International Finance and the First World War in the East

The two things I’m working on right now are:

  1. Non-state actors and the First World War contest over areas of the near eastern empires — Hapsburg, Ottoman and Russian competition over the Balkans, Galicia, the Caucasus, Central Asia (“the Great Game”), the Adriatic Sea, the Black Sea and the Turkish Straits; and
  2. International financial and monetary economics in the late Long Nineteenth Century, namely from the late 1880s to the turn of the century. Specifically I am researching on a Master’s thesis on the classical gold standard, the Goschen Conversion, British international investment, “the economic taproot of imperialism”, the Long Depression of 1873-1896, the Baring Crisis, the U.S. Panic of 1893, the depression of the 1890s and the Morgan-Belmont Syndicate of 1895.

Do these have anything to do with one another beyond chronological adjacency? My interests here have been partly inspired by a few observations made by Samuel R. Williamson, Jr. at a Wilson Center discussion (July 1914: Revisited and Revised—or The End of the German Paradigm, Woodrow Wilson International Center for Scholars, Washington, D.C., 19 March 2012). In an answer (to a question posed by one of my advisors) during the question and answer period, he said, “The financial thing is one of those subtexts that needs to be studied” (at 1:09:31). Then in his concluding remarks he spent some time looking ahead, assessing what about the origin of the First World War remained understudied, returning to the issue of finance:

As we were talking about the financial thing, I was thinking about an injunction I was given in 1962 on the way to England by Ernest May, Sam Wells and my mentor, which was, “Look for the finance papers. You’ll find that’s what you need to be looking for. Look for the finance papers.” Well, I didn’t find the finance papers, but I found a lot of other good stuff. But the finance papers, there’s some real loads of stuff that are going to change the way people look at this and about the interaction. What’s interesting is, is whether many of the banks will not have destroyed this simply over the course of passage of time. The banks, just like about everybody else, prunes papers. And so this may be one of the things we will never know as much as we want to know about, but it’s an important subtext for the future. (at 1:22:10)

In this regard there are two research projects in progress that I can hardly wait to get my hands on:

  1. The first is that of Jennifer Siegel, an Associate Professor of modern European diplomatic and military history in the Department of History at Ohio State University. Her dissertation, completed at Yale University under the guidance of Paul Kennedy was published as Endgame: Britain, Russia and the Final Struggle for Central Asia (I.B. Tauris, 2002). She is currently working on a book to be titled For Peace and Money: International Finance and the Making and Unmaking of the Triple Entente, which will be “…an exploration of British and French private and government bank loans to Russia in the late imperial period up to the Genoa Conference of 1922…”
  2. The second is history doctoral candidate Hassan Malik’s dissertation, Bankers and Bolsheviks: International Finance and the Russian Revolution, 1880-1930, to be completed this year at Harvard under the supervision of Niall Ferguson. A longer description of what his dissertation will deal with can be found at the Social Science Research Council Dissertation Development Fellow page for his project. His twitter feed is here.

From these two projects, it seems that Professor Williamson’s assessment that finance remains one of the fecund future areas of research on the First World War era is an astute one (presumably it’s based on his finger on the pulse of research underway, not just proscription or surmise).

As long as I’m on the topic, I may also mention a third, related work that I am on watch for. In the new Preface to the 2010 reissue of Feroz Ahmad’s The Young Turks: The Committee of Union and Progress in Turkish Politics, 1908-1914 he writes that he is working on a sequel to cover the war years. His faculty page at T.C. Yeditepe Üniversitesi also lists a work, Turkey and the First World War, 1914-1918 as forthcoming. There have been a few recent books on the role of the Ottoman Empire in the First World War, but one by Feroz Ahmad could be the most significant of the crop.

For a student such as myself, the next few years are on a course to be promising ones.

Update, 19 May 2013: And Sean McMeekin’s forthcoming book on the Russian Revolution of 1917 will focus heavily on financial aspects as well.

Update, 26 March 2015: Jennifer Siegel’s For Peace and Money: French and British Finance in the Service of Tsars and Commissars was published by Oxford University Press in December of 2014. According to his page at Harvard, Hassan Malik’s Bankers and Bolsheviks: International Finance and the Russian Revolution, 1892-1922 is under contract to be published by Princeton University Press in 2016.

Inflation on the Gold Standard

Oh, hey, look, the U.S. post war gold bullion standard did not prevent inflation. It just meant that gold and the currency inflated together at the fixed rate. In fact, it was in part the high inflation of the late 1960s and early 1970s that forced the U.S. off the gold standard in 1971.

