Tag: Germany

Movies as a Parallel University: Cola Wars Movie

The 1961 fast-paced comedy, One, Two, Three starring James Cagney is extremely informative in a certain way if you get beyond the farcical and “manic-jocular” tone and atmosphere.

The story takes place in West Berlin. Communism and Nazism are still “in the air,” although Germany has of course been defeated in 1945.

C.R. “Mac” MacNamara (James Cagney) is a high-ranking executive in the Coca-Cola Company, assigned to West Berlin after a business fiasco a few years earlier in the Middle East (about which he is still bitter). While based in West Germany for now, Mac is angling to become head of Western European Coca-Cola Operations, based in London. After working on an arrangement to introduce Coke into the Soviet Union, Mac receives a call from his boss, W.P. Hazeltine, at the Coca-Cola headquarters in Atlanta. Scarlett Hazeltine, the boss’s hot-blooded but slightly dim 17-year-old socialite daughter, is coming to West Berlin. Mac is assigned the unenviable task of taking care of this young whirlwind.

The undiscussed and “latent content” of this zany comedy is very serious.

There are three fundamental choices for a country:

  1. Class war (Communism, Eastern Bloc, Russia).
  2. Race war (Nazis, Germany, fascism).
  3. Cola war (Coke versus Pepsi, USA, business civilization).

The implicit message of the movie, which constitutes a kind of ultimate political science lesson, is that cola wars (i.e., corporate competition for sales and profits and markets worldwide) is the best choice, no matter that it seems manic and empty, since the alternatives on the list of three options are impractical nightmares which lead to calamities and historical catastrophes.

The basic book describing the cola wars factually is: The Cola Wars: The Story of the Global Battle between the Coca-Cola Company and PepsiCo, Inc., J.C. Louis & Harvey Z. Yazijian, Everest House, October 1, 1980.

Education and Ambiguity Awareness: A Polyvalent World

Sleepwalkers and sleepwalking are both destructive and constructive and show us the ambiguity in all phenomena.

The World War I chronicle of Professor Christopher Clark, The Sleepwalkers, from 2012, is described this way:

On the morning of June 28, 1914, when Archduke Franz Ferdinand and his wife, Sophie Chotek, arrived at Sarajevo railway station, Europe was at peace. Thirty-seven days later, it was at war. The conflict that resulted would kill more than fifteen million people, destroy three empires, and permanently alter world history.

The Sleepwalkers reveals in gripping detail how the crisis leading to World War I unfolded. Drawing on fresh sources, it traces the paths to war in a minute-by-minute, action-packed narrative that cuts among the key decision centers in Vienna, Berlin, St. Petersburg, Paris, London, and Belgrade.

Distinguished historian Christopher Clark examines the decades of history that informed the events of 1914 and details the mutual misunderstandings and unintended signals that drove the crisis forward in a few short weeks.

How did the Balkans—a peripheral region far from Europe’s centers of power and wealth—come to be the center of a drama of such magnitude? How had European nations organized themselves into opposing alliances, and how did these nations manage to carry out foreign policy as a result? Clark reveals a Europe racked by chronic problems—a fractured world of instability and militancy that was, fatefully, saddled with a conspicuously ineffectual set of political leaders. These rulers, who prided themselves on their modernity and rationalism, stumbled through crisis after crisis and finally convinced themselves that war was the only answer.

On the other hand, the great science writer and intellectual Arthur Koestler (died in 1983) in his own book, The Sleepwalkers, (originally, 1959) argues that the revolution in cosmology associated with the names of Copernicus, Kepler, Galileo, et al depended on visionary thinking, a kind of “sleepwalking.”

Lastly, the classic novel, The Sleepwalkers by Hermann Broch (died in 1851) condemns sleepwalking as the basis of Europe and Germany’s descent into nightmare.

Important works by Broch are The Sleepwalkers (German: “Die Schlafwandler,” 1932) and The Guiltless (German: “Die Schuldlosen,” 1950). The Sleepwalkers is a trilogy, where Broch takes “the degeneration of values” as his theme. Various generations are depicted as sleepwalking through their times and eras without any ability to “see past” their time, place, era. They were “sleepwalking.” This made them liable to demagogic deceptions and recruitment.

