The 10 most dangerous words in the English language

"Hi, I'm from the Government, and I'm here to help."

-According to Ronald Reagan

Five democratic tests

They don't come any redder (in the political sense) than Tony Benn. So we have plenty of ideological differences. But in one of his last speeches in the House of Commons, he said something very wise indeed:

The House will forgive me for quoting myself, but in the course of my life I have developed five little democratic questions. If one meets a powerful person--Adolf Hitler, Joe Stalin or Bill Gates--ask them five questions: "What power have you got? Where did you get it from? In whose interests do you exercise it? To whom are you accountable? And how can we get rid of you?" If you cannot get rid of the people who govern you, you do not live in a democratic system.

That's worth repeating. These are the five tests of democratic leadership:

• What power have you got?
  
• Where did you get it from?
  
• In whose interests do you exercise it?
• To whom are you accountable?
  
• How can we get rid of you?

The Devil Wears Pravda

Read that title again.

Did you read it as "The Devil Wears Prada" (P-r-a-d-a)? Or as "The Devil Wears Pravda" (P-r-a-v-d-a)? If you read it as the first title, you were wrong: you were probably, and quite understandably, thinking of the book or the movie by the same title.

The Prada in "The Devil Wears Prada" refers, of course, to Prada, the Italian designer label. How exactly Prada relates to the Diabolical One is the subject of aforesaid book and movie.

But what about the Pravda in the second title, "The Devil Wears Pravda"?

Pravda, meaning "Truth" in Russian, was the name of a leading newspaper that was run by the Central Committee of the Communist Party in the Soviet Union. This name is exceedingly ironic given what we know about the Soviet era and its widespread misuse of propaganda.

But back to the immediate question at hand: In what sense is it that "The Devil Wears Pravda"?

In his writings, St. Paul speaks of Satan transforming himself into an angel of light and his servants transforming themselves into servants of righteousness (2 Cor. 11: 12-15).

In other words: The Devil Wears Pravda.

The devil (evil) rarely comes dressed in a red suit, with horns and brandishing a three-pronged staff.

On the contrary, evil often comes packaged as "truth" or "freedom" or "justice". The devil is, quite literally, in the details: in the outworking and full ramifications of what is being presented.

Many lies, much bondage and major injustice has been inflicted on mankind in the name of the exact opposite (namely truth, freedom and justice).

Take just one example: Everyone knows that overpopulation is one of the greatest threats to the planet and to mankind, right?

Wrong.

The truth is the exact opposite. Julian Simon amassed copious evidence to debunk this and many other commonly held economic and social "truths". (Vividly illustrating Julian Simon's ideas, UCLA economist Deepak Lal noted the absurdity of the view that if a cow has a child per capita income automatically goes up, while if a human has a child it automatically goes down.)

The lesson is this. Nothing presented or peddled as truth should be automatically accepted as truth at face value. Everything must be thoroughly probed and examined and only what passes the most stringent tests is to be accepted as the truth. Likewise, anything that fails the tests must be rejected as lies.

The analogy with designer labels holds good. Polonius in Hamlet observes: "For the apparel oft proclaims the man." Not quite. More accurately, we should say: the apparel often proclaims the man's intended image and not necessarily who or what the man really is. Designer clothes project a certain image which may be far removed from the actual character of the man wearing them.

The only way to confirm the presence of truth is to test for it. Appearances can be deceiving. You see, the Devil wears Pravda.

Warren Buffet on the global economic crisis

You know there's economic trouble when the richest man in the world tells you that his flagship company lost 9.6% of its market value in the previous year. You know that the trouble's really serious when he says:

This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone "all in." Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.

Warren Buffet tells the full story, with his usual charm and wit, in his annual letter to Berkshire Hathaway shareholders which was released on 28 February 2009.

The Effective Executive, Chapter 1: Effectiveness Can be Learned

We're back with the long-awaited series on Peter F. Drucker's The Effective Executive (1966).

The following summary of chapter 1 is quite long as chapter 1 is itself a microcosm of the whole book.