"Inflation's Stubborn Resistance," Time, Vol. 96, No. 24, 14 December 1970

Inflation’s Stubborn Resistance,” Time, Vol. 96, No. 24, 14 December 1970, pp. 102-112.

Via Neil Irwin, The Alchemists: Three Central Bankers and a World on Fire (New York: Penguin Press, 2013), p. 65.

If You Can’t Beat ‘Em, Squelch ‘Em

There are two major points — one lesser, one greater — to Neal Stephenson’s In the Beginning … was the Command Line (Wikipedia | Amazon). The lesser point serves to feed the superiority complex of computer geeks, namely that people who work closer to the machine are more awesome than people who work with their machines through layers of mediation. The greater point is that maintaining a high degree of control of the devices that shape our lives is a critical element of freedom in the information age.

It’s not about turning your nose up at GUIs and other user-friendly efforts in favor of arcane monochrome text interfaces. The point is that when you cede control of the devices that comprise your environment — that serve as the basis of your personal capabilities — when you cede these to manufacturers, marketers, designers, content providers, legislators, then the limits they seek to impose become your limits as well.

It is as extending and impacting this point that I think Cory Doctorow’s talk, “The Coming War on General Computation” is so important (28th Chaos Communication Congress, Berliner Congress Center, Berlin, Germany, 27 December 2011).

You should definitely watch the whole thing: it’s entertaining as well as one of the most cogent talks I’ve heard in some time. To me his outstanding points are two:

1. The never-ending desire for a certain kind of ease of use that comes through circumscribed functionality is an invitation to, a kind of lazy collusion with, the likes of Apple who are more than happy to sell you a device hobbled in a way that maximizes corporate returns (the walled garden):

So today we have marketing departments who say things like “we don’t need computers, we need … appliances. Make me a computer that doesn’t run every program, just a program that does this specialized task, like streaming audio, or routing packets, or playing Xbox games, and make sure it doesn’t run programs that I haven’t authorized that might undermine our profits”. And on the surface, this seems like a reasonable idea — just a program that does one specialized task — after all, we can put an electric motor in a blender, and we can install a motor in a dishwasher, and we don’t worry if it’s still possible to run a dishwashing program in a blender. But that’s not what we do when we turn a computer into an appliance. We’re not making a computer that runs only the “appliance” app; we’re making a computer that can run every program, but which uses some combination of rootkits, spyware, and code-signing to prevent the user from knowing which processes are running, from installing her own software, and from terminating processes that she doesn’t want. In other words, an appliance is not a stripped-down computer — it is a fully functional computer with spyware on it out of the box.

2. Media copyright is just the tip of the iceberg when it comes to the incentive of corporations to turn to political-legislative attempts to prevent the disruptions to their business models that result from technological change:

And even this is a shadow of what is to come. After all, this was the year in which we saw the debut of open sourced shape files for converting AR-15s to full automatic. This was the year of crowd-funded open-sourced hardware for gene sequencing. And while 3D printing will give rise to plenty of trivial complaints, there will be judges in the American South and Mullahs in Iran who will lose their minds over people in their jurisdiction printing out sex toys. The trajectory of 3D printing will most certainly raise real grievances, from solid state meth labs, to ceramic knives.

And it doesn’t take a science fiction writer to understand why regulators might be nervous about the user-modifiable firmware on self-driving cars, or limiting interoperability for aviation controllers, or the kind of thing you could do with bio-scale assemblers and sequencers. Imagine what will happen the day that Monsanto determines that it’s really… really… important to make sure that computers can’t execute programs that cause specialized peripherals to output organisms that eat their lunch… literally. Regardless of whether you think these are real problems or merely hysterical fears, they are nevertheless the province of lobbies and interest groups that are far more influential than Hollywood and big content are on their best days, and every one of them will arrive at the same place — “can’t you just make us a general purpose computer that runs all the programs, except the ones that scare and anger us? Can’t you just make us an Internet that transmits any message over any protocol between any two points, unless it upsets us?”

The way to think of all of this is as akin to the transition from feudalism to capitalism. There’s no reason to think that an information economy will be just more capitalism (to think so is a contribution to capitalism as the end of history). That a growing list of industries face disruption on a scale where it’s hard to see their business model surviving in absence of ever escalating state measures to construct markets that otherwise would fail (a point well made by Mr. Doctorow with his wheels analogy) suggests significant incompatibility between capitalism and the information economy.

