Judging Hot Air

Argentina makes me feel uncomfortable.  Not the football, you understand.  I was working in Bath last Friday during “the Match”.  Indeed, I heard the result from the chants of singing drunkards who roamed the streets, sometime after the game.

No, not the football.  It’s the economy, stupid.  I anguish over the continuing collapse of the Argentinian economy, the tragedy of its multiple currencies, the brutal levelling of its social institutions, its pitiful succession of Ministers trying to find some systemic solution.  Why should we worry? I hear you cry…  After all, it will have little effect on the UK economy, even if certain UK Banks are more exposed than others to bad Argentinian debt.

I am concerned because we are powerless to advise the Argentinians on the reconstruction of their economy.  The West failed to give useful advice, when Gorbachev took the USSR towards perestroika in the 1980s.  He sought guidance, and we sent him PriceWaterhouseCoopers.  They asked for bread, and we gave them stones.  The IMF regularly imposes the most ill-advised and destructive grant conditions upon the poor of this world, in the purported pursuit of "capitalist principles".  Yet even after 150 years of critical Marxism, and 75 years of high-grade academic study, there is no economist, no retired Finance Minister, no central banker, capable of writing such a Handbook, giving such advice.  It would certainly be a best-seller, if it were ever published.

For the scary truth is that nobody knows how a modern market economy actually works, or can be made to work.   If the secret were known, would not Japan have applied the remedies before now?  Would not the sluggishness of the Eurozone economies have been eliminated by now, and growth pepped up?  Of course they would.  We are in the presence of one of the great mysteries of the social sciences. 

Our systems of exchange, indeed those of money itself as a medium of exchange, seem simply to gather momentum from their own momentum.  It is “confidence” in the mind of Citizen A which encourages him to accept wage-payments in Currency B, for spending in the following Month C, knowing that shopkeepers D, E and F will accept that currency by way of any trading exchange. That is a system of interlocking, self-reinforcing confidence, resembling the vortex of a hurricane, which is conjured out of still air and is sustained on nothing but its own momentum.  But what conditions are conducive to the germination of a hurricane, to the blossoming of consumer confidence?  If we only knew, we would tell Argentina.

For my part, I am certain that the seeds of understanding are not to be found in the study of conventional economics at all.  They are to be found in some greater confidence in the configuration of ones society as a whole, the openness and efficiency of its institutions, the justice of its wealth distribution, the fairness of its public agencies, and ultimately of its place in history.  That is the elusive feel-good factor, which animates the process of effort and exchange.  If citizens feel that they have a fair deal within the society of their choice, overall systemic confidence is high, and consumer confidence will be high. 

The problem with Japan does not lie in any conventional “economic” weakness, as the Japanese Government is at pains to point out.  Japan remains a wealthy society, “on the books”.  But there is a deeper malaise at work, a lack of confidence in the peculiar rigidities of Japanese society, which is eating away at the Japanese.  Japanese public opinion will have been mortified by evidence of sheer incompetence in the sale of football-stadium tickets, being broadcast all over the world.  They were mortified by the incompetence of their authorities in recovering from the 1992 Earthquake, and the very public nature of the ticket-sale debacle will hit them hard.  Indeed, the only time I have ever seen a TV shot of the Japanese Prime Minister Junichiro Koizumi was when he appeared to express horror at the ticket fiasco. 

The problem with Argentina is that ordinary people have lost faith in competence and honesty of the trustees of power, the professional political class, the business elite, the bankers.  Without that trust, no economy can operate.

If I am right, then “Capitalism” has no blueprint.  I am indeed sceptical whether the term does have any substantive meaning.  I suspect it is merely a residue of a barren “Marxism” which first sought to demonise it, conjuring it up as a convenenient demon, a windmill at which to tilt.  Das Kapital (i.e. “Capital”, without the “–ism”) - and even that is a very tenuous concept indeed.  But I doubt if any coherent meaning is to be attributed to the term “Capitalism” at all