Klondike and the barbarous relic

Gold was discovered in the Klondike region on August 16th, 1896. It precipitated a mass migration as people from the US and elsewhere surged into the area hoping to get rich. Most went via Alaskan ports, and then trekked with a ton of equipment down to the Yukon in Northwest Canada. To avoid mass starvations, the Mounties only let in those who had a year's supply of food with them. Boom towns such as Dawson sprang up to service the incomers. Dawson's population went from 500 in 1886 to 30,000 by the middle 1898. Infrastructure failed to keep pace with the influx, and Dawson's wooden houses were prone to fires, while epidemics broke out in its insanitary conditions.

About 100,000 headed there, hoping to strike it lucky, but given the arduous trek from Alaska, only about 40,000 made it. The ones who became rich were mostly the ones supplying clothes and equipment, rather than actually finding gold, although about $300m of gold was mined. This was nothing like the California gold rush of 1848-1855 that yielded $2bn - $3bn (at today's values), though again, it was mostly the suppliers who made the money. The Klondike gold rush lasted 3 years, and faded when gold was discovered at the beaches near Nome in Alaska in 1899, sending most of the prospectors up North.

Gold has always excited the imagination and the avarice, from King Midas to Auric Goldfinger. Keynes called the gold standard "a barbarous relic," echoing the words of John Austin Stevens in the New York Times of 1873 who said, “gold is a relic of barbarism to be tabooed by all civilized nations.” Its value has been attributed to its permanence, in that it does not fade or tarnish, and reacts with only a few things. Its lustre gives it value as ornament, and its scarcity enhances that value. All the gold humans have mined in history would fill about one-third of the Washington Monument. The largest nugget of it ever found came from Ruby, Alaska, in 1998, and weighed 24.5 pounds, giving it a value of over half a million dollars.

When President Nixon in 1971 cancelled the convertibility of the US dollar into gold, he effectively ended the gold standard, and by 1973 the Bretton Woods system was replaced in practice by a regime based on freely floating fiat currencies. There remain those known as "gold bugs"  who advocate returning to a gold standard to inhibit the ability of governments to inflate currencies at will, but most bankers and economists suppose this would be akin to time travel into the past, and think that independent central bankers represent a reasonable way of restraining irresponsible governments. Critics suggest, however, that the government can appoint central bank directors inclined to do their bidding.

Both the forty-niners of California and the Klondikers were lured in their thousands to endure some hardship and sacrifice in the hope of striking it rich, but very few of them made any significant amount. It was not the gold itself, but the dollars it would buy that they sought. Nonetheless, few people are as thrilled by a bundle of dollar bills as they are by the bars of that gleaming metal in the vaults of banks. People still buy gold today as a hedge against inflation and market volatility, and I played a small role in allowing Americans to do so. I was working with the Republican Study Committee on Capitol Hill in 1974 when we tacked an amendment allowing private US citizens to own gold onto an Eximbank annual appropriation bill. It was carried, and gold ownership remains legal in the US to this very day.

So half the farmers will go bust - and?

The Farmers for a Peoples’ Vote campaign is starting out and in the process they tell us this:

Many industries will suffer but the industry that would suffer the most serious economic shock will be agriculture. It is impossible to project the exact number of farmers who will go out of business. What we do know is that over 40% of them will have no net income if the basic payment is removed. If at the same time the Government removes all tariffs and so depresses prices, these two factors combined will render over 50% of farms in this country unviable.

There are, apparently, some 126,000 farms in the UK employing the thick end of half a million people. Ceasing the subsidy to those farms will mean half of them go bust.

And?

Well, obviously enough, that means that the labour of a quarter of a million people - to be simplistic about manning levels - and the land of 63,000 farms is being used entirely unproductively. We should stop doing that therefore and use the land for something else.

For that is actually what the statement is. 40% of farms will have no net income if the acreage payment stops. That is, 40% of farms produce no added value whatsoever. The inputs, in alternative uses, are worth as much or more as the outputs we gain from their current uses. The other 10% of farms that will fail are only propped up by the manner that the consumer is rooked by the high prices foisted, by law, upon them through those tariffs.

That is, between the two payments we’re all forced to pay for half the agriculture industry to achieve nothing. We should stop doing so. Organisations that consume resources and produce no value from doing so should go bust.

And yes, we’ve done this before. Coal mining used to employ 1.2 million people, it was 2,000 in 2015. Unproductive activities, unproductive producers, should go bust. We’re near entirely bereft of buggy whip makers too. And?

