent German-speaking states existed within the German Confederation. The Großdeutsche Lösung (“Greater German solution”) favored unifying all German-speaking peoples under one state, and was promoted by the Austrian Empire and its supporters. The Kleindeutsche Lösung (“Little German solution”) sought only to unify the northern German states and did not include any part of Austria (either its German-inhabited areas or its areas dominated by other ethnic groups); this proposal was favored by the Kingdom of Prussia.

And this:

While a number of factors swayed allegiances in the debate, the most prominent was religion. The Großdeutsche Lösung would have implied a dominant position for Catholic Austria, the largest and most powerful German state of the early 19th century. As a result, Catholics and Austria-friendly states usually favored Großdeutschland. A unification of Germany led by Prussia would mean the domination of the new state by the Protestant House of Hohenzollern, a more palatable option to Protestant northern German states. Another complicating factor was the Austrian Empire’s inclusion of a large number of non-Germans, such as Hungarians, Czechs, South Slavs, Italians, Poles, Ruthenians, Romanians and Slovaks. The Austrians were reluctant to enter a unified Germany if it meant giving up their non-German speaking territories.

This is from Wikipedia, and it appears that the German Question of the 20th century was still the same one as the 19th century. It took an invasion by the Soviet Union and the United States to decisively answer the question. Happy Easter!

How the abolition of slavery led to imperialism

I’ve been saying this for years, so it’s nice to see this out in the open. Behold:

Far from meaning the end of slavery as Western demand for enslaved persons fell, the 19th century saw slavery’s increase in West Africa as a different type of external demand arose. The abolition of the Atlantic slave trade north of the Equator in the first two decades of the 19th century transformed West African economies. It was one of the major factors in the series of economic crises and political revolutions that shaped West African politics until the advent of formal colonialism in the 1880s

This is from Toby Green, an excellent scholar of Africa in the UK.

“The Legacy of Colonial Medicine in Central Africa”

Between 1921 and 1956, French colonial governments organized medical campaigns to treat and prevent sleeping sickness. Villagers were forcibly examined and injected with medications with severe, sometimes fatal, side effects. We digitized 30 years of archival records to document the locations of campaign visits at a granular geographic level for five central African countries. We find that greater campaign exposure reduces vaccination rates and trust in medicine, as measured by willingness to consent to a blood test. We examine relevance for present-day health initiatives; World Bank projects in the health sector are less successful in areas with greater exposure.

Woah, this, from Sara Lowes and Edward Montero, is crazy (link fixed) and hopefully gives pause to colonialism’s few living defenders…

Nighttime blurb

I’ll be honest with you guys, this whole no “nightcap” thing is weird. Every day I have to remind myself that I don’t do nightcaps anymore. I wonder if I have any other habits that I don’t think about. I’m sure I do, but I don’t what they are.

I’ve got a piece on the pre-Westphalian interpolity order I’m working on. It’s slow going, but it’s going. If any of you are experts or (especially) enthusiasts on the Holy Roman Empire, I’d be obliged if you send tips my way. The best read on the Holy Roman Empire so far, for me, has been this one (pdf).

Go Bruins!

Monetary Tales from the Farthest Shore

The second bank by the sea

My music playlist has nearly stagnated for years and, depending on your age, maybe yours has too. Evidence suggests that (partly) because of mind shenanigans, our musical palette does not quite expand past the age of 30. I think that something similar goes for gaming. I am still fond of those (pc) games from my late teen – early adult years and stay happily ignorant about the newer ones. Those single player games immersed you through substance over eye-candies. Some in-game scenes remain pure gold after all these years. Like that dialogue, when one of my younger siblings was delving in a fictional setting resembling the Caribbean during the Golden Age of Piracy. (Escape from Monkey Island. I preferred RPGs. Nowadays, only books – like this one.)

At some point, the protagonist, a witty swashbuckler, visited the Second Bank of an island called Lucre. “What happened to the First Bank of Lucre?”, he inquired. “Nothing”, said the bank teller, “It was our public relations department’s idea. They felt that being called the ‘First’ bank didn’t project an image of experience”. At the time I thought it as just a funny anachronism. Later, I recognized a jab to brand marketing practices and the corporate-speak more generally. But it was also the scheme of a “fledgling” first banking institution versus a “trustworthy” second one that almost held a real-world analogy. 

Some kind of a theory

There is a rich discussion on the origins of money, its form and the proper control of it, as well as a few historical cases of either state or private currencies thriving – or failing. Hard. In the thick of it, we talk about two positions. From the one hand, the “economics textbook” approach proposes that money emerged in the realm of private economic relations, to minimize transaction costs and facilitate trade. (Francisco d’Anconia would approve.) Here be a decentralized, bottom-up acceptance of the medium of exchange. This view sits well with the classical liberal dichotomy between the civil and state spheres, which can be expanded to envision a very limited role for the state in monetary affairs. From the other hand, the “anthropological – historical” position articulates that trust on money comes mostly from the sovereign’s guarantee, marked by the sign of God and/ or Emperor. This top-down explanation is more receptive to the state control of money, rhyming with the monetary power as a prerogative of the ruler and an expression of sovereignty. 

Beginning with some important judicial decisions in the second half of 19th century, the official assertion of state power over money came in the 20th century. Per the Permanent Court of International Justice, in 1929, “it is indeed a generally accepted principle that a state is entitled to regulate its own currency”. You know, the norm of modern national monetary monopolies. There was a time though, when things were more colorful and less unambiguous. From the 13th century onward to the Golden Age of Piracy and beyond, it was only normal for different monies of various issuers to flow from one territory to the other. Reputable currencies required not only a resilient authority backing them, but also a nod by society and custom. This kind-of-synthesis of the two positions outlined above rung especially true in the case of the young Greek state in 1830s – 1840s. (For this section I draw from the comprehensive “History of the Greek State 1830 – 1920”, by George B. Dertilis [the 2017 Crete University Press edition, in Greek. An extended version, under a different title, is forthcoming in English in 2021/22]. Btw, on Mar. 25 we celebrate 200 years from the Declaration of the Greek Revolution versus the Ottoman rule, an [underrated?] event with connotations of nationalism and liberal constitutionalism.)

Over there at the (Balkan) shore

As the new state needed to break free from all the institutions of Ottoman Empire, its hastily assembled first Bank of Issue sought to introduce a new national currency (the Phoenix). The impoverished, ravaged and cut off from international debt markets nascent state reflected bad upon the Bank. The government tried to force public’s trust via legislation. By decree, payments from/ to the state coffers would include a mandatory percentage of the new banknotes (later the percentage was set at 100%). Revenue from state natural resources – present and future – would back the currency. The administrative magic did not do it. The public actively tried to avoid the Phoenix banknotes, in favor of traditional silver/ gold coins. Bank and currency failed to crowd out the foreign monies and ultimately went out of business. A few years later, the overall environment had improved somewhat and a more vigorous state established the second Bank of Issue. Another new national currency, the Drachma, was already circulating in – copper – coins along with the foreign ones. 

