The Bear’s Lair: Banknotes should be issued only by banks

The world’s central banks are working on issuing digital currencies, where through the “blockchain” they will have knowledge of all transactions. This idea is clearly a gross affront to civil liberties, but it raises the question: why do governments and central banks have the sole right to issue bank notes? Over the last 30 years, they have proved that they will abuse this right whenever they get the chance. Since bank notes, in their origins, were issued by commercial banks, why do we not go back to that system and prohibit any institution other than a licensed privately-owned commercial bank from issuing bank notes? Such a provision would have major economic advantages, as I will explain. Continue reading

The Bear’s Lair: The Oxfordshire School of economic thought

Oxfordshire, beautiful rolling land of small villages before 1900, may seem (outside the eponymous University itself) an unlikely seedbed for an economic theory. Yet in its idyllic villages and modest country houses, a theory of political economy developed, quite distinct from the Whiggish view of Adam Smith and William Gladstone that became known as “classical” economics. Its principal exponent was Robert Banks Jenkinson, 2nd Earl of Liverpool, prime minister 1812-27. However its origins can be traced in an Oxfordshire line via Liverpool’s father Charles Jenkinson, the North family, (both Frederick, Lord North the 1770-82 prime minister and his great grand-uncle the statesman/merchant/economist Sir Dudley North (1640-91)) and the great Earl of Clarendon (1608-74) to the quiet cloisters of Great Tew, home of Lucius Cary, 2nd Viscount Falkland (1610-43). This political-economic theory deserves a name, beyond the Toryism of the party that most of its proponents represented which is now thoroughly ambiguous; I therefore propose to christen it the “Oxfordshire School.” Continue reading

The Bear’s Lair: Financiers have learned nothing in 250 years

We are coming up next year on the quarter-millenary of the Ayr Bank crash of 1772 and last year we had the 300th anniversary of the 1720 South Sea Bubble. When looking at these 18th Century disasters I am reminded again and again that the financiers’ failures were very similar to those of 2007-08, or those that are being perpetrated now. Given the advances of human civilization since the 18th Century, financiers’ inability to learn from history, find better techniques or maintain competent risk management is truly remarkable. Continue reading

The Bear’s Lair: Davos and China offer the same grim destiny

The World Economic Forum, sponsor of the annual Davos meeting, proposes a “Great Reset” of the capitalist system. The People’s Republic of China nominally adheres to the Communism of its founder, Chairman Mao Ze-dong. Yet in practice, the societies each advocates bear a remarkable similarity to each other and share two overriding characteristics: they are not regimes under which any free man would want to live, and their prescriptions will lead to increasing poverty in the long term. Continue reading

The Bear’s Lair: They did plague recovery better in 1350

Fall of Nineveh by John Martin

John Martin’s Fall of Nineveh 1829
Source: むーたんじょ

We are now slowly emerging from the scourge of Covid-19 and the main change in our economic management has been a massive surge in state spending, together with a call for a “Great Reset” to erode our freedoms further. It is therefore worth examining the emergence from two previous celebrated English outbreaks of plague, in 1348-49 and 1665, to see what they did differently. After doing so, one is forced to the conclusion that Middle Ages and Early Modern governments had more sense than we do. Continue reading

The Bear’s Lair: Land of a thousand banks

Around 1760, the English banking system, which had been concentrated in London, sprouted a plethora of country banks in provincial towns, over 800 by 1813, That produced a unique financial environment, in which both expertise and money were readily available locally for new projects throughout provincial England and Wales. This greatly facilitated the Industrial Revolution, but should we replicate it today, and if so, how? Continue reading

The Bear’s Lair: Gosplan economic approach doing real damage

A new McKinsey’s report, featured in the Financial Times, shows that over the past 25 years, the dominance of large companies has increased, as has the share of capital returns in the economy, while wage levels have risen far less than productivity. The FT’s solution to this is more state meddling, with redistributive policies to move income from large corporations to poor individuals.
I would suggest that the solution is the opposite: give up the state meddling of the last 25 years, most particularly the Gosplan approach to setting the prices of key inputs. Continue reading

The Bear’s Lair: Serfs do better after pandemics

The Black Death of 1348 was a gigantic human tragedy, but for most of those involved and their descendants, it had one enormous silver lining: serfs’ rights and living standards soared to previously undreamed-of levels in the following 150 years, as labor shortages took hold. As we emerge from a similar albeit thankfully less severe pandemic, an equivalent rise in living standards is unlikely. Nevertheless, for the “serfs” employed by large companies in big cities, there may be some upside. Continue reading

The Bear’s Lair: One-party governance kills economic progress

The United States is currently in a situation where, after a short and beleaguered period of partial opposition control, one party controls the Presidency, both houses of Congress, much of the judiciary, the media and the tech sector. We have seen such dominance before in Britain: in the Whig Supremacy of 1714-62 where with Royal support Britain became a one-party state; the Industrial Revolution was thereby delayed by half a century. We should examine the structural reasons why this happened and their applicability to our day. Continue reading

The Bear’s Lair: We are re-running 1973-74

Although it represented my youth, I am by no means nostalgic for 1973-74. In Britain, it gave us a banking crash, the 3-day week, the lead-up to 25% inflation and the most left-wing Labour government Britain ever had. In the United States, it gave us the nullification of 1972’s landslide election victory, a resurgence in commodity inflation, a Presidential resignation and “Whip Inflation Now” buttons. Globally it gave us the 1973 oil crisis, the first major crack in Western political/economic hegemony. I had hoped we had left that period behind forever, but alas we seem fated to repeat it, albeit with different details. Continue reading