The job of the executive is to be effective. Effectiveness is the ability to get the right things done. Effectiveness is NOT intelligence, imagination or knowledge. Effectiveness is what turns intelligence, imagination and knowledge into results.

I. Why we need effective executives

• Effectiveness is the specific tool of the knowledge worker within an organisation.
• Manual work only requires efficiency, i.e. the ability to do things right. The productivity, that is the efficiency and quality, of manual work can be measured in terms of a definable and discrete output. Previously, the bulk of the workers in organisations were manual workers and therefore only a few people were required to be executives, that is concerned with getting the right things done.
• Society is now made up of large, knowledge-based organisations staffed by knowledge workers. The knowledge worker primarily applies his mind to his work, whereas the manual primarily applies his hands to his work. The knowledge worker primarily uses knowledge, theory and concepts; the manual worker primarily uses physical strength and manual skill.
• The viability and prosperity of modern society depends crucially on the productivity of the knowledge worker (or the executive). The productivity of the knowledge worker cannot be measured with the same yardstick as that of the manual worker.
• The nature of knowledge work and the knowledge worker is fundamentally different from that of manual work and the manual worker. Specifically:
  

1. The knowledge worker cannot be supervised closely or in detail. He can only be helped.
2. The knowledge worker must direct himself towards performance, contribution, and effectiveness.
3. The knowledge worker’s primary work is thinking.
4. The motivation of the knowledge worker depends crucially on his being effective and able to achieve. Without effectiveness, the knowledge worker’s commitment to work and contribution will diminish rapidly.
5. The knowledge worker’s output (knowledge, ideas, information) is useless in itself, unlike the manual worker’s output (a physical product like a ditch, a pair of shoes, or a machine part). Unlike the manual worker, the knowledge worker must make a deliberate effort make his output effective.
   
   

II. Who is an executive?

• Every knowledge worker in an organisation is an executive IF, by virtue of his position or knowledge, he is responsible for a contribution that materially affects the capacity of the organisation to perform and to obtain results. Such a person must make decisions; he cannot simply carry out orders. He must take responsibility for his contribution. And he is supposed, by virtue of his knowledge, to be better equipped to make the right decision than anyone else.
• Most managers are executives-though not all.
• Many non-managers are executives in modern society.
• Many managers are not executives –they are superiors and overseers of other people BUT they do not have responsibility for or authority over the direction, content and quality of the work, or the methods of its performance. Their productivity can still be measured with the same methods as those used to measure the productivity of manual workers.
• Whether or not a knowledge worker is an executive does NOT depend on whether or not he manages people. This is because knowledge work is defined by its results NOT by its quantity or by its costs. Consequently, the number of people involved or the size of the managerial task are irrelevant. In fact, a knowledge worker may be so busy “managing” that he has no time for his actual work and to make fundamental decisions. An individual knowledge worker may be as productive or unproductive as a team of 200 knowledge workers. "Throughout every one of our knowledge organisations, we have people who manage no one and yet are executives."
• Executives are those knowledge workers, managers, or individual professionals, who are expected, by virtue of their position or their knowledge, to make decisions in the normal course of their work that have significant impact on the performance and results of the whole organisation.
• The executive plans, organises, integrates, motivates, measures and makes decisions.
  
  

III. Executive realities

The realities of the executive’s situation inside an organisation, at one and the same time, demand effectiveness from him AND make effectiveness exceedingly difficult to achieve. (By contrast, effectiveness for an executive outside an organisation is much easier to achieve.)