The second Bank received an exclusive charter of issue and undertook the task to roll-out the Drachma banknotes (silver/ gold coins would follow) and, in doing so, integrate the fragmented Greek countryside to a more cohesive national economy. Up until then, the local markets had operated as loosely hierarchical oligopolies. At the bottom of the chain, each small village or group of villages was dependent on a merchant-money lender who held monopsonistic power over the (tiny scale) agricultural production and, at the same time, monopolistic power in cash and credit. These rural businessmen depended on the respective merchant-money lender of the nearest town for brokerage. Next in line was the merchant-money lender of the nearest city, usually with access to international trade routes. You get the picture. These informal networks contained competition among neighboring lesser merchant-money lenders and promoted trade through a complex web of transactions (involving forward contracts, insurance premiums and bills of exchange, among others). (The official site for the anniversary features a fancy piece about the first attempts to establish a national bank as well. It includes a few names and dates, while noticing the “exploitative” networks and the “primitive” credit system .I find its lack of nuance disturbing somewhat misleading.)

Becoming one with the forces

The Bank opted to tap and complement the existing disjointed market forces, in order to gently nudge them. It channeled its primary tool, lending in banknotes, to the local money markets, firstly, to a limited number of large merchant-money lenders, later to the middle ones. (According to the Bank’s ledgers, these clients usually chose respectable job titles, such as “Banker” or “Broker”. Others, a bit blunter, went by the Greek equivalent of “Usurer”.) This lending – apart from being short-term, relatively safe and profitable – enabled the Bank to gradually assume a leading position, without the need to deep dive at the specifics of each end-user of the market. The soft, indirect entry in the century-old customary networks lowered the cost of money and contributed to the integration of the national economy. The transition was not always smooth, with the occasional episode (people switching from banknotes to metallic coins, the Bank returning the favor by aggressively cutting back lending, the government setting compulsory percentages etc  – you know the drill), but still, the stakeholders’ incentives aligned. Society at large recognized Bank and currency, with the system reaching a workable equilibrium

The merchant-money lender of old was finally phased-out by regular bank lending in the next decades. Further underpinned by a cozy relationship with the state (always a valuable client, usually a partner, sometimes even an opponent), the Bank acted as a quasi-central banking institution until 1928, when the charter was transferred to the newly found Bank of Greece. The Drachma continued as official legal tender (albeit with numerous conversions) until the end of 2001.

The Moulin Rouge, San Francisco, a Fragment of Memoir

When I was 22, I lived at the Moulin Rouge, a French bar in North Beach, San Francisco, California. Not all the time, only when I was not hitch-hiking to and from the community college with almost a view on San Quentin Prison, and when I was not attending classes there, or working. The Moulin Rouge was run by a spiffy well-coiffed older French woman. I always thought she was a retired madam from Marseilles. I don’t say that to blacken her name for she was a real sweetheart. And anyhow, I don’t know this for a fact.

I was a good student who did his assignment efficiently and who drank too much every night at the Moulin Rouge. It was a good plan to meet new people, some who were interesting, some who could be useful. The regulars were a mixture of French immigrants and of American Francophiles. Some of the latter were single women of an uncertain age in the low light of the bar. I met a middle-aged French woman who owned an expensive hairdresser’s shop and who tried to make me her chauffeur/gigolo. She failed (we failed,I failed).

I had emigrated to the US with no skills and no money. That’s no money, not a cute way to say “little money.” Through the Moulin Rouge, I landed a succession of part-time jobs, not all as unimportant as you might imagine. One job was editing a small, largely local French language newspaper. I always wanted to make it more hifallutin. The publisher, a Frenchman who only lived in San Francisco part of the year, objected. We had a final falling out when he fired me with these exact words, “We don’t need intellectual shit in this paper. Fifty per cent of our readers are Basques; the Basques are stupid. I know because I am Basque.” ! At the time, I slept in a small room in a Basque hotel precisely, also in North Beach. The other tenants were Basque shepherds on vacation from their lonely jobs in the Sierras. They did not seem stupid to me although they were not what you would call real literati. Plus, they cooked great six-egg plus smoked ham breakfasts.

A middle-aged gay customer who was an interior decorator – I am not kidding – heard of my predicament. He introduced me to a rich old lady who would have me occupy her basement apartment on Pacific Hill and pay me a little stipend in return for “some work.” She called the lodgings: “the Chinaman’s flat.” (Again: Would I make this up?)

The old lady, a widow, drove a hard bargain. She thought she had a right to be demanding because she often brought down for me her surplus cooked vegetable. That was a misplaced concern, of course: Young men use beer for both fiber and vitamins. I did not enjoy the job of a houseboy much and bringing girls down into the basement was hellishly difficult because the old lady never slept. She did not even take naps in the afternoon, I know this for a fact. After a couple of months, she fired me. She told me to my face she would replace me with an Asian boy who would be “more docile.” It made a lot of sense since her main offer was the “Chinaman’s flat.”

I kept spending my long winter evenings at the Moulin Rouge. I kept meeting interesting characters there. One was a Frenchman in his forties who told me he was a pirate on leave. He said he owned an old Navy PT boat with a machine gun he used to prey on Chinese ships in the Celebes (Indonesia). “How come you are not in prison for 20 or 25 years? How about the police, the local coast guard, the navy?” I asked. “Nobody cares about the rich Chinese in Indonesia; besides, we never, never kill anyone. We wave big guns at them, my crew and I, and they always pay up. Sometimes, they bargain with me. I am not unreasonable,” he explained. He invited me to join him in a piracy campaign on my next summer vacation. I told him that I would like too but I would probably have to study in the summer too. I had my values down straight: junior college before piracy.

Evidently, the pirate had detected my criminal fiber before I had. “How about spring break – he said – I have a contact in Columbia. We could go quickly and smuggle back pre-Columbian artifacts. I know some collectors. Actually they come to his bar once in a while. I have heard you speak Spanish. Your Spanish is good. You could be very helpful and make enough money to support yourself for a whole year.”

Before I had time to really consider his tempting offer, he changed the subject. He told me that today was “El Dia de la Raza.” I did not know what that was then. Anyway, it’s not really about race. It’s just a day when Spanish speakers from all countries celebrate their “hispanidad,” whatever that is. He said there was a big dance at the Masonic auditorium. He added that it would be full of tarted-up Hispanic women on the make. (Here is a rule of thumb: Like a hunter who has lovingly cleaned and oiled his gun, a woman who has gone to great expenditure of time and money to make herself sexy for a special event hates to return empty-handed.)

So, we went to the ball and it was just as he had said. For some reason, women visibly outnumbered men. Now, a neutral, scientific note about Frenchmen: They may look like any northern Europeans but many can dance like Puerto-Rican pimps. The reasons why this is are interesting but too complex for this story. In this case, we both also spoke Spanish with ease which is not uncommon among French people. Quickly, the pirate and I did very well. I met a short but shapely brown, black-eyed Central American woman with hair down to her waist. She wore a bare-back dress and her skin under my right hand was the smoothest and the softest I had ever felt. She liked that I was twice her size and she raised herself on her toes to reach me. After a decent hour or so, she took me to her apartment in a taxi she called herself. Turned out she was twice my age. CUT! This may be read at a family gathering!