A quarter millennium of Napoleon

Napoleon Bonaparte was born 250 years ago, on August 15th, 1769. Serving as an army artillery officer in 1798 when the French Revolution took place, he rapidly rose through the ranks, becoming a general by age 24, and achieving national recognition when he conquered the Italian peninsula. He became First Consul in a 1799 coup, and Emperor of the French in 1804.

His career thereafter was marked by wars of conquest in Europe and Egypt, most of which he won. Although hailed as one of history’s greatest generals, he was more of a strategic general than a tactical battlefield one. He could take his troops rapidly, fed and supplied, to take enemies by surprise before they had time to form up against him.

Although revered as a hero in France, he made many disastrous mistakes. His appointment of his brother Joseph as King of Spain provoked a guerilla uprising aided by the British, and ended in his defeat in the Peninsular War. Although he inherited a huge conscripted army he turned into the Grande Armée, he led it into a disastrous invasion of Russia in 1812, and lost most of it.

He was a dictator, and like most dictators, exploited his power for what Corelli Barrett called “his personal megalomania goals.” He is praised for the Code Napoleon, doing what emperors do, codifying the law as Hammurabi and Justinian did, to extend tighter control over their whole territory. His code told people what they were allowed to do, and forbade everything else, unlike English law which tells you what is forbidden.

Like the Nazis who followed, Napoleon plundered conquered territories, filling French galleries and museums with artworks looted from across Europe. Fortunately for history, he came up against Wellington, who never lost a battle, and who finally ended his dictatorship. First at Leipzig in late 1813, then at Waterloo in 1815, Napoleon was finally beaten.

France is proud today of his achievements, but as historian Victor Davis Hanson puts it, "After all, the military record is unquestioned - 17 years of wars, perhaps six million Europeans dead, France bankrupt, her overseas colonies lost." Yes, quite an achievement. Looking back, 250 years since he was born, we can set the record straight. He was just another military despot bent on power and conquest. He ruined millions of lives, as they all do.

In praise of non-selfsufficiency

The NHS has a problem feeding those who cannot feed themselves:

A shortage of intravenous feed supplies affecting hundreds of patients has been declared a national emergency incident by the NHS.

The situation has affected patients who are unable to digest food normally and are instead dependent on an intravenous feed, which bypasses the gastrointestinal tract, known as parenteral nutrition (PN). The NHS has been forced to try to source supplies from overseas to address the domestic shortage.

It has been caused by a reduction in output by PN producer Calea as a result of it being directed by the medical regulator to take immediate action to change its manufacturing process.

Something went wrong with the domestic supplier, we must source from overseas.

Those hunting for a bubbling dish of cauliflower cheese in a restaurant will be in for disappointment after the crop was killed off by the freak July weather, causing a shortage.

Britain is usually self-sufficient for cauliflower, which has become fashionable in recent years, roasted whole as a plant-based Sunday dinner and whizzed up as an alternative to rice.

As the country baked in temperatures, which hit a record 38.7 degrees, brassica plants were killed off. This means wholesale prices have been hiked from 60p-£3 in some cases, and restaurants have taken cauliflower off their menus entirely.

Something went wrong with domestic supply, we must source from overseas.

All of which illustrates the inanity of the fashionable mantra that we must be self sufficient in our supplies. The argument often enough being, well, what if something happens out there and so we can’t get any? This ignoring the bitter experience of the ages which is what happens if something goes wrong here and we can’t get any?

To illustrate, famine is a product of there not being food locally, not an absence of food globally.

Resilience of supply is a function of having multiple suppliers. Where supply is dependent upon weather, to use just the one example, then we’d like those many suppliers to be spread across many different weather systems.

That is, the perfect food delivery system would be exactly the opposite of what current fashion generally proposes. That proposal being that we should grow everything we can ourselves, only going overseas for what cannot be produced here at all. Which is, we insist, absolutely the wrong decision.

Rather, even if we can produce sufficient here we don’t want to. It is better that the - just an example - 20 areas which can grow the same crop do so and each trade 19/20ths of it with the others. If we wish to maximise the security of our supply that is. After all, we do generally recognise that monopolies are bad things and the failure of a monopoly supplier is a catastrophe. Therefore we shouldn’t have monopoly supplies even unto not having a monopoly of our food supply from one geographic area. Even if that monopoly is local food for local people.

Shutting down pop stations

The Marine Broadcasting Offences Act, (known as the "Marine Offences Act"), became law in the United Kingdom at midnight on Monday 14 August 1967. It was introduced by Harold Wilson's Labour government in an attempt to preserve the BBC's monopoly of radio broadcasting.