There are four major realities about an executive’s situation inside an organisation that push him towards non-results and non-performance:

1. The executive’s time tends to belong to everybody else
   
   • We can define an executive operationally (that is, through his activities) as a captive of the organisation.
   • An executive can also be defined as someone who normally has no time of their own because their time is always pre-empted by matters of importance to somebody else.
2. Executives are forced to keep on "operating" unless they take positive action to change the reality in which they live and work
   
   • Unless the executive changes it by deliberate action, the flow of events will determine what he is concerned with and what he does.
   • If the executive lets the flow of events determine what he does, what he works on and what he takes seriously, he will fritter himself away “operating”.
   • Events rarely tell the executive anything, let alone the real problem. They are often not even symptoms in the sense in which a patient’s narrative is a clue for a physician. What events are relevant and important, and what events are merely distractions, the events themselves do not indicate.
   • What the executive needs are CRITERIA which enable him to work on the truly important, that is on contribution and results, even though the criteria are not found in the flow of events.
3. The executive is within an organisation
   
   • The executive is effective only if and when others in the organisation make use of what he contributes. Organisation is the means of multiplying the strength of an individual.
   • Usually the people most important to the effectiveness of an executive are NOT his subordinates, but his peers or his superiors. Unless the executive can reach these people, and can make his contribution effective for them and in their work, he has no effectiveness at all.
     
4. The executive is within an organisation
   
   • “Even the largest organisation is unreal compared to the reality of the environment in which it exists.”
   • There are no results within the organisation. All the results are on the outside.
   • All that there is within the organisation are efforts and costs.
   • The only reason the organisation exists is for the service it provides to its environment
   • BUT it is the inside of the organisation and all its workings that is most visible to the executive. Unless he makes deliberate efforts to gain direct access to outside reality, he will become increasingly inside-focused.
   • Much of the quantitative information that is presented to executives is inside-focused and misses most of the important and relevant outside events. These events are frequently qualitative, and indeed unquantifiable. They are not yet “facts”, that is “events” that have been conceptualised, defined, classified and endowed with relevance.
   • “The truly important events on the outside are not the trends. They are changes in trends. These determine ultimately success or failure of an organisation and its efforts. Such changes, however, have to be perceived: they cannot be counted, defined or classified.”
   • “Executives may become blind to everything that is perception, i.e. event, rather than fact, i.e. after the event.”
   • “Executives live and work within an organisation. Unless they make conscious effort to perceive the outside, the inside may blind them to the true reality.”

IV. The promise of effectiveness

• Increasing effectiveness may be the only area where we can hope significantly to raise the level of executive performance, achievement, and satisfaction.
• More able and knowledgeable people are welcome of course, but it unrealistic to expect the supply of such people to be significantly increased. At best, we can hope for someone to be good in one specialised knowledge area.
• However, each knowledge worker should try to at least learn what other knowledge areas are about, why they exist and what are their aims.
• Since we can’t increase the supply of better people, we should try and make better use of the people who are available. That is, rather than increasing the supply of a resource, increase its yield. Effectiveness is the one tool to make the resources of ability and knowledge yield more and better results.

V. But can effectiveness be learned?

• Effectiveness is NOT a gift one is born with, it can be learned.
• What are the elements of effectiveness? What does one have to learn and how does one learn it?
  

1. Is effectiveness a knowledge which one learns in systematic form and through concepts?
2. Is effectiveness a skill which one learns as an apprentice?
3. Is effectiveness a practice which one learns through doing the same elementary things over and over again?
   

• There is no such thing as an “effective personality”. Effective executives differ widely in their personalities, temperaments, abilities, knowledge and interests. All they have in common is the ability to get the right things done.
• All effective executives have the same, common practices that make effective whatever they have and whatever they are.
• Effectiveness is a habit, that is a complex of practices. Practices are very simple. Practices can always be learned. Practices are learned by practising and practising and practising again, until the practice becomes an unthinking, conditioned reflex and a firmly ingrained habit.
• There is no reason why any, normally endowed individual cannot acquired competency in any practice. Mastery may require special endowments, but all that is required for effectiveness is competency.
• There are five essential practices that have to be acquired to be an effective executive.