The retort of the defender of capitalism here would be that the information economy is a creature of capitalism — without chip fabricators and integraters and intellectual property and venture capital and server farms, the information economy doesn’t happen. But of course the feudal baron would have said the same of the capitalist upstart. History is a realm of contingency. It is not a logical system. Contradictions — and the deleterious eddies that result — are perfectly possible. That the information economy might end up destroying the very basis for its existence is within the realm of possibility.

Or perhaps this is perfectly compatible with capitalism and effected sectors are merely the cracks through which we can see the lie of laissez-faire throughout the rest of the economy. The government takes a heavy hand in constructing markets everywhere they exist.

But the point is that previous economic transformations weren’t tranquil evolutions, didn’t happen in a discrete moment. The social transformations that we today package under the rubric “capitalism” benefitted some, but came at terrible consequence to others. Those who stood to lose prestige, revenue, power, opposed these changes, frequently by violence. For them, capitalism wasn’t just social change, it was immoral. Ownership of property by those who did not directly fight for it, property as a transferable abstraction, rootlessness, equality among the classes, attacks upon the ancient privileges of nobility, the undermining of seigniorial obligation, the money economy, the violations of guild oaths, the codification of techne (craft), the insolence of entrepreneurs: these were violations of the moral order of society.

The practices that have grown up around the frictionlessness of the information economy’s core commodities are called piracy by the partisans of our present order. It is immoral. It is theft of property (property is here an analogy growing threadbare at the margins from being stretched too much). It is the collapse of the basis of prosperity. But how is a system of constant content theft to be harnessed to our system of material progress? I haven’t the foggiest notion. But capitalism too was a post hoc ideological construct. At the time it seemed like the end of the world. Remember that by the time Adam Smith wrote The Wealth of Nations, such processes were already far along. Smith wasn’t envisioning future pin factories: he was describing existent ones that he had recently visited.

Besides, if it is not within the scope of power to achieve these things, it does not matter the machinations of ideology. Ideology adapts. Moral and immoral will be renamed to accommodate the new arrangement of factors.

Rolling Back the Twentieth Century Watch: Abolish the FDIC

Rortybomb, like most of blue America, originated in red America and maintains ties there that give him an occasional finger on the pulse. He reports on how many fathoms the fever swamp (Konczal, Mike, “Things I’m Reading, 12/22,” Rortybomb, 22 December 2009):

Visiting home for the holidays, it’s amazing to me how certain groups of friends, who I mostly considered in the generic Republicans/conservatives camp, have been wading deeper into the Ron Paul territory. “Abolish the Fed” is one thing, but what surprised me the most was when I was at a Christmas party several people mentioned, fairly out of nowhere, how bad FDIC is for the economy. I think they thought that regular depositors could have done a better job vetting financial institutions than major sophisticated shareholders. When I tried to point out how if there wasn’t FDIC and millions of savings accounts were getting wiped out in ordinary bank runs we’d almost certainly have a wave of turn-of-the-last-century style violence that is hard for us to even imagine now — think bomb throwing anarchist violence — they seemed to be ok with that.

The Continuance of the Savings Glut

With President Obama in China and the issue of the dollar-renminbi exchange rate presumably on the agenda, there has been a great deal of commentary about the threatening peril of the Chinese savings glut1. Here was Paul Krugman late in October on how the savings glut — the condition and a leading cause of the 2007-2008 financial crisis — remains unabated, continuing to propagate its distortions throughout the world economy2:

Until around 2001, you could argue that [the target value of the yuan was reasonable]: China’s overall trade position wasn’t too far out of balance. From then onward, however, the policy of keeping the yuan-dollar rate fixed came to look increasingly bizarre. First of all, the dollar slid in value, especially against the euro, so that by keeping the yuan / dollar rate fixed, Chinese officials were, in effect, devaluing their currency against everyone else’s. Meanwhile, productivity in China’s export industries soared; combined with the de facto devaluation, this made Chinese goods extremely cheap on world markets.

The result was a huge Chinese trade surplus. If supply and demand had been allowed to prevail, the value of China’s currency would have risen sharply. But Chinese authorities didn’t let it rise. They kept it down by selling vast quantities of the currency, acquiring in return an enormous hoard of foreign assets, mostly in dollars, currently worth about $2.1 trillion.

Many economists, myself included, believe that China’s asset-buying spree helped inflate the housing bubble, setting the stage for the global financial crisis. But China’s insistence on keeping the yuan / dollar rate fixed, even when the dollar declines, may be doing even more harm now.

Although there has been a lot of doomsaying about the falling dollar, that decline is actually both natural and desirable. America needs a weaker dollar to help reduce its trade deficit, and it’s getting that weaker dollar as nervous investors, who flocked into the presumed safety of U.S. debt at the peak of the crisis, have started putting their money to work elsewhere.