On the other hand, the experience and story of Kekulé (died 1896) and his scientific discoveries prodded by dreams and reveries and sleepwalking give us a story that argues against seeing sleepwalking as always negative:
Kekulé’s dream and “good kinds of sleepwalking.”

Friedrich August Kekulé, later Friedrich August Kekule von Stradonitz (7 September 1829 – 13 July 1896), was a German organic chemist. From the 1850s until his death, Kekulé was one of the most prominent chemists in Europe, especially in theoretical chemistry. He was the principal founder of the theory of chemical structure.

The new understanding of benzene (C6H6), and hence of all aromatic compounds, proved to be so important for both pure and applied chemistry after 1865 that in 1890 the German Chemical Society organized an elaborate appreciation in Kekulé’s honor, celebrating the twenty-fifth anniversary of his first benzene paper.

Here Kekulé spoke of the creation of the theory.

He said that he had discovered the ring shape of the benzene molecule after having a reverie or day-dream of a snake seizing its own tail (this is an ancient symbol known as the ouroboros).

Kekulé’s story of “dreaming up” the structure of benzene (C6H6) gives us another historical example of Arthur Koestler-type “good sleepwalking” ie visionary dreams and reveries that really enhance “objective” concrete scientific analysis and not only art works.

It is educational to see the inner ambiguity of words and phenomena (such as sleepwalking) because this duality and “polyvalence” applies to many cases.

Do Disintegrating Societies “Vomit Up” Disturbed and Demonic Leaders? Durkheim’s “Anomie”

The great American social critic Chris Hedges, who has seen a lot of disintegrating political systems in his travels as a foreign correspondent, offers a very resonant or thought-provoking concept when he says that disintegrating societies often “vomit up” criminal psychopathic leaders like the Serbs Mladić, Karadžić, Milošević, et al and Trump himself.

Hedges brings back the Émile Durkheim (one of the fathers of sociology who died in 1917) usage of “anomie” which Durkheim introduces in his masterful book Suicide from 1897. Anomie refers to a level of social bewilderment and lostness where a person or people opens the door to suicide or demonic demagogues who become cult figures rather like Trump to his supporters.

The real question becomes the social rot and dislocatedness that allowed for the rise of the devilish leaders (and secondarily the leaders themselves). The anomie is the problem, the leader a symptom of the problem.

The term anomie—“a reborrowing with French spelling of anomy”—comes from Greek: anomía (ἀνομία, ‘lawlessness’), namely the privative alpha prefix (a-, ‘without’), and nomos (νόμος, ‘law’). The Greeks distinguished between nomos, and arché (ἀρχή, ‘starting rule, axiom, principle’). For example, a monarch is a single ruler but he may still be subject to, and not exempt from, the prevailing laws (i.e., nomos). In the original city state democracy, the majority rule was an aspect of arché because it was a rule-based, customary system, which may or may not make laws (i.e., nomos). Thus, the original meaning of anomie defined anything or anyone against or outside the law, or a condition where the current laws were not applied resulting in a state of illegitimacy or lawlessness.

The contemporary English understanding of the word anomie can accept greater flexibility in the word “norm,” and some have used the idea of normlessness to reflect a similar situation to the idea of anarchy. However, as used by Émile Durkheim and later theorists, anomie is a reaction against or a retreat from the regulatory social controls of society, and is a completely separate concept from anarchy, which consists of the absence of the roles of rulers and submitted.

Nineteenth-century French pioneer sociologist Émile Durkheim borrowed the term anomie from French philosopher Jean-Marie Guyau. Durkheim used it in his influential book Suicide (1897) in order to outline the social (and not individual) causes of suicide, characterized by a rapid change of the standards or values of societies (often erroneously referred to as normlessness), and an associated feeling of alienation and purposelessness. He believed that anomie is common when the surrounding society has undergone significant changes in its economic fortunes, whether for better or for worse and, more generally, when there is a significant discrepancy between the ideological theories and values commonly professed and what was actually achievable in everyday life. This was contrary to previous theories on suicide which generally maintained that suicide was precipitated by negative events in a person’s life and their subsequent depression.