The radio monopoly was that of the Post Office, which licensed the BBC exclusively to broadcast radio programmes. The BBC was in thrall to the Musicians' Union, which severely limited what it called "needle time" in order to protect jobs for live musicians. The result was that pop music was limited to a couple of programmes a week, notably "Two Way Family Favourites" at lunchtime on Sunday, the BBC's most popular programme of pop requests for members of UK forces serving overseas.

Teenagers who wanted to listen to pop music had to tune in to Radio Luxembourg, outside UK jurisdiction, broadcasting on 208 metres with somewhat patchy reception in parts of the UK. That all changed in 1964 when Irish entrepreneur, Ronan O'Rahilly, spotted an opportunity to bypass the BBC monopoly by broadcasting from outside UK territorial waters. A ship with a giant antenna set sail, and in March 1964, Radio Caroline began broadcasting non-stop pop music to an enthusiastic audience that soon swelled to millions. The station paid for itself and turned a profit by running adverts, something the BBC frowned upon as against the spirit of public service broadcasting, and had never itself done.

Radio Caroline was joined by others, and soon over a dozen broadcasting ships were dotted around the UK coastline, just beyond the 3-mile limit. They were dubbed "pirate radio" stations, and featured Radio London, Radio Scotland, Radio 270 and others. They were hugely popular, drawing audiences that far exceeded those listening to the BBC's output of programmes such as "Music While You Work" featuring live studio musicians.

The government’s heavy-handed response was the Marine Offences Act, which made it illegal to visit, supply or take adverts on ships broadcasting from international waters. On August 14th, 1967, the pirate stations went off the air one by one before midnight came. The exception was Radio Caroline, which continued to broadcast, supplying itself from the Continent, even though this was now against the law. In St Andrews as a student, I had to rig up an aerial that stretched round my room in order to tune in to it. We campaigned for free radio and published pamphlets about it, ones that gained some national prominence.

The epilogue was that we convinced the Conservatives of the case for free radio, and the party promised to introduce commercial radio when it next gained office. It won the 1970 election and legalized commercial radio broadcasting during its term in office. The BBC huffed and it puffed, but it was too late to blow the house down.

If only Polly Toynbee actually thought through her stories

Polly Toynbee gives us chapter and verse on how difficult it is going to be for one business to export into the European Union after Brexit. The little bit that Polly’s not grasping being that the point and purpose of trade is access to the imports, not the ability to make the exports. For sending stuff abroad for foreigners to consume is the work that we do. The benefit we gain from that work being the stuff that foreigners send us that we can consume.

Keep that in mind for a moment:

Searching for what forms to fill, HMRC’s list of codes has been impossible for his complex products, where the quantity and original source of each ingredient needs a separate coding. “The paperwork is crazy,” he says. Each form has three pages, one needed for each of his 50 products with certificates of origin relating to ingredients from all over the world. “That’s what the single market did away with in 1994,” he says.

Baker’s post-Brexit transaction costs include paying a carrier £100 a time to fill out the right forms, and a customs clearance agent to check and process duty paper work: qualified agents are in short supply. The company and each of his staff need security vetting to get exports through ports with less checking, requiring him to hire a security vetting consultant too.

The claim is that this is what it takes to export into - or import into of course - the European Union. OK, this is what it takes to export into the European Union then. Meaning what?

Meaning that the 6.5 billion people out there who are not part of the European Union currently have to face this faradiddle of pointless bureaucracy to send us the lovely things that they make and we might wish to consume. That is, every complaint about how difficult exporting to the EU will be after October 31 is a listing of the current costs to us of being in the European Union before October 31.

At which point recall that little point to be kept in mind. The point of trade is the imports, it is our consumption that makes us richer. We may well face greater difficulty in exporting to 450 million people but there’s a decent enough chance that we’ll face less in importing from 6.5 billion. Given the way trade works that’s a net benefit to us.

It’s not too much to ask that Polly Toynbee actually think is it?

Adlertag - Eagle Day

Nazi Germany wanted to invade and occupy Britain to complete its conquest of Europe, so Hitler could complete his plan to move East. Operation Sea Lion was the codename of the invasion plan, and the barges and landing craft were assembled in readiness. But first the Roya Air Force had to be destroyed to stop it attacking the invasion fleet or providing air cover for British naval vessels that might intercept it at sea.

The planned attack on the RAF was codenamed Adlertag, or Eagle Day. It was postponed several times because of poor weather over the Channel and Southern England, but it finally took place on August 13th, 1940. Hundreds of German Luftwaffe planes attacked radar stations and fighter airfields in Southern England. They were met by fierce RAF resistance and faced a sophisticated air defence system that used radar, supplemented by the Royal Observer Corps, to pinpoint the numbers and direction of incoming enemy aircraft and send fighters up to intercept, Hurricanes to attack the bombers, and Spitfires to take on their Me109 escorts.