But China has been keeping its currency pegged to the dollar — which means that a country with a huge trade surplus and a rapidly recovering economy, a country whose currency should be rising in value, is in effect engineering a large devaluation instead.

And that’s a particularly bad thing to do at a time when the world economy remains deeply depressed due to inadequate overall demand. By pursuing a weak-currency policy, China is siphoning some of that inadequate demand away from other nations, which is hurting growth almost everywhere.

For thirty years now the prevailing grand social bargain in the United States has been that outsourcing and offshoring will be the means whereby capital will capture an increased portion of national income and the resultant consumer goods price deflation will substitute for the also resultant wage stagnation. In shorthand, this might be called the Reagan Revolution, though Reagan only brokered the deal. The conditions that gave rise to parties militating against the preceding post-war social bargain lay much deeper in the structure of the post-war international order. This social bargain is the basis of the financial problems of the U.S. as well as of the China problem.

The savings glut is not merely a problem with China, but in its Chinese component it is driven by two factors, neither of which is likely to be resolved by U.S. action. First, owing to population growth and the massive migration from rural farms to urban wage labor, China needs to create around 25 million new jobs per year. The memory of Tiananmen Square demonstrations of 1989 remains potent in the mind of Chinese Communist Party officials. It is widely believed among Chinese officials that preventing a repeat of the unrest of 1989 and hence the survival of the Party depends on the ability of the Chinese economy to provide jobs for these millions, preventing them from becoming a mass of disaffected urban unemployed. Second, the savings glut exists as a part of China’s long-term grand strategy of pursing peaceful development first and regional political realignment only once they have attained sufficient economic and military weight. For the U.S., the G-8, the IMF or whoever to ask China to abandon its policy of undervaluing the renminbi is to ask the Chinese government to commit suicide and to accept their second-tier world-political status; it is to ask them to run the highest order of political risk as an act of charity to the rest of the world. We cannot rely on China doing the U.S. any macroeconomic favors here. The only way to eliminate the macroeconomic conditions of the next financial crisis is to get our own house in order.

On the right and amidst the Lou Dobbs crowd you here these constant sidelong remarks about China holding the strings of America’s economic future. But this is not the result of some insidious plot on the part of China to acquire a financial WMD stuffed full of T-bills for deployment against the U.S. at some opportune occasion (like a WMD, to actually use it would result in mutually assured destruction). This is result of the Wal-Mart low-wage, low prices, long supply chain model of doing business (surprise: the day-to-day purchasing decisions of millions of people reach up to the commanding heights of world finance). We can try to brow-beat China to forego the opportunities of the system that we have created, but the origin of that system reaches down into what is now, under the midwifery of the right, claimed as the American way of life. And perhaps we have decided that getting off on a bad foot with the world’s next superpower is preferable to confronting our own economic culture.


  1. Dominique Strauss-Kahn, the Director of the IMF, made a speech on the subject in Beijing, The International Monetary System: Reforms to Enhance Stability and Governance, International Finance Forum, Beijing, 16 November 2009; Krugman, Paul, “World Out of Balance,” The New York Times, 16 November 2009, p. A25; Wolf, Martin, “Grim Truths Obama Should Have Told Hu,” Financial Times, 17 November 2009.

  2. Krugman, Paul, “The Chinese Disconnect,” The New York Times, 23 October 2009, p. A35

Political-Economy and Inflation

Paul Krugman devoted his column two weeks ago to the conduct of economic punditry as if the economy were a nineteenth century morality play: sermons about “debasing” the currency, longings for gold, fretting over inflation at the nadir of an economic crisis, a masochistic enthusiasm for “belt tightening” (“Misguided Monetary Mentalities,” The New York Times, 12 October 2009, p. A23). Taking off from this, Matthew Yglesias makes the point about the degree that class-parochial interests play in purportedly objective economic analysis (“The Monetary Hawks,” ThinkProgress, 12 October 2009):

… I would suggest that divergent analysis is in part driven by things that have relatively little to do with analysis. … if we have four or five years of near-zero inflation and 9-10 percent unemployment that will be fine for prosperous middle aged people and devastating to the interests of the poor and the young. Conversely, if we have four or five years of modest unemployment with four or five percent inflation, that will be fine for young people and poor people but potentially detrimental to the interests of wealthy people sitting on large piles of savings. Ultimately, I don’t think it helps the progressive cause to ignore the class / ideological elements to this dispute and just pretend to be engaging in a neutral technocratic dispute about the correct application of the Taylor Rule. What we’re talking about, after all, is decision-making under conditions of moderate uncertainty. What the hawks are proposing to do is to implement a policy that’s extremely attentive to minimizing downside risk to the currently wealthy whereas Krugman is proposing a policy that’s [attentive] to minimizing downside risk for people with below-average labor market prospects.