In Durkheim’s view, traditional religions often provided the basis for the shared values which the anomic individual lacks. Furthermore, he argued that the division of labor that had been prevalent in economic life since the Industrial Revolution led individuals to pursue egoistic ends rather than seeking the good of a larger community. Robert King Merton also adopted the idea of anomie to develop strain theory, defining it as the discrepancy between common social goals and the legitimate means to attain those goals. In other words, an individual suffering from anomie would strive to attain the common goals of a specific society yet would not be able to reach these goals legitimately because of the structural limitations in society. As a result, the individual would exhibit deviant behavior. Friedrich Hayek notably uses the word anomie with this meaning.

(Wikipedia’s entry for “Anomie”)

Chris Hedges’ point is intriguing because it offers an unusual “flashlight” on the problem of “destructive charisma” in leadership styles where the socially diseased state of the society itself calls forth (i.e., “vomits up”) such leaders from Hitler to Trump.

While not perhaps the whole story, it does get at something crucial, the “endogeneity problem” not in economics where it is usually discussed but in politics. Endogeneity comes from endogenous (i.e., generated from within). Exogenous is the opposite.

The German literary masterpiece Berlin Alexanderplatz (1929) shows a society where life and values are too topsy-turvy and dislocated to be sustainable and this creates an “ecosystem” of disorientation where Nazis begin to emerge or rather “crawl forth.” Thus the Hedges metaphor of “vomit up” is suggestive.

Is Some Personal Experience More Understandable When Examined on a Larger Canvas?

We start with a personal experience and hope to illuminate it on a larger scale.

In 1965, one of us (RM) was in Munich Germany and reports this anecdote:

I decided one day for no reason to go to the beer hall called the Hofbräuhaus, Am Platzl 9, a Munich landmark and the place where Hitler read out the Nazi program of 25 points in February 1920. This beer hall was a major haunt or stomping ground of the Nazis. I sat quietly at a side table and nursed my Berliner Weisse beer.

An older man staggers past me, dressed in Bavarian lederhosen and for no reason sits across from me and starts making some small talk which I politely reply to. He asks me if I come from Berlin and to save time I say “sort of.”

Suddenly out of nowhere he says to me: “Let me tell you one thing. It all started in 1928.”

I ponder his words but have no idea what he’s getting at in his drunken maundering.

He then adds, “That’s when GM the American car company bought the German company Adam Opel.

He doesn’t explain what his family connection was to this merger and acquisition but one would have to guess someone in his family, himself or his father perhaps, got laid off.

(The preeminent business historian Alfred Chandler of Harvard Business School, who died in 2007, discusses this 1928 business merger in his books, but there’s no detailed description of secondary effects.)

The German uninvited interloper at my table begins to blame the merger on the Jews. I tell him that the car industry in America was itself very antisemitic with Henry Ford being the leader of this paranoia-based hatred. He answers cryptically, “you know what I mean.” His attitude is “don’t confuse me with facts.”

The German goes on and on with this Jew-bashing tirade and I finally get exasperated and say, “you mean people like me” do you?

He becomes whiter than a sheet and seems about to pass out. He gets out of his chair and stumbles and staggers out of the Hofbrauhaus.

I learnt from this experience that this man was probably not some evil madman but more likely “a little man” legitimately scared out of his wits by the global and local permanent instability in the economy at all levels and scales.

In fact, there’s a Hollywood movie, Little Man, What Now? based on the novel by the great German writer Hans Fallada, which depicts a young couple baffled and overwhelmed by the econo-gyrations of their moment in time.

Now we come to the perspectival question (i.e., the MetaIntelligence question): how to see this more clearly with some wider and deeper view?

We glimpse the deeper context in a book by the British historian David Thomson in his excellent England in the Nineteenth Century, 1815-1914, where he describes how industrialization, trade and global trends became entwined. This is for England, not Germany, but could serve as a rough template for all modernizing countries undergoing deep transformations and facing anxiety-stoking unknowns:

The Englishman was now nakedly at the mercy of vast economic changes beyond the control of his own government. he had the vote, and could at elections choose between alternative governments but if none of these governments could provide him with the sense of social and economic security he desired, what was the vote worth?

(David Thomson, England in the Nineteenth Century, 1815-1914, Penguin Books, 1978, page 190)

Think of the German at the Hofbräuhaus as bewildered (not unjustly) by the “little man, what now?” permanent insecurity problem of the modern industrial world.

