Dear Diary: Hydrostatics
What is going to happen in the world of business and commerce? You’ll note that I don’t ask what’s going to happen in the world of finance. There’s no need. Nothing good is going to happen in the world of finance — that’s what.
Will someone please research this “fact,” which has stuck with me like a barnacle since I read it decades ago? In 1976, the directors of US Steel found that they were making more money (profit, not revenue) by managing their liquid assets than they were by making steel. 1976 therefore seems as good a date as any to mark the beginning of the Age of Finance that — one hopes — has finally come crashing down. Don’t get me wrong: finance is an essential element of business and commerce. Without credit markets, you might as well be living in a cave and rubbing sticks together. But finance is, ahem, not the point.
Steve Forbes, I read, is still exploiting his family magazine to flog capitalist free enterprise — now, that’s a laugh. It’s as rich as a speech by Philippe d’Orléans (pick any one that you like) cautioning against “moral hazard.” What’s not so funny is this bit of History Not.
“Capitalism’s bad Rapâ€â€”a force so sinister and world-disfiguring that it must be capitalized—“has helped shape a lot of bad economic policy. People who believe it look to government to ‘create jobs,’ whereas the most powerful job-creating machine has always been the private sector. They believe the best way to raise revenues for government is to raise taxes on the so-called rich and on ‘profit-hungry’ corporations.â€
This is true only if “Always” equals “Two Centuries.” The chapter on job creation comes late in the history of capitalism. I have said this before, and it’s a complicated thought that’s a tad beyond my powers of expression, but I don’t give up. The capitalist dream is to have no — zero — employees. That’s because the capitalist dream is to reduce overhead to zero. Are we in accord about that? If so, then we’re ready to tackle the anomalous phenomenon of the Industrial Revolution, during which capitalists hired jillions of workers to operate their new factories.
Why did capitalists become industrialists? Why, that is, did they forsake, for a time, the no-overhead mantra of capitalism? Because a window of opportunity opened on what I have called an anomaly — a strange, one-time only exception to the rules. During much of the Nineteenth Century and most of the Twentieth, it made sense to overlook the no-overhead rule because the profits to be made even from high-overhead enterprises were, literally, fabulous, beyond imagining.
It’s all a matter of hydrostatics, really. Initially, after a technological breakthrough, a few people have tremendous advantages. These dwindle as know-how and its attendant benefits spread throughout society. By 1976, anybody could make steel. But only companies the size of US Steel had huge pots of cash to play with. Today, the hydrostatics are all about wages. Workers in China make less than worker in New Jersey. But workers in China have been making more and more money even so, and in some industries the Chinese advantage has been lost. Portugal, the poor man of Europe, still makes routine as well as artisanal pottery. When workers everywhere are paid about the same, globalization will come to a complete stop. It could not be simpler. (I wish I could say that imperialism will come to a complete stop, too, but imperialism is all about power, not economics.)
If I’ve made a few blunders in my history, at least I’ve been talking history. Capitalism and globalism and industrialization and full employment did not just pop out of a box, Big-Bang style, two hundred years ago. For centuries before the Industrial Revolution, the Earth subsisted on a peasant economy, with most people working the land for very meager returns, while small cadres of thug-like elites lived on cream. I don’t think that I am being tendentious. It was an awful arrangement, but it doesn’t seem to have been anybody’s particular doing. The main thing is to prevent its happening again.