My friend the pirate had met a very sweet Mexican-American woman half his age at the dance and he had immediately fallen hard for her. She had the kind of sweetness that caused her to keep worrying about who was doing my ironing since I was a bachelor living alone. She thought that was not right. The pirate told me it was time for him to abandon his evil practices and to return to France where his old mother was still alive. He and his Mexican-American sweetheart began traveling West to East toward our shared native country. The girl had never been outside the Bay Area. Together, they hitched-hiked and worked their way on ships toward Singapore. That included a two-month stay in Australia where the pirate made good money killing rabbits. Then, he worked as a cook and she as a maid on a freighter that took a few passengers. They made it to France by various means in a little under a year.

“Why stop in Singapore?” I asked the pirate when I met him and Maria again briefly in Paris. “Why, it has the biggest and the most beautiful Catholic cathedral in Asia. That where I wanted to marry Maria. That’s where I married her,” he said simply. Real or not, the pirate had great style. I am sorry I don’t know what became of him or her. I imagine they lived in a nice farm in the beautiful French countryside and that they have had many children who look like pretty Maria.

Soon afterwards the Dia de la Raza, I moved to Sausalito where I had found a gardener’s job on the sole strength of my French name. After that, I only returned to the Moulin Rouge infrequently. In Sausalito, every night, I would attend the No Name Bar, right downtown. It was an intellectual sort of place. There was wallpaper in the restroom that showed scenes from the Trojan War. Someone had drawn a bubble coming out of a hoplite’s mouth with words in Greek letters. Another graffito said: “Schwartz is a neo-classic.” Schwartz must have been devastated! Soon, I found that the Moulin Rouge had played out its part in my destiny. I was steeped in American life and on my way to becoming a scholar, not a little thanks to the No Name Bar. Staying on the academic straight and narrow was not always easy though because of the pirate’s bad example.

Seljouk!

His ancestors had fought their way from Central Asia slaughtering, looting, burning, and worse. At night, they often slept in the saddle, on their horses that looked as wild as they did.

He was a large, muscular man with a fierce face, a slick mustache, and hairy forearms. First, he put his long sharp blade to my throat, then, he set me on fire; finally, he tried to break my cervical vertebrae with his bare hands.

Tesekkur ler,” I said, handed him fifty million liras.

I had not had the time to visit the barber before leaving California. That’s how I got a straight razor shave and haircut, my ear and nose hair singed with flaming alcohol, and a vigorous cricking of the neck to finish. It all happened in the open air, in a street lined with rug shops, in Seljouk, the tourist town next to the great ancient archaeological site of Ephesus, Turkey.

Elective Affinities in Institutional Design, 1951

[Note: this is a piece by Michalis Trepas, who you might recognize from the now-defunct NOL experiment “Be Our Guest.” Michalis is a newly-minted Notewriter, and this is the first of many more such pieces to come. -BC]

The Treasury and the Federal Reserve System have reached full accord with respect to debt-management and monetary policies to be pursued in furthering their common purpose to assure the successful financing of the Government’s requirements and, at the same time, to minimize monetization of the public debt.

– Joint announcement by the Secretary of the Treasury and the Chairman of the Board of Governors, and of the Federal Open Market Committee, of the Federal Reserve System, issued for release on Mar. 4, 1951

The Allied High Commission appreciates that these responsibilities [for the central bank] could not, without serious inconvenience, be given up so long as no legislation has been enacted establishing a competent Federal authority to assume them.

– Letter from the Allied High Commission to Chancellor Adenauer, Dated Mar. 6, 1951


A Financial Fable by Carl Barks, a short story starring Donald Duck and his duck-relatives, was published in Mar. 1951. It featured concepts like supply/ demand, money shocks, inflation and the ethics of productive labor, from a rather neoclassical perspective. Read today, it seems out of synch with the postwar paradigm of a subordinated monetary policy to the activist state and, more generally, with what came to be known as the Golden Age. As you have already probably noticed, this March also marks the 70th anniversary of two more instances against the currents of the time. It was back then that two main traditions of central bank independence – based on political consensus and judicial (“Chevron”) deference in the case of US, based on written law and judicial review in the case of Eurozone (read: Germany) – were (re)rooted. In the following lines, I offer an outline focused on institutional interplay, instead of then usual dramatis personae

The first instance is the well-known Treasury – FED Accord. Its importance warrants a mention in nearly every institutional discussion of modern central bank independence. The FED implemented an interest rates peg – kind of capping the yield curve – in 1942, to accommodate public debt management during World War II. The details were complicated, but we can still think of it as a convenient arrangement for the Executive. The policy continued into the early 50s, with the inflationary backdrop of the Korean War leading to tensions between a demanding Executive and an increasingly resistant central bank. Shortly after the dispute became more pronounced, reaching the media, the two institutions achieved a compromise. The austere paragraph cited above ended the interest rates peg and prompted a shift of thinking within – and without – the central bank, on monetary policy and its independence of fiscal needs.

The second one is definitely more obscure, and as such deserves a little more detail. The Bank deutscher Länder (BdL) was established in 1948, in the Allied territory of occupied Germany. It integrated central banking institutions, old and new, in a decentralized fashion á la US FED. Its creation underpinned the – generally successful – double reform of that year (a currency conversion with a simultaneous abolition of price controls), which reignited free market forces (and also initiated the de facto separation of the country). The Allied Banking Commission (ABC) supervised the BdL and retained the sole right to issue direct instructions, a choice more practical than doctrinal or ideological. As the ABC gradually allowed a greater leeway to the central bank, while fending off even indirect German political interventions, the resulting institutional setting provided for a relatively independent BdL. 

In late 1950, the Occupational Authority wanted out and an orderly transfer of powers required legislation from the Federal Government. Things deadlocked around the draft of the central bank law, the degrees of centralization and independence being the thorniest issues. The letter cited above, arriving after a few months of inertia, was the catalyst for action. The renewed negotiations concluded with the “Interim Law” of 10 Aug. 1951. The reformed BdL was made independent of instructions from the Federal Government, while at the same time assuming an obligation to support government’s general economic policy – without prejudice to its monetary duties. 

This institutional arrangement was akin to what the BdL itself had pushed for, a de jure formalization of its already de facto status. Keep in mind that the central bank enjoyed a head start in terms of reputation and experience versus the Federal Government, after all. But it can also be traced to the position articulated by the free market-oriented majority in the German quasi-governmental bodies back in 1948, a unique blend of explicit independence from/ cooperation with the government. The 1951 law effectively set the blueprint for the final central bank law, the Bundesbank Act of 1957. The underlying liberal creed echoed in the written report of the Chairman of the Committee for Money and Credit of the parliament:

The security of the currency… is the highest precondition for the retention of a market economy, and hence in the final analysis that of a free constitution for society and the state… [T]he note-issuing bank must be independent of these [political bodies] and subject only to the law.