It’s probably not instructive to think of him as an evil hater but rather as a person frightened out if his mind, for real reasons. He takes as his symbol for all this insecurity the 1928 Opel acquisition mentioned above. This is an example of going from one person’s (garbled) experience to a wider canvas.

To make this canvas deeper, add the anxiety about science expressed in our science anxiety/Sōseki essay previously.

One then gets an inkling of the modern sense of dread based on various nerve-wracking perceived threats which cannot be laughed off or dismissed.

What We Mean by “Towards a Composite Understanding of Education”

(MI slogan, motto or catchphrase)

Let’s be concrete and start with the title of the classic 1978 book by the Princeton professor and 1979 Nobel Prize winner, Sir Arthur Lewis, Growth and Fluctuations, 1870-1913 (introduced in the previous essay on “Looking Backwards and Forwards at the Same Time”).

Notice the following other dimensions that have to be included to “compositize” our understanding:

  1. The period 1870-1913/4 is called Globalization I by economic historians. Globalization in this view is not about Marco Polo, but the rise of world prices, such as for wheat.

  2. Paul Kennedy (Yale), who is known for his Rise and Fall of the Great Powers classic, wrote a tighter book called The Rise of the Anglo-German Antagonism, 1860-1914 (1980), described as follows:

    “This book gives an account of the rivalry between Great Britain and Germany in the period leading to the First World War. It gives readers a thorough comparison of the two societies, their political cultures, economies, party politics, courts, the role of the press and pressure groups, and so on. …”

  3. The first treaty between a European power and an Asian country was signed in 1902, “The Anglo-Japanese Alliance.”

    “In this book, Professor Nish deals with one of the most important aspects of far eastern politics in the critical period between 1894 and 1907. His object is to demonstrate how Britain and Japan, at first separately and later jointly, reacted to Russian encroachments in China and east Asia; he is concerned also with the policies of the other European powers and of the U.S., to whose hostility towards the Anglo-Japanese alliance after 1905 Britain showed…”

  4. The first defeat of a European by an Asian nation (i.e., the Russo-Japanese War, 1904-5). The famous Indian writer Pankaj Mishra wrote a recent book on this, showing how this defeat of a European country sent shock waves through the world and especially through the anti-colonial movements of Asia and Africa…

  5. Partition of Africa:

    “Between 1870 and 1914 the whole of Africa, apart from one or two small areas, was partitioned by the European powers.”

    (David Thomson, England in the Nineteenth Century, 1815-1914, 1978, Penguin Books, page 203)

  6. Rise of Suburbia:

    “The 1890s saw the coming of the first electric trams, the first “tubes,” and the first motor-cars. By 1914, almost any provincial city of any size had its electric trams, mostly under municipal control, and London had its buses and underground (i.e., subway). “These changes in urban transport created suburbia.”

    (David Thomson, England in the Nineteenth Century, 1815-1914, 1978, Penguin Books, page 202)

In other words, the world itself is a crisscrossing composite of processes at different scales.

We have growth and fluctuations, the partition of Africa, suburbanization, Anglo-German tensions, techno-revolutions (including those in urban transport), interacting with Globalization I.

All of this culminated in the “guns of August” (i.e., World War I).

We are downstream from World War I, what the Germans call the “Urkatastrophe” (i.e., original calamity), and its reincarnation in World War II and its progeny, the Cold War.

The more you can “compositize” the elements of this “historical matrix,” the deeper your MetaIntelligence will be. Hence the catchphrase for the MI site:

“Towards a Composite Understanding of Education”

Essay 110: Education and Famine Analysis

The great historian Élie Halévy’s (died in 1937) History of the English People in the Nineteenth Century, a multi-volume classic, gives us a sense of nineteenth century famine dynamics for the 1840s, which combines failed harvests and failed incomes and failed speculations together:

“It was a ‘dearth’ (i.e., scarcity)—a crisis belonging to the old order—the last ‘dearth,’ in fact, Europe had known up to the present day (i.e., before 1937). The unsatisfactory harvest of 1845 was followed by the disastrous autumn of 1846. The potato disease was worse than it had been the year before. The cereal harvest, moderately good in 1845, was a failure not only in the United Kingdom, but in France and throughout Western Europe. In 1845, Great Britain could still purchase corn even in Ireland, while the Irish poor were starving to death. Nothing of the kind was possible at the end of 1846.