Effective executives:

1. Know and manage their time (Chapter 2)
   
   • They know where their time goes and they work systematically at managing the little of their time that can be brought under their control.
2. Focus on outward contribution (Chapter 3)
   
   • They gear their efforts to results rather than work. They begin with the question “What results are expected of me” rather than the work to be done, or its techniques and tools.
3. Build on strengths (Chapter 4)
   
   • They build on strengths: their own strengths, the strengths of their superiors, colleagues, and subordinates; and on the strengths in the situation, that is, on what they can do. They do not build on weakness, or start out with what they cannot do.
4. Concentrate on priorities (Chapter 5)
   
   • They concentrate on the few major areas where superior performance will produce outstanding results. They force themselves to set priorities and stick to their priority decisions. They have no choice: they do first things first and second things not at all. The alternative is to get nothing done.
5. Make effective decisions (Chapter 6 and Chapter 7)
   
   • They practise a systematic decision-making process:
     
     • Follow the right steps in the right sequence;
     • Make a judgement based on “dissenting opinions” rather than on “consensus on the facts”;
     • Make few, carefully considered fundamental decisions rather than many, fast (and wrong!) decisions;
     • Strategic, rather than tactical.
       

A dead language?

Latin is a dead language.
As dead as dead can be.
It killed off all the Romans,
And now it's killing me!

This schoolboy ditty could conceivably be titled The Refrain of the Juvenile Classicist.

But is Latin really a dead language?

The (mature) classicist Peter Jones writes the "Ancient and Modern" column in The Spectator. Here's his take on the matter.

Varley funny: An Open Letter to John Cleese

Here they are: Two of the best humourists on the planet going man to man, eyeball to eyeball, pen to pen. They both happen to be called John, Cleese and Varley. Enjoy:

An Open Letter to John Cleese

The very gods themselves

I have had recent occasion to recall a line from Friedrich Schiller's play The Maid of Orleans (1801). One of the characters, Talbot, an English general, makes the following lament (translation by Anna Swanwick):

Folly, thou conquerest, and I must yield!
Against stupidity the very gods.
Themselves contend in vain. Exalted reason,
Resplendent daughter of the head divine,
Wise foundress of the system of the world,
Guide of the stars, who art thou then if thou,
Bound to the tail of folly's uncurbed steed,
Must, vainly shrieking with the drunken crowd,
Eyes open, plunge down headlong in the abyss.
Accursed, who striveth after noble ends,
And with deliberate wisdom forms his plans!
To the fool-king belongs the world.

(emphasis added)

It is not a particularly encouraging thought: "Against stupidity the very gods themselves contend in vain."

[An interesting aside: The Gods Themselves is the title of a highly acclaimed science fiction classic (Nebula award for best novel in 1972 and Hugo award for best novel in 1973) by the late great Isaac Asimov. The novel is made up of three intricately structured and interlocking parts: "Against Stupidity..." (Part I); "...The Gods Themselves..." (Part II); and "...Contend in Vain?" (Part III).]

The same thought can be expressed in economic terms: The supply of stupidity so far outstrips demand, that there is little realistic prospect of the equilibrium price of stupidity ever reversing its downward trend.

She comes to bury Aid, not to praise it

Dambisa Moyo is the author of an important new book entitled "Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa". The book's foreword is by Niall Ferguson. Yes, that Niall Ferguson.

The book is important because it tackles, head on, one of the most enduring myths in economic history: that aid, or more specifically what Dr. Moyo (D. Phil., Economics, University of Oxford) calls "systematic aid", i.e. regular transfers of money from governments in developed countries to governments in developing countries for the purpose of fostering economic development, actually works. She contends that aid is not merely ineffective, but hugely detrimental to development in Africa.

Dr. Moyo proposes that aid be completely discontinued in five years time. The long dead should be finally buried, as it were.

A little-navel gazing

In the very first post on this blog in January 2006, I posed the following question:

[Is] this [blog] really just another instance of self-indulgent online narcissism?

And this is how I answered it:

No, this really isn't just another instance of self-indulgent online narcissism. I hope to cover a great many other topics besides those surrounding the individual yours truly refers to by the vertical pronoun. Naturally, a little navel-gazing will be unavoidable from time to time, but even then I hope it will be free of the odour of self-indulgence. One can but try. We'll see.

Today is one of those unavoidable times for a little navel-gazing, for today is my birthday. And, so, I am here contemplating the meaning of life, the Universe and everything.

Well, almost everything.