The Financial Fable was the only story featuring Disney’s characters that made it to an important history of comics book, published in 1971. Around that time, the postwar consensus on macroeconomic stabilization policy was reaching its peak. A rethinking was already underway on the tools and goals of monetary policy, taking it away from the still garbled understanding of the period. It took another decade or so for both sides of the Atlantic to recalibrate their respective monetary policies. The accompanying modern central bank independence, with its foundations set in 1951, became a more salient – and popular – aspect a bit later.

A Near-World Class Model in the African Forest

a story, by Jacques Delacroix

Long story short: In my thirties, I am part of a French crew going to film a commercial in Casamance. That’s the southern and forested part of Senegal, on the west coast of Africa. (It’s close to where the old and successful TV series “Roots” was filmed.) Senegal is a former French colony. French is widely spoken there, including by all formally educated Senegalese. We ride in a short caravan of VW buses from the local biggish city and into the forest. It’s hot. The commercial will be filmed the next day on a river next to the edge of the tropical forest. Where we will stay tonight, and probably the next night, is kept secret.

In the middle of the caravan, there is an older model Peugeot sedan, or maybe, it’s even a Mercedes. It’s the only air-conditioned vehicle in the procession. The star of the future commercial rides in it, in full comfort. She is actually a top model of near-world class fame. The client is a big French company selling informal but fairly chic women’s apparel internationally, kind of pricey apparel. The advertising agency in charge does not have any reason to try and cut corners. It’s gone for the best, or for the very-next-to-best talent in that line of work. The model is a tall, lithe blonde (of course) with a long elegant neck, long legs, long arms, and a torso like a ten-year old boy’s. She has a beautiful face, of course, not like some of my ex-girlfriends, for example, but like something a bit out of this world, ethereal, if you will. She is alone in the car, like royalty.

After about an hour, or 25 miles, riding on good dirt roads we, arrive at our place of rest in late afternoon. It’s a magnificent three story building of Moorish style made entirely of dried mud. I will learn later that local people erected it with their bare hands. There are windows on each of its façades that are separated by thick vertical ribs from bottom to top. The windows have no glass panes but each is neatly covered with fine white mosquito netting. There is just one small entrance on the ground floor near where we stop. It takes a while for all of use to file in for checking as one would in a regular hotel and, that gives us time to admire again the building’s dramatic architecture. Inside, there is a normal counter with two clerks taking our names and assigning us mostly each to a small room. There is enough light coming in from the outside for the registrations to proceed normally.

The rooms have no door but the walls are so thick that one would have to contort one’s neck quite a bit to get a good view of the inside of any of them. Each has a wooden table and two chairs. The broad bed is fixed to the wall and made of the same adobe material. There is a thin mattress, two pillows, and cotton blankets on each bed. All those items are sparkling white. Myself, I like it a lot already in that hotel that’s barely a hotel. As the night begins falling, quickly as it does in the tropics, a local teenager barefoot and in shorts coughs politely at the entrance to my room. I invite him in and he lights the oil lamp mounted on the wall and shows me where the matches are, just in case.

Evening preparations are interrupted by a shrill voice protesting in accented French. (The protester is Danish or Swedish; French is not her native language.) Miss Near-World Class Model is complaining because her room is on the third floor and there are no elevators. The producer immediately has her baggage moved to a new room on the second floor. She does not like it there either because there is no view, that floor being beneath the tree branch line. Back to the third floor she goes. Twenty minutes later, begins another vivacious exchange between Miss Near-World Class Model and the producer. I eavesdrop, of course. (Well, I am professional social scientist; what do you think?) It seems they had agreed that she would receive her fee in the form of a round-trip business class ticket Paris-New York. (It’s a common way to avoid some taxes.) Now Miss Near World Class Model demands that the ticket be for the costly supersonic Concord. I, and probably everyone else in the auditory loop, thinks it’s just a tantrum. The Concord shaves something like a little over one hour off that trip. She can’t be in that much of a hurry. She just wants bragging rights. Plus, we are in the middle of Africa, years before cell phones. There is nothing the producer can do right now except, perhaps, perhaps, promise. And that may be the whole point of the argument, before her works begins, in only a few hours.

Quickly, the whole company, around twenty-five of us, is called to dinner. It takes place under the trees, around a nice big wood fire. We all sit on the ground and each of us is handed a miraculously hot, big recipient made of clay (same as the building behind us) filled with a sort of rice porridge with hard-boiled eggs and pieces of hard chicken. There are old French biscuits for dessert. We drink the bottled water and the beer some of us were smart enough to buy while we were going through the town. Everyone is in a good mood and, probably being put in mind of the Boy-Scout camps of their childhood; a few begin singing. Two local young men enter the circle with their small hand drums. Most of the crew joins in and that bunch of white city people from far away have one of the best evenings in their lives, in the Casamance forest.

Everyone is in bed before ten nevertheless. That’s because the first and main scene of the commercial we are there to film is supposed to be caught against a rising sun. Our princess is nowhere to be seen or heard. She is not currently berating anyone. She may be eating cold sandwiches in her lonely room. Except that, around nine, she sends someone to tell the producer she is scared to sleep by herself in her room with no door. He proposes the company of any number of vigorous youthful dudes in the crew, including me. On her declining, he persuades a very young woman, an assistant’s assistant probably, to spend the night with Miss Model.

To be fair, Miss Model’s conduct is neither that surprising nor that awful in context. Put yourself in her position. The wildest place she has ever been is probably a rock club in Copenhagen or in Stockholm. No one around her in the crew can provide the comfort of her native language. She is almost certainly uncomfortable in French, which is not even her second language. (English is more likely.) Is it possible that being suddenly surrounded by black people dredges up primitive racist fears in a female citizen of a country with no colonial African past, and therefore no experiences of proximity to black people? To ask the question is to answer it. Finally, there is the tenacious influence of envy that gnaws at the hearts of simple-hearted girls, beginning in a high school. Miss Model has probably only five or six rivals to whom she compares herself, other tall, lithe, career-oriented young women in the same league as she is: Mary-Ann gets to fly in the Concord; I will die if I have to fly a regular commercial jet!

The next morning, everyone is forced to wake up at five. (Can’t miss the sunrise, remember?) Someone has managed to produce some coffee, weak stuff, obviously brewed and boiled in a large pot but hot enough, with milk and sugar. There is also day-old, or two-day old, French bread. Unfortunately, though there are flush toilets at every story – with a big bucket of river water near the commodes – there is no real running water. So, washing off your face demands a harsh decision. You hope you actually packed up towelettes. How do I know it’s river water in the buckets? Well, I am an experienced fisherman.