The problem is that we’ve adopted a manner of speaking about economic issues denuded of any mention of interest. The language of popular economics today is categorical: a strong dollar is good, a week dollar is bad; stable prices are good, inflation is bad; low unemployment is good, high unemployment is bad; rising house prices are good, stagnating or falling house prices are bad; et cetera. But none of these factors are categorically good or bad (few things in life are). What is omitted is the “for whom” of these characterizations of good and bad. Low employment may be good for job seekers, but high unemployment is good for employers: they have their pick of workers when hiring and they hold the majority of the bargaining power in wage negotiations. A strong dollar may be good for Wal Mart and their customers, but it’s bad for General Motors and their employees.

Real estate maintains some knowledge of contraposition with their talk of a buyers’ market versus a sellers’ market. We do not speak with a similar respect to the value of the dollar: of an investors’ dollar (strong) versus a producers’ dollar (weak) or an importers’ dollar (strong) versus an exporters’ dollar (weak). Or in employment, some people might think getting a raise or ease in finding a job are good, but these are what someone else might call labor price inflation (bad).

Economics isn’t free of the language of interest per se, so much as of one particular set of interests. The propaganda victory of the economic interests of Wall Street, the investing class, large business is so complete that their economic preferences have become de facto the whole language of economics. The awareness of the interests of all other economic actors has been totally expunged from the language of economics — well, not totally: there is the disciplinary ghetto referred to as heterodox economics, an exception that proves the rule.

To have asserted control over the linguistic territory is to have banished the political dispute; to have disappeared from the lexicon is to have ceded political legitimacy. Disputes over the political mixture of the interests of one economic class versus those of another are no longer about one set of economic relations versus another, but now take place in the frame of a rational economic order versus chaos, unreason and decline.

A firm separation between economics in its positivist, scientific role and economics in its normative, polemical and political role should be vigorously policed. Or perhaps economics is simply to value-laden, too embedded in the hurly-burley of human affairs for such a division to be tenable. Perhaps we should dispense with the notion of economics as a hard science in favor of a thoroughgoing political-economy. Even if we admit the possibility of a purely positivist economics, all that economics can do in our political deliberations is serve as a speculative tallyman of the opportunity costs of various policy options. The primacy of politics should come to the fore whenever economics crosses over from the academy to the public realm.

Target values for economic factors represent a political compromise between contending societal factions. The most well known of these is the NAIRU, the trade-off between inflation and unemployment codified in the statutory guidance of most of the world’s central banks. But inflation isn’t an unqualified evil. Its primary evils are that it has a tendency to run-away and, related, that it breeds uncertainty (a certain anticipatable regularity to the future is necessary to the function of capitalism). It used to be well known amidst the working (and indebted) classes that a certain amount of inflation served their interest and that “sound money” was merely the rallying cry of the investor class. The class conflict of easy versus sound money used to be a significant fault line separating progressive from conservative, populist from whig. Hence the advocacy of arch-populist William Jennings Bryan of an inflationary policy of bimetallism or “free silver” in the election of 1896.

There’s talk today about how vile it would be for the government to attempt to inflate away its debt (“debasing the currency” they call it), but the government doesn’t only inflate away its debt, it inflates away all dollar-denominated debts. A couple of years of higher than target inflation might be good for a country that has seen twenty years of galloping gains for the investor class, but racked up unsustainable amounts of debt among the middle and working classes. The investing class would scream bloody murder, but not because 3-5% inflation would be the end of economic reality as we know it, but because it would be a wealth transfer from creditor to debtor.

The Last Days of Nature

In reaction to last week’s The New Yorker article on synthetic biology (Specter, Michael, “A Life Of Its Own,” 28 September 2009, pp. 56-65):

The objective of synthetic biology is the final subsumption of the logic of nature into the logic of capitalism. Capitalism being the logic of human desire, the objective of synthetic biology is — as with the whole of the technological endeavor — the elimination of all intercession between desire and its fulfillment. It is the attempt to return to the purity of the hallucination of the breast, to do away with despised reality testing, the creation of a world of pure subjectivity.

For a cyberpunk rereading of Hegel: Freud as the last of the Young Hegelians.