The German attack was marred by poor intelligence. They never really appreciated the significance of the radar stations, or understood how Britain's outnumbered fighters could be directed by ground control to attack specific flights without needing to mount costly defensive patrols. The WRAF personnel who manned the huge tables moved counters across the maps as information came in, enabling Dowding and Fighter Command to order planes to scramble to meet the attackers. The attackers had to use fuel flying to their targets, and only had minutes of effective flying left when they reached them before turning back. The RAF, on the other hand, were nearby, enabling their planes to stay longer in combat. Downed RAF pilots who survived could be rescued and sent rapidly back into service, whereas their German counterparts were taken prisoner.

Although damage was done on Adlertag, it did not make the major impact on the RAF's defensive capability that had been its aim. Poor intelligence sent some German planes to bomb the wrong targets, and crucially failed to pinpoint the factories where RAF fighters were made. German estimates had told Goering that Britain could produce roughly 250 fighters a month, whereas the actual figure was twice that.

Both sides overestimated enemy losses throughout the Battle of Britain, and on Adlertag the RAF claimed 78 Luftwaffe planes destroyed, whereas the actual number was 47 or 48 destroyed, and 39 severely damaged. The Germans claimed to have downed 70 British fighters in the air, with more fighters and bombers destroyed on the ground, whereas the actual British losses were less than one-third of those claims. The high Luftwaffe losses did not deter them from continuing their attacks throughout August and into September, until the Luftwaffe switched to night strategic bombing.

The failure of Adlertag and the ensuing Battle of Britain meant that Britain stayed in the war. It provided a base from which a future attack could be launched once the US had entered the war. It meant that Germany had two fronts to deal with when it attacked Soviet Russia. It is debatable if Russia could have defeated Germany had Britain been under Nazi occupation. Without the vital supplies taken by the Arctic convoys that helped Russia to sustain the war, and without Germany having to divert huge military resources to its second front in the West, it is conceivable, maybe even likely, that Hitler's armies would have subjugated the entire continent. And even if Russia had finally won a costly war of attrition, there would have been no allied troops in Western Europe to temper its colonial ambitions.

Thus the failure of Adlertag and the succeeding air attacks were instrumental in securing the preservation of freedom in Western Europe, and in ultimately defeating the evil scourge that sought to extinguish it. Among the brave airmen who fought in that battle was Antony Fisher, later Sir Antony, who afterwards went on to found the Institute of Economic Affairs, which itself played a major role (and still does) in preserving and extending freedom.

We don't need to applaud short sellers but we do need to allow them

Another little entry in the well they would say that stakes:

Short sellers 'should be applauded' over Burford attack

Perhaps in the sense that people putting their money where their mouth is can be seen as admirable.

A secretive investment firm has leapt to the defence of short sellers after litigation funder Burford Capital suffered one of the most devastating “short attacks” ever seen in the UK.

Gotham City Research, known for its assault on outsourcer Quindell in 2014, has released a note adding to the criticism against Burford and arguing that short sellers “should be applauded for their work”.

The report comes days after US short-seller Muddy Waters issued a blistering dossier on Burford, one of the biggest names in the rapidly growing litigation funding industry, in which it took aim at its accounting practices and “laughter-inducing” governance.

That Gotham is also a short seller might lead us to the Mandy Rice Davies line. But there is a more important point here.

As the standard joke goes - laughs are hard to come by in economics - Eugene Fama got the Nobel for showing that the efficient markets hypothesis is true, Lars Peter Hansen for doing the mathematics, Robert Shiller for showing it isn’t true. All on the same day, Tee Hee.

As with many jokes this isn’t quite true - Shiller instead showing what was necessary for the EMH to be true. Which is that all have the opportunity to express their view by trading upon it in that market. Only then are all views, thus all information, incorporated into market prices - the base contention of the EMH, that information is already in market prices and efficiently so.

That is - and Shiller has been most vocal on this point - people must be able to make money from falling prices as well as rising. Only then is the view that prices can or will fall incorporated into those very prices that we wish to be correct.

Applauding short sellers isn’t therefore quite the point. We must allow them so that markets do in fact work. To the point, as Shiller says - as in the housing markets - that we should deliberately construct futures and options markets so that people can be short the market where this is, in the absence of such constructed markets, difficult to impossible. Thus his agitation for derivatives markets in housing.

Short selling is important. No, not moral nor ripe for our approbation for both economics and markets are entirely amoral. Just important, which is why we must allow it.