Some of the crew go directly to the river’s side to check on the physical preparations. The director goes there specifically to greet the twenty or so locals who will be an important part of the video. They must be shivering, wearing only a loincloth – as instructed – before sunrise, standing near the long canoe they will be paddling up river in a short time. Most are postal workers and teachers, and such. (They all have to know French well to be able to follow the director’s instructions. Real paddlers, if they were to be found, probably couldn’t.) Some are receiving last minute initiation to paddling. The storybook – such as it is – is a collection of colonial clichés, of course. Nobody cares then. (It’s the seventies.) The African extras care least of all. They will be earning fat money, paddling five times five minutes, if that, and sitting under a tree shooting the breeze between cuts.

Meanwhile, the rest of us are still near the hotel building; we stand around downing coffee and smoking cigarettes waiting for our marching orders. It’s a bit like being a recruit in the armed forces again: hurry up and wait. Miss Model is nowhere to be seen. No one says anything but I know I am worried. If she had another tantrum and managed to get a ride to town during the night, the whole project is dead. Then, she appears in the dimly lit doorway.

Her hair is impeccably combed and held in place in a style markedly different from yesterday’s. I am guessing this is the hairdo the storybook calls for. She is wearing perfectly pressed white linen pants and a simple yet somehow elegant form-fitting pink t-shirt. I am guessing, again, that those are clothes from the collection we will be advertising in the commercial. She is carrying a squarish box by its handle. A young local woman who might be a hairdresser is waiting for her. (I think she is a hairdresser because, unlike other women in the area, she is not wearing a head scarf and her hair is processed.)

The African woman points to a downed tree trunk with a clean towel set on top. Miss Model sits on it and opens her case without a word. The local woman squats and hold a large mirror to her face. I get drafted to hold a flashlight just so, between her face and the mirror. I watch in amazement Miss Model create a work of art on her face in the semi-penumbra. She uses at least twenty different colors of make-up held in tiny square containers in her square case. I observe that she relies on six different brushes and several crayons in addition to four shades of lipstick. She handles her tiny tools without hesitancy. A few times, she signals to me to adjust the direction of the cone of light. Her other helper, being a woman, seems to know exactly what to do with the mirror. Miss Model soldiers on for forty-five minutes or more. Now, I have often looked at people working but I have never seen such attention to detail or such concentration, such seriousness. There, under a canopy of strange and vaguely threatening trees, in the middle of Africa, and in the darkness, Miss Model gives us all a lesson in perfect, cool professionalism.

Soon, she stands up and mutters a few words of thanks to the mirror lady and, in absent minded fashion, to me. The director has been standing there, watching and saying nothing. He guides her to the river for the opening shot just as the first premises of a rising sun show themselves.

If I forgot that I am talking here about a four-minute commercial destined only to be shown at intermission in French movie theaters, I would say the rest of the day is a triumph. Everyone does his or her job swiftly and intelligently; the parts fall into place with ease. The paddlers get into the spirit of the thing. They forget they are going to have to go back to work in an ironed white shirt tomorrow, or the next day. They produce from deep in their chests the satisfying sound of men pulling hard although they have only gone about fifty yards for each cut. It helps a lot that they have seen the same movies that inspired the storybook.

Miss Model herself responds exceedingly well to the modest requests for minimal acting in the storybook: She is asked to stand prettily in the bow of the long black canoe paddled by twenty half naked black men. She holds one hip slightly and graciously askew the better to display the embroidered back pocket of her pants. She has been told not to smile to avoid drawing attention away from the t-shirt she is modeling. There are several takes. In the end, she acquits herself fabulously. The apparel merchant, the sponsor, will be more than happy. And, I know you are curious about this: The producer was inflexible, Miss Model did not fly to New York and back on the Concord.

Does federation unite or divide?

I am reading a lot on federation lately, for an article I would like to contribute to Brandon’s special issue of Cosmos + Taxis. I am going back to the debate about federalizing (parts of the) the democratic world which was very lively in the 1930s and 1940s. Reading the texts, for example the best-selling Union Now! (1939) by American journalist Clarence Streit, you can feel the scare for the authoritarian rulers and their nationalistic and militaristic policies. As an anti-dote, Streit proposed the federation of all the grown democracies in the world at that time, 15 in total, spread over the globe. This Union of the North Atlantic had to include a union citizenship, a union defense force, a union customs-free economy, union money and union postal and communications system After the war broke out, Streit published a new version, now calling for a union between Britain and the USA. Needless to say, none of these or other proposals went anywhere. Still some interesting perpetual questions remain.

Ludwig von Mises and Friedrich Hayek also wrote on federation during this period, as I described in Classical Liberalism and International Relations Theory (2009). I now went back to their writings, which is a treat. It is nice to have a fresh look, I also have deeper insights now (at least – I think!) than I had about 15 years ago when first encountering these ideas.

One of the divides between Mises and Hayek (which they never openly discussed, as far as I am aware) revolved around the alleged pacifying effect of federations. Mises made the point that joining a federation would lead to a larger loss of sovereignty than was normally conceived in the debate. It was not just about pooling some powers at the federal level. In an interventionist world, Mises argued, the number of policies that are dealt with from the center, or the capitol, continually rise. After all, the call for intervention will be made from all corners of the federation, all the time. This leads to a call for equal treatment, which in turn lead to a larger number of policies and regulations administered from the capitol. Consequently, the member states increasingly lose sovereignty and eventually end up as mere provinces. This would be a new cause of division, especially when the member states of the new federation used to be powerful countries on their own. Hence, a federation divides, not unites. Therefore, he proposed a much more radical solution in his plan for Eastern Europe: no federation but a strict central union (administered by foreigners, in a foreign language he even once suggested) where the members would basically have no say at all over all the important legislation normally associated with sovereignty. The laws and regulations would be limited, ensuring maximum economic and political freedom for the individual citizen.

This blog is not meant to discuss the merits of Mises’ ideas. It solely aims to point at a division between Mises and Hayek. Hayek, and most thinkers on federation with him, Streit included, had different expectations about the political effects of federation. They expected that federation would be a force of unity.  In a federation you arrange the most difficult and divisive policies at the center (for example defense, foreign policy and foreign trade), while leaving all other policies to the constituent parts. This allows room for different policies in those states, while taking away their instruments to start violent conflict. Yes, this would mean less sovereignty, but also less trouble, while the freedom within the federation still ensured as much or as little additional policies as the individual states see fit. Hayek would favor his idea the rest of his life, also proposing it for the Middle East, for example.  

Who was right? That is impossible to say, I think. There are elements of both Misesian and Hayekian arguments in the real-life experiences of federations around the globe. For some it is indeed a good way to pool the core of sovereignty, while remaining as diverse as possible. Although most them do not disintegrate with violent conflict, the increase of all kind of policies at the federal center has certainly happened. However, this is not unique to federations and most importantly, it is not a question of formal legal organization. It is a question of mentality of both politicians and populations. This is another reason to keep fighting ‘the war of ideas’, because ideas have the power to change societies.

John Rawls at 100

Neoliberal Social Justice available April 2021

John Rawls, the most influential political philosopher of the 20th century, was born 100 years ago today. He died one year before I first read A Theory of Justice as part of my undergraduate degree in philosophy at University College London. This year, Edward Elgar publishes Neoliberal Social Justice: Rawls Unveiled, my book which updates Rawls’ approach to assessing social institutions in light of contemporary economic thought.