“Britain could not obtain wheat from France or Germany. In short, it was no longer Ireland alone, but the whole of Western Europe that had to be saved from famine.

“The United Kingdom, France, and Germany must import Russian and American wheat, the only sources available to supply the deficit.

“In consequence the price of wheat rose from 50 shillings and 2d. on August 22 to 65 shillings and 7d. on November 18. The price of wheat rose once more. It exceeded 78 shillings in March.

“In Germany and France, where another ‘jacquerie’ seemed to have begun, hunger caused an outbreak of rioting. The same happened in Scotland and the south of England…but England suffered in common with Ireland and Continental Europe, and a drain on English gold began, to pay for the Russian and American wheat.

“Later there was a fall of 50% in four months. The corn factors (i.e., corn dealers) who for months had been gambling on a rise had no time to retrace their steps and were ruined at a single blow.” (“Commerical Failures in 1847,” Eclectic Review, December 1847)

(Élie Halévy, “Victorian Years (1841-1895),” Halévy’s History of the English People in the Nineteenth Century, Volume 4, pages 191-193, Ernest Benn Ltd., 1970)

Note that in British usage, “corn” refers to all feed grains (primarily wheat), not corn (in the American sense) or maize. For example, see the Corn Laws.

We sense from Halévy’s description of the “food insecurity” of the nineteenth century in Europe, why the Revolutions of 1848 were to a large extent severe food riots and how food poverty and speculation interacted with risk and uncertainty prevailing.

This should be read and pondered in connection with Prof. Amartya Sen’s classic from 1981, Poverty and Famines, which highlights the famine of income and buying power, as opposed to famines based on outright crop failures. Pearl Buck’s classic novel, The Good Earth (1931), fits this topic set, as it analyzes in human terms the pattern of Chinese famines. It is interesting to note, parenthetically, that the movie of The Good Earth could not feature Chinese actors in lead roles due to racial craziness at the time. Stepping back, we see a world of food insecurity aggravated by the spectre of racism further poisoning social relations worldwide.

Halévy states: “It was a ‘dearth’ (i.e., scarcity)—a crisis belonging to the old order—the last ‘dearth,’ in fact, Europe had known up to the present day…”.

It would be instructive to ponder whether this really was “a crisis belonging to the old order” given the catastrophes and food crises that could come with climate change from 2019 on out. Will we have “global ‘dearths’”?

Essay 106: World Watching: Project Syndicate—New Commentary

from Project Syndicate:

The EU’s EV Greenwash

by Hans-Werner Sinn

EU emissions regulations that went into force earlier this year are clearly designed to push diesel and other internal-combustion-engine automobiles out of the European market to make way for electric vehicles. But are EVs really as climate-friendly and effective as their promoters claim?

MUNICH – Germany’s automobile industry is its most important industrial sector. But it is in crisis, and not only because it is suffering the effects of a recession brought on by Volkswagen’s own cheating on emissions standards, which sent consumers elsewhere. The sector is also facing the existential threat of exceedingly strict European Union emissions requirements, which are only seemingly grounded in environmental policy.

The EU clearly overstepped the mark with the carbon dioxide regulation [PDF] that went into effect on April 17, 2019. From 2030 onward, European carmakers must have achieved average vehicle emissions of just 59 grams of CO2 per kilometer, which corresponds to fuel consumption of 2.2 liters of diesel equivalent per 100 kilometers (107 miles per gallon). This simply will not be possible.

As late as 2006, average emissions for new passenger vehicles registered in the EU were around 161 g/km. As cars became smaller and lighter, that figure fell to 118 g/km in 2016. But this average crept back up, owing to an increase in the market share of gasoline engines, which emit more CO2 than diesel engines do. By 2018, the average emissions of newly registered cars had once again climbed to slightly above 120 g/km, which is twice what will be permitted in the long term.

Even the most gifted engineers will not be able to build internal combustion engines (ICEs) that meet the EU’s prescribed standards (unless they force their customers into soapbox cars). But, apparently, that is precisely the point. The EU wants to reduce fleet emissions by forcing a shift to electric vehicles. After all, in its legally binding formula for calculating fleet emissions, it simply assumes that EVs do not emit any CO2 whatsoever.