How much should we trust the man who wants to abolish his own handout?

An interesting little philosophic question here. Who is it that we should trust more on an issue?

Boris Johnson’s controversial enforcer, Dominic Cummings, an architect of Brexit and a fierce critic of Brussels, is co-owner of a farm that has received €250,000 (£235,000) in EU farming subsidies, the Observer can reveal.

The revelation is a potential embarrassment for the mastermind behind Johnson’s push to leave the EU by 31 October. Since being appointed as Johnson’s chief adviser, Cummings has presented the battle to leave the EU as one between the people and the politicians. He positions himself as an outsider who wants to demolish elites, end the “absurd subsidies” paid out by the EU and liberate the UK from its arcane rules and regulations.

Lord Astor rather comes to mind here.

Imagine that some official of the National Farmers’ Union insists that we must remain in the European Union because of those handouts. In the context of farming incomes they’re substantial - by some estimates they’re all of net farming incomes - and so we could and perhaps respond with “Well, he would, wouldn’t he?”

Now imagine that someone is in receipt of such payments but still, for what he at least believes is the greater good, thinks that the system which so enriches him should be abolished. Whose word should we be putting greater weight upon?

The other phrasing that comes to mind is, well, who is merely talking their own book?

The grander issue here being that we’ve reached a place where doing so, loudly demanding that one continue dipping into the communal pot, is seen as righteous and serious, while arguing the contrary is a potential embarrassment. When did we reach the point that “No, don’t give me other peoples’ money” is a political position to be criticised?

Charles Darwin and change

Charles Darwin, one of history's most influential scientists, was born on August 12th, 1809. Newton had dispelled the notion that there were two domains, the heavens and the Earth, by showing that the same laws that governed motion on Earth also governed the motions of heavenly bodies. Now Darwin was to achieve a similar result for nature, showing that there were not two domains, humans and the animal kingdom, but that humans were part of the animal kingdom and subject to the processes that governed its development. Both Newton and Darwin therefore edged humanity away from a human-centred view of the universe, and into a position that saw human beings as a part of the universe and a product of it.

His 5-year voyage on HMS Beagle had given him scientific recognition as a geologist, one whose observations and samples supported Charles Lyell's notion of gradual geological change over long periods of time. But it was his observation of the different species scattered across different islands that aroused his interest. He had read "An Essay on the Principle of Population," published by Robert Malthus in 1798, which suggested that human population would always grow at a faster rate than the food supply, causing periodic catastrophes of starvation. If many were doomed to die, Darwin wondered which ones would survive, and the question led him to develop the theory of natural selection. He wrote:

"In October 1838, that is, fifteen months after I had begun my systematic enquiry, I happened to read for amusement Malthus on Population, and being well prepared to appreciate the struggle for existence which everywhere goes on from long-continued observation of the habits of animals and plants, it at once struck me that under these circumstances favourable variations would tend to be preserved, and unfavourable ones to be destroyed. The result of this would be the formation of new species. Here, then, I had at last got a theory by which to work..."

Darwin published his theory of evolution with a weight of supporting evidence in his 1859 book "On the Origin of Species," and the world was never the same. One of the interesting features of his account was that it included a process of change, a process by which one thing gradually became another. Unlike accounts of change such as Hegel's, for example, that thought change occurred abruptly, Darwin's was one of slow incremental change, evolution rather than revolution.

Radicals such as Marx have supposed that changes to society must come in abrupt leaps achieved by revolution, and have proposed what those changes should be. Some have inspired others to seize power in order to impose those sudden changes. The more evolutionary approach takes it that free societies change gradually over time as people develop new ways of doing things and new ways of looking at things. Values change over time, as do practices and habits. Under this framework, changes come about by gradual adoption. The innovators are the early adopters, but others observe the results, and copy the new behaviour if they seem favourable.

In "The Poverty of Historicism" (1957), Karl Popper contrasts what he calls "Utopian social engineering" with "piecemeal social engineering," describing the former as "a method which, if really tried, may easily lead to an intolerable increase in human suffering." The latter, by contrast, he describes as "a reasonable method of improving the lot of man." The lessons of the French and Russian revolutions bear out the view that sudden, imposed, revolutionary change can easily bring disaster. The Industrial Revolution and the gradual spread of capitalism as a global wealth-creating process have brought about by gradual change the biggest advances in human welfare since hunter-gatherers became farmers.

The process Darwin saw in nature of gradual, incremental change has proved to be one that people can apply to the improvement of society and to the quality of life, as well as to expanding the choices and opportunities that are available to people. Evolution brings improvement, where revolution often brings only disaster.