Mike Otsuka (now at the LSE) introduced us first to the work of Robert Nozick and then to Rawls, the reverse of what I imagine is normally the case in an introductory political philosophy course. Most people ultimately found Rawls’ the more attractive approach whereas I was drawn to Nozick’s insistence on starting strictly from the ethical claims of individuals. I wondered why something calling itself ‘the state’ should have rights to coerce beyond any other actor in civil society.

Years of working in public policy and studying political economy made me recognise a distinctive value for impersonal institutions with abstract rules. Indeed, I now think the concept of equal individual liberty is premised on the existence of such institutions. Although the rule of law could theoretically emerge absent a state, states are the only institutions that have been able to generate it so far. Political philosophy cannot be broken down into applied ethics in the way Nozick proposed.

Some classical liberals and market anarchists are increasingly impatient with the Rawlsian paradigm. Michael Huemer, for example, argues that Rawls misunderstands basic issues with probability when proposing that social institutions focus on maximising the condition of the least advantaged. Huemer argues that Rawls ultimately offers no reason to pick justice as fairness over utilitarianism, the very theory it was directed against.

I think these criticisms are valid for rejecting the blunt assessments of real-world inequalities that some Rawlsians are apt to make. But I do not think Rawls himself, nor his theory when read in context, made these elementary errors. Rawls’ principles of justice apply to the basic structure of social institutions rather than the resulting pattern of social resources as such. Moreover, the primary goods that Rawls take to be relevant for assessing social institutions are essentially public goods. It makes sense to guarantee, for example, basic civil liberties to all on an equal basis even if turns out to be costly. I can think of two reasons for this:

  1. In a society not facing acute scarcity, you would not want to risk placing yourself in a social position where your civil liberties could be denied even if it was relatively unlikely.
  2. Living in a society where basic liberties are denied to others is going to cause problems for everyone, whether through regime instability or fraught social and economics relationships that are not based on genuine mutual advantage but coercion from discretionary powers.

To be fair to utilitarians, J.S. Mill went in this direction, although one had to squint to see how it fit into a utilitarian calculus. But if Rawls was ultimately defending a more principled approach to social relationships using the tools of expediency, I see that as a valuable project.

So, I think that the Rawlsian approach is still a fruitful way to evaluate the distinctive problem of political order. His theory offers the resources to resist not just utopian libertarian rights theorists, but also socialists and egalitarians who similarly fail to account for the distinctive role of political institutions for resolving problems of collective action. Where I think Rawls erred when endorsing what amounts to a socialist institutional framework is on his interpretation of social theory. Rawls argued that people behave pretty selfishly in market interactions but could readily pursue the public good when engaged in everyday politics. I argue otherwise. Here is a snippet from Neoliberal Social Justice (pp. 96-97) where I make the case for including a more consistently realistic account of human motivation within his framework:

Problems of justice are not purely about assurance amongst reasonable people or identifying anti-social persons. Instead, we must consider the anti-social person within ourselves: the appetitive, biased, narrow-minded, prejudicial self that drives a great deal of our every-day thoughts and interactions (Cowen, 2018). If we are to make our realistic selves work with each other to produce a just outcome, then we should affirm institutions that allow these beings, not just the wholesome beings of our comfortable self-perception, to cooperate. We have to be alive to the fact that we are dealing with agents who are apt to affirm a scheme as fair and just at one point (and even sincerely mean it), then forgetfully, carelessly, negligently or deliberately break the terms of that scheme at another point if they have an opportunity and reason enough to do so. Addressing ourselves as citizens in this morally imperfect state, as opposed to benighted people outside a charmed circle of reasonableness, is helpful. It means we can now include such considerations within public reason. The constraints of rules emerging from a constitutional stage may chafe at other stages of civil interaction. Nevertheless, they may be fully publicly justified.

Afternoon Tea: Allegory of the Peace of Westphalia (1654)

This is by Jacob Jordaens, a Flemish painter, and it is not even one of his most famous paintings. Here’s Jordaens’ wiki page. The Peace of Westphalia ended the 30 Years War. The Habsburgs weren’t necessarily the bad guys. The Peace of Westphalia didn’t establish state sovereignty in a system of equal (in theory) nation-states within an interstate order. The Peace of Westphalia solved a religious constitutional question within the Holy Roman Empire and ended the war between the Dutch and the Spanish. The Westphalian state system that we speak of and live in today is not appropriately named. Here’s the best article (pdf) I’ve read on the Peace.

If we were to appropriately name the interstate order that we have today, it would be named the Napoleonic interstate system. Alas. It’s called the Westphalian system. The US, and a couple of other big states like China and Russia, have trouble fitting in to the “Westphalian” state system because they established their own regional state systems long before being wrangled into European imperial entanglements. It goes without saying that polities in Africa, Asia, and the Americas also had trouble fitting into the “Westphalian” state system.

What if one of the regional orders established by the US, Russia, or China were embraced as the new global order, instead of the “Westphalian” (really Napoleonic) system based on nation-state sovereignty? I don’t think this would be a bad thing, and in their own way, the US, China, and Russia have been trying to do this since the end of World War II.

Second to None in the Creation of Extraordinary Wealth

The most important historical question to help understand our rise from the muck to modern civilization is: how did we go from linear to exponential productivity growth? Let’s call that question “who started modernity?” People often look to the industrial revolution, which is certainly an acceleration of growth…but it is hard to say it caused the growth because it came centuries after the initial uptick. Historians also bring up the Renaissance, but this is also a mislead due to the ‘written bias’ of focusing on books, not actions; the Renaissance was more like the window dressing of the Venetian commercial revolution of the 11th and 12th centuries, which is in my opinion the answer to “who started modernity.” However, despite being the progenitors of modern capitalism (which is worth a blog in and of itself), Venice’s growth was localized and did not spread immediately across Europe; instead, Venice was the regional powerhouse who served as the example to copy. The Venetian model was also still proto-banking and proto-capitalism, with no centralized balance sheets, no widespread retail deposits, and a focus on Silk Road trade. Perhaps the next question is, “who spread modernity across Europe?” The answer to this question is far easier, and in fact can be centered to a huge degree around a single man, who was possibly the richest man of all time: Jakob Fugger.