The implication is that if an auto company’s production is split evenly between EVs and ICE vehicles that conform to the present average, the 59 g/km target will be just within reach. If a company cannot produce EVs and remains at the current average emissions level, it will have to pay a fine of around €6,000 ($6,600) per car, or otherwise merge with a competitor that can build EVs.

But the EU’s formula is nothing but a huge scam. EVs also emit substantial amounts of CO2, the only difference being that the exhaust is released at a remove—that is, at the power plant. As long as coal– or gas-fired power plants are needed to ensure energy supply during the “dark doldrums” when the wind is not blowing and the sun is not shining, EVs, like ICE vehicles, run partly on hydrocarbons. And even when they are charged with solar– or wind-generated energy, enormous amounts of fossil fuels are used to produce EV batteries in China and elsewhere, offsetting the supposed emissions reduction. As such, the EU’s intervention is not much better than a cut-off device for an emissions control system.

Earlier this year, the physicist Christoph Buchal and I published a research paper [PDF, in German] showing that, in the context of Germany’s energy mix, an EV emits a bit more CO2 than a modern diesel car, even though its battery offers drivers barely more than half the range of a tank of diesel. And shortly thereafter, data published [PDF, in German] by Volkswagen confirmed that its e-Rabbit vehicle emits slightly more CO2 [PDF, in German] than its Rabbit Diesel within the German energy mix. (When based on the overall European energy mix, which includes a huge share of nuclear energy from France, the e-Rabbit fares slightly better than the Rabbit Diesel.)

Adding further evidence, the Austrian think tank Joanneum Research has just published a large-scale study [PDF, in German] commissioned by the Austrian automobile association, ÖAMTC, and its German counterpart, ADAC, that also confirms those findings. According to this study, a mid-sized electric passenger car in Germany must drive 219,000 kilometers before it starts outperforming the corresponding diesel car in terms of CO2 emissions. The problem, of course, is that passenger cars in Europe last for only 180,000 kilometers, on average. Worse, according to Joanneum, EV batteries don’t last long enough to achieve that distance in the first place. Unfortunately, drivers’ anxiety about the cars’ range prompts them to recharge their batteries too often, at every opportunity, and at a high speed, which is bad for durability.

As for EU lawmakers, there are now only two explanations for what is going on: either they didn’t know what they were doing, or they deliberately took Europeans for a ride. Both scenarios suggest that the EU should reverse its interventionist industrial policy, and instead rely on market-based instruments such as a comprehensive emissions trading system.

With Germany’s energy mix, the EU’s regulation on fleet fuel consumption will not do anything to protect the climate. It will, however, destroy jobs, sap growth, and increase the public’s distrust in the EU’s increasingly opaque bureaucracy.

Essay 96: Education and London’s Centrality in Global Finance: Then and Now

To understand our world, we have to go back to classics of understanding such as Lombard Street [Project Gutenberg ebook] which gives one a vivid sense of London’s rise as world’s banker, already in 1873. 

Our current world was certainly shaped by these long-term historical trends.

…But very few persons are aware how much greater the ready balance—the floating loan-fund which can be lent to any one or for any purpose—is in England than it is anywhere else in the world. A very few figures will show how large the London loan-fund is, and how much greater it is than any other. The known deposits—the deposits of banks which publish their accounts—are, in

London (31st December, 1872). . . . . . . .£120,000,000
Paris (27th February, 1873) . . . . . . . . . .13,000,000
New York (February, 1873) . . . . . . . . . .40,000,000
German Empire (31st January, 1873) . . .8,000,000

And the unknown deposits—the deposits in banks which do not publish their accounts—are in London much greater than those in any other of these cities. The bankers’ deposits of London are many times greater than those of any other city—those of Great Britain many times greater than those of any other country.

Of course the deposits of bankers are not a strictly accurate measure of the resources of a Money Market. On the contrary, much more cash exists out of banks in France and Germany, and in all non-banking countries, than could be found in England or Scotland, where banking is developed. But that cash is not, so to speak, “Money-Market money”: it is not attainable. Nothing but their immense misfortunes, nothing but a vast loan in their own securities, could have extracted the hoards of France from the custody of the French people. The offer of no other securities would have tempted them, for they had confidence in no other securities. For all other purposes the money hoarded was useless and might as well not have been hoarded. But the English money is “borrowable” money. Our people are bolder in dealing with their money than any continental nation, and even if they were not bolder, the mere fact that their money is deposited in a bank makes it far more obtainable. A million in the hands of a single banker is a great power; he can at once lend it where he will, and borrowers can come to him, because they know or believe that he has it. But the same sum scattered in tens and fifties through a whole nation is no power at all: no one knows where to find it or whom to ask for it. Concentration of money in banks, though not the sole cause, is the principal cause which has made the Money Market of England so exceedingly rich, so much beyond that of other countries.

…

…I believe that our system, though curious and peculiar, may be worked safely; but if we wish so to work it, we must study it. We must not think we have an easy task when we have a difficult task, or that we are living in a natural state when we are really living in an artificial one. Money will not manage itself, and Lombard Street has a great deal of money to manage.

Essay 91: Germany Watching

from Deutsche Bank Research, the new edition of Focus Germany:

Economic Weakness, Political Turbulence [PDF]

German exports and global trade have been moving in lockstep recently and more or less ground to a halt in YoY terms. We found that the Bundesbank’s leading indicator for global industrial production leads German exports by 4 to 5 months. Recent declines in this indicator do speak against a recovery in German exports before the end of Q1 2020, despite recent signs of stabilization in German foreign order intake. (Also included in this issue: house prices in Germany, labor market, automotive industry and German politics.)

If you have any further questions, please do not hesitate to contact Deutsche Bank Research.

Essay 79: Past and Present Thinking

History is “forever new” and we keep asking “what’s new?” but the past is “forever suggestive” and so we inquire here as to whether the past gives us interesting echoes of the more recent.

Specifically, we juxtapose the “closing of the gold window” in August 1971 (Nixon) and the British gold standard gyrations between 1925 and 1931, when England left gold (i.e., September 1931).

At the time, under Nixon, the U.S. also had an unemployment rate of 6.1% (August 1971) and an inflation rate of 5.84% (1971).

To combat these problems, President Nixon consulted Federal Reserve chairman Arthur Burns, incoming Treasury Secretary John Connally, and then Undersecretary for International Monetary Affairs and future Fed Chairman Paul Volcker.

On the afternoon of Friday, August 13, 1971, these officials along with twelve other high-ranking White House and Treasury advisors met secretly with Nixon at Camp David. There was great debate about what Nixon should do, but ultimately Nixon, relying heavily on the advice of the self-confident Connally, decided to break up Bretton Woods by announcing the following actions on August 15:

Speaking on television on Sunday, August 15, when American financial markets were closed, Nixon said the following:

“The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world.

“In the past 7 years, there has been an average of one international monetary crisis every year …

“I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

“Now, what is this action—which is very technical—what does it mean for you?

“Let me lay to rest the bugaboo of what is called devaluation.

“If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

“The effect of this action, in other words, will be to stabilize the dollar.”

Britain’s own experience in the twenties is explained like this:

“In 1925, Britain had returned to the gold standard.

(editor: This Churchill decision was deeply critiqued by Keynes.)

“When Labour came to power in May 1929 this was in good time for Black Friday on Wall Street in the following October.

“After the Austrian and German crashes in May and July 1931, Britain’s financial position became critical, and on 21st September she abandoned the gold standard.

“London was still the world’s financial capital in 1931, and the British abandonment of the gold standard set off a chain of reactions throughout the world.

“Strangely enough Germany and Austria maintained the gold standard…”

(Europe of the Dictators, Elizabeth Wiskemann, Fontana/Collins, 1977, page 92-93)

Nixon’s policies gave us the demise of Bretton Woods, while the economic gyrations of 1925-1931 were part of the lead-up to World War II.

The setting is both “infinitely different” across the decades but the feeling of “flying blind” applies to both cases: U.S.A. “closing the gold window,” August 1971 and Britain’s overturning Churchill’s 1925 return to the gold standard, by 1931. One gets the sense of “concealed turmoil” and a lot of “winging it” in both cases. Policy-makers disagreed and they all saw the world of their moments “through a glass, darkly.”