Jakob Fugger was born to a family of textile traders in Augsburg in the 15th century, and after training in Venice, revolutionized banking and trading–the foundations on which investment, comparative advantage, and growth were built–as well as relationships between commoners and aristocrats, the church’s view of usury, and even funded the exploration of the New World. He was the only banker alive who could call in a debt on the powerful Holy Roman Emperor, Charles V, mostly because Charles owed his power entirely to Fugger. Strangely, he is perhaps best known for his philanthropic innovations (founding the Fuggerei, which were some of the earliest recorded philanthropic housing projects and which are still in operation today); this should be easily outcompeted by:

  1. His introduction of double entry bookkeeping to the continent
  2. His invention of the consolidated balance sheet (bringing together the accounts of all branches of a family business)
  3. His invention of the newspaper as an investment-information tool
  4. His key role in the pope allowing usury (mostly because he was the pope’s banker)
  5. His transformation of Maximilian from a paper emperor with no funding, little land, and no power to a competitor for European domination
  6. His funding of early expeditions to bring spices back from Indonesia around the Cape of Good Hope
  7. His trusted position as the only banker who the Electors of the Holy Roman Empire would trust to fund the election of Charles V
  8. His complicated, mostly adversarial relationship with Martin Luther that shaped the Reformation and culminated in the German Peasant’s War, when Luther dropped his anti-capitalist rhetoric and Fugger-hating to join Fugger’s side in crushing a modern-era messianic figure
  9. His involvement in one of the earliest recorded anti-trust lawsuits (where the central argument was around the etymology of the word “monopoly”)
  10. His dissemination, for the first time, of trustworthy bank deposit services to the upper middle class
  11. His funding of the military revolution that rendered knights unnecessary and bankers and engineers essential
  12. His invention of the international joint venture in his Hungarian copper-mining dual-family investment, where marriages served in the place of stockholder agreements
  13. His 12% annualized return on investment over his entire life (beating index funds for almost 5 decades without the benefit of a public stock market), dying the richest man in history.

The story of Fugger’s family–the story, perhaps, of the rise of modernity–begins with a tax record of his family moving to Augsburg, with an interesting spelling of his name: “Fucker advenit” (Fugger has arrived). His family established a local textile-trading family business, and even managed to get a coat of arms (despite their peasant origins) by making clothes for a nobleman and forgiving his debt.

As the 7th of 7 sons, Jakob Fugger was given the least important trading post in the area by his older brothers; Salzburg, a tiny mountain town that was about to have a change in fortune when miners hit the most productive vein of silver ever found by Europeans until the Spanish found Potosi (the Silver Mountain) in Peru. He then began his commercial empire by taking a risk that no one else would.

Sigismund, the lord of Salzburg, was sitting on top of a silver mine, but still could not run a profit because he was trying to compete with the decadence of his neighbors. He took out loans to fund huge parties, and then to expand his power, made the strategic error of attacking Venice–the most powerful trading power of the era. This was in the era when sovereigns could void debts, or any contracts, within their realm without major consequences, so lending to nobles was a risky endeavor, especially without backing of a powerful noble to force repayment or address contract breach.

Because of this concern, no other merchant or banker would lend to Sigismund for this venture because sovereigns could so easily default on debts, but where others saw only risk, Fugger saw opportunity. He saw that Sigismund was short-sighted and would constantly need funds; he also saw that Sigismund would sign any contract to get the funds to attack Venice. Fugger fronted the money, collateralized by near-total control of Sigismund’s mines–if only he could enforce the contract.

Thus, the Fugger empire’s first major investment was in securing (1) a long-term, iterated credit arrangement with a sovereign who (2) had access to a rapidly-growing industry and was willing to trade its profits for access to credit (to fund cannons and parties, in his case).

What is notable about Fugger’s supposedly crazy risk is that, while it depended on enforcing a contract against a sovereign who could nullify it with a word, he still set himself up for a consistent, long-term benefit that could be squeezed from Sigismund so long as he continued to offer credit. This way, Sigismund could not nullify earlier contracts but instead recognized them in return for ongoing loan services; thus, Fugger solved this urge toward betrayal by iterating the prisoner’s dilemma of defaulting. He did not demand immediate repayment, but rather set up a consistent revenue stream and establishing Fugger as Sigismund’s crucial creditor. Sigismund kept wanting finer things–and kept borrowing from Fugger to get them, meaning he could not default on the original loan that gave Fugger control of the mines’ income. Fugger countered asymmetrical social relationships with asymmetric terms of the contract, and countered the desire for default with becoming essential.

Eventually, Fugger met Maximilian, a disheveled, religion-and-crown-obsessed nobleman who had been elected Holy Roman Emperor specifically because of his lack of power. The Electors wanted a paper emperor to keep freedom for their principalities; Maximilian was so weak that a small town once arrested and beat him for trying to impose a modest tax. Fugger, unlike others, saw opportunity because he recognized when aligning paper trails (contracts or election outcomes) with power relationships could align interests and set him up as the banker to emperors. When Maximilian came into conflict with Sigismund, Fugger refused any further loans to Sigismund, and Maximilian forced Sigismund to step down. Part of Sigismund’s surrender and Maximilian’s new treaty included recognizing Fugger’s ongoing rights over the Salzburg mines, a sure sign that Fugger had found a better patron and solidified his rights over the mine through his political maneuvering–by denying a loan to Sigismund and offering money instead to Maximilian. Once he had secured this cash cow, Fugger was certainly put in risky scenarios, but didn’t seek out risk, and saw consistent yearly returns of 8% for several decades followed by 16% in the last 15 years of his life.

From this point forward, Fugger was effectively the creditor to the Emperor throughout Maximilian’s life, and built a similar relationship: Maximilian paid for parties, military campaigns, and bought off Electors with Fugger funds. As more of Maximilian’s assets were collateralized, Fugger’s commercial empire grew; he gained not only access to silver but also property ownership. He was granted a range of fiefs, including Arnoldstein, a critical trade juncture where Austria, Italy, and Slovenia border each other; his manufacturing and trade led the town to be renamed, for generations, Fuggerau, or Place of Fugger.

These activities that depended on lending to sovereigns brings up a major question: How did Fugger get the money he lent to the Emperor? Early in his career, he noted that bank deposit services where branches were present in different cities was a huge boon to the rising middle-upper class; property owners and merchants did not have access to reliable deposit services, so Fugger created a network of small branches all offering deposits with low interest rates, but where he could grow his services based on the dependability of moving money and holding money for those near, but not among, society’s elites. This gave him a deep well of dispersed depositors, providing him stable and dependable capital for his lending to sovereigns and funding his expanding mining empire.

Unlike modern financial engineers, who seem to focus on creative ways to go deeper in debt, Fugger’s creativity was mostly in ways that he could offer credit; he was most powerful when he was the only reliable source of credit to a political actor. So long as the relationship was ongoing, default risk was mitigated, and through this Fugger could control the purse strings on a wide range of endeavors. For instance, early in their relationship (after Maximilian deposed Sigismund and as part of the arrangement made Fugger’s interest in the Salzburg mines more permanent), Maximilian wanted to march on Rome as Charlemagne reborn and demand that the pope personally crown him; he was rebuffed dozens of times not by his advisors, but by Fugger’s denial of credit to hire the requisite soldiers.

Fugger also innovated in information exchange. Because he had a broad trading and banking business, he stood to lose a great deal if a region had a sudden shock (like a run on his banks) or gain if new opportunities arose (like a shift in silver prices). He took advantage of the printing press–less than 40 years after Gutenberg, and in a period when most writing was religious–to create the first proto-newspaper, which he used to gather and disseminate investment-relevant news. Thus, while he operated a network of small branches, he vastly improved information flow among these nodes and also standardized and centralized their accounting (including making the first centralized/combined balance sheet).

With this broad base of depositors and a network of informants, Fugger proceeded to change how war was fought and redraw the maps of Europe. Military historians have discussed when the “military revolution” that shifted the weapons, organization, and scale of war for decades, often centering in on Swedish armies in the 1550s as the beginning of the revolution. I would counter-argue that the Swedes simply continued a trend that the continent had begun in the late 1400’s, where:

  1. Knights’ training became irrelevant, gunpowder took over
  2. Logistics and resource planning were professionalized
  3. Early mechanization of ship building and arms manufacturing, as well as mining, shifted war from labor-centric to a mix of labor and capital
  4. Multi-year campaigns were possible due to better information flow, funding, professional organization
  5. Armies, especially mercenary groups, ballooned in size
  6. Continental diplomacy became more centralized and legalistic
  7. Wars were fought by access to creditors more than access to trained men, because credit could multiply the recruitment/production for war far beyond tax receipts

Money mattered in war long before Fugger: Roman usurpers always took over the mints first and army Alexander showed how logistics and supply were more important than pure numbers. However, the 15th century saw a change where armies were about guns, mercenaries, technological development, and investment, and above all credit, and Fugger was the single most influential creditor of European wars. After a trade dispute with the aging Hanseatic League over their monopoly of key trading ports, Fugger manipulated the cities into betraying each other–culminating in a war where those funded by Fugger broke the monopolistic power of the League. Later, because he had a joint venture with a Hungarian copper miner, he pushed Charles V into an invasion of Hungary that resulted in the creation of the Austro-Hungarian Empire. These are but two of the examples of Fugger destroying political entities; every Habsburg war fought from the rise of Maximilian through Fugger’s death in 1527 was funded in part by Fugger, giving him the power of the purse over such seminal conflicts as the Italian Wars, where Charles V fought on the side of the Pope and Henry VIII against Francis I of France and Venice, culminating in a Habsburg victory.

Like the Rothschilds after him, Fugger gained hugely through a reputation for being ‘good for the money’; while other bankers did their best to take advantage of clients, he provided consistency and dependability. Like the Iron Bank of Braavos in Game of Thrones, Fugger was the dependable source for ambitious rulers–but with the constant threat of denying credit or even war against any defaulter. His central role in manipulating political affairs via his banking is well testified during the election of Charles V in 1519. The powerful kings of Europe– Francis I of France, Henry VIII of England, and Frederick III of Saxony all offered huge bribes to the Electors. Because these sums crossed half a million florins, the competition rapidly became one not for the interest of the Electors–but for the access to capital. The Electors actually stipulated that they would not take payment based on a loan from anyone except Fugger; since Fugger chose Charles, so did they.

Fugger also inspired great hatred by populists and religious activists; Martin Luther was a contemporary who called Fugger out by name as part of the problem with the papacy. The reason? Fugger was the personal banker to the Pope, who was pressured into rescinding the church’s previously negative view of usury. He also helped arrange the scheme to fund the construction of the new St. Peter’s basilica; in fact, half of the indulgence money that was putatively for the basilica was in fact to pay off the Pope’s huge existing debts to Fugger. Thus, to Luther, Fugger was greed incarnate, and Fugger’s name became best known to the common man not for his innovations but his connection to papal extravagance and greed. This culminated in the 1525 German Peasant’s War, which saw an even more radical Reformer and modern-day messianic figure lead hordes of hundreds of thousands to Fuggerau and many other fortified towns. Luther himself inveighed against these mobs for their radical demands, and Fugger’s funding brought swift military action that put an end to the war–but not the Reformation or the hatred of bankers, which would explode violently throughout the next 100 years in Germany.

This brings me to my comparison: Fugger against all of the great wealth creators in history. What makes him stand head and shoulders above the rest, to me, is that his contributions cross so many major facets of society: Like Rockefeller, he used accounting and technological innovations to expand the distribution of a commodity (silver or oil), and he was also one of the OG philanthropists. Like the Rothschilds’ development of the government bond market and reputation-driven trust, Fugger’s balance-sheet inventions and trusted name provided infrastructural improvement to the flow of capital, trust in banks, and the literal tracking of transactions. However, no other capitalist had as central of a role in religious change–both as the driving force behind allowing usury and as an anti-Reformation leader. Similarly, few other people had as great a role in the Age of Discovery: Fugger funded Portuguese spice traders in Indonesia, possibly bankrolled Magellan, and funded the expedition that founded Venezuela (named in honor of Venice, where he trained). Lastly, no other banker had as influential of a role in political affairs; from dismantling the Hanseatic League to deciding the election of 1519 to building the Habsburgs from paper emperors to the most powerful monarchs in Europe in two generations, Fugger was the puppeteer of Europe–and such an effective one that you have barely heard of him. Hence, Fugger was not only the greatest wealth creator in history but among the most influential people in the rise of modernity.

Fugger’s legacy can be seen in his balance sheet of 1527; he basically developed the method of using it for central management, its only liabilities were widespread deposits from the upper-middle class (and his asset-to-debt ratio was in the range of 7-to-1, leaving an astonishingly large amount of equity for his family), and every important leader on the continent was literally in his debt. It also showed him to have over 1 million florins in personal wealth, making him one of the world’s first recorded millionaires. The title of this post was adapted from a self-description written by Jakob himself as his epitaph. As my title shows, I think it is fairer to credit his wealth creation than his wealth accumulation, since he revolutionized multiple industries and changed the history of capitalism, trade, European politics, and Christianity, mostly in his contribution to the credit revolution. However, the man himself worked until the day he died and took great pride in being the richest man in history.

All information from The Richest Man Who Ever Lived. I strongly recommend reading it yourself–this is just a taster!

The 1971 war and the creation of Bangladesh: 50 years later

2021 happens to be the 50th anniversary of the 13-day Indo-Pakistani War of 1971, which also resulted in the creation of Bangladesh. In 2011, I co-edited a book titled Warriors after War which consists of interviews with retired Army officials from India and Pakistan. Here is an excerpt:

Tridivesh Singh Maini recalls that part of the inspiration for this book arose from the history of this incident, and the fact that the original impetus for change had arisen not from politicians but from ex-military figures in Pakistan and India. Subsequently, he carried out the interviews with all the Indian ex-military figures for this volume, while his colleague in Pakistan, Tahir Malik, carried out all but one of the interviews with Pakistani ex-military figures (Brigadier Shaukat Qadir was interviewed by Richard Bonney).

It is difficult to emphasize sufficiently the uniqueness, importance and timeliness of this volume. Relations between Pakistan and India were strained from the outset as a result of the events of Partition in 1947, when the mass migration of the populations in opposite directions and the slaughter that occurred on both sides led to mutual recrimination. (pgs 34-35)

Here is a link to the book on Amazon. Here is a pdf of the entire book.