I'm currently contemplating the nice little gift Arsenal FC gave me a few minutes ago: a one-nil victory over AS Roma in the Champions League. But such gifts from Arsenal are rarely an unalloyed joy. They missed some golden chances; chances they may rue when they travel to Rome for the return leg.

My final thoughts and prayers are with the only one of my heroes (as far as I'm aware) who shares my birthday: Steve Jobs. I wish him well in his current battle with ill-health.

Odourless navel-gazing I trust.

Moore on Wittgenstein

In the summer of 1929, Ludwig Josef Johann Wittgenstein presented himself for the oral examination for the degree of PhD at the University of Cambridge. His doctoral thesis was the Tractatus Logico-Philosophicus, a work completed some ten years earlier and adjudged by some (even then) to be one of the greatest works of philosophy of the 20th Century. His examiners were Bertrand Russell and G. E. Moore. Laurence Goldstein has published a reconstructed account of the examination. With characteristic understatement, Moore made the following remarks in the actual examiner’s report:

It is my personal opinion that Mr. Wittgenstein’s thesis is a work of genius; but, be that as it may, it is certainly well up to the standard required for the Cambridge degree of Doctor of Philosophy.

Qualified Capitalism?

There have been several recent calls from some unlikely quarters for what might be termed qualified capitalism. It is somewhat unfortunate that the name of capitalism, the system of free market economics first systematised by Adam Smith in The Wealth of Nations (1776), was coined by its arch-enemy, Karl Marx. Indeed, many of the misconceptions that persist to this day about free market economics can be traced directly back to Das Kapital (1867) (or simply Capital in English) and Marx's other works.

Here are three examples of calls for qualified capitalism that I have heard recently:

1. Inclusive Capitalism
   (Dr. Mo Ibrahim, Founder of Celtel International and the Mo Ibrahim Foundation)
   Dr. Ibrahim has often discussed the notion of inclusive capitalism e.g. in a May 2005 speech at an IFC (International Finance Corporation) conference. He defined Celtel's "inclusive capitalism" strategy as follows: (a) sharing equity with management and staff; (b) including local equity partners; and (c) developing local entrepreneurs.
   
   
2. Creative Capitalism
   (Bill Gates, Founder of Microsoft and the Bill and Melinda Gates Foundation)
   In his 2007 Harvard commencement address, Bill Gates spoke on the theme of creative capitalism. This is what he said in part:
   

   If you believe that every life has equal value, it’s revolting to learn that some lives are seen as worth saving and others are not. We said to ourselves: “This can’t be true. But if it is true, it deserves to be the priority of our giving.”

   So we began our work in the same way anyone here would begin it. We asked: “How could the world let these children die?”

   The answer is simple, and harsh. The market did not reward saving the lives of these children, and governments did not subsidize it. So the children died because their mothers and their fathers had no power in the market and no voice in the system.

   But you and I have both.

   We can make market forces work better for the poor if we can develop a more creative capitalism – if we can stretch the reach of market forces so that more people can make a profit, or at least make a living, serving people who are suffering from the worst inequities. We also can press governments around the world to spend taxpayer money in ways that better reflect the values of the people who pay the taxes.

   If we can find approaches that meet the needs of the poor in ways that generate profits for business and votes for politicians, we will have found a sustainable way to reduce inequity in the world. This task is open-ended. It can never be finished. But a conscious effort to answer this challenge will change the world.
   [Emphasis added]
   

3. Moral Capitalism
   (David Cameron, Leader of the UK's Conservative Party)
   At the 2009 World Economic Forum (WEF) meeting (28 January-1 February 2009) held in Davos, Switzerland, David Cameron made an impassioned speech calling for moral capitalism, "a new, more popular capitalist system - capitalism with a conscience." He suggested three reasons why capitalism has become so unpopular: (i) Markets without morality. (ii) Globalisation without local competition. (iii) Wealth without fairness. Mr. Cameron then outlined his vision for a new moral capitalism ("A capitalism with a conscience"):

   So I think it's time to update the free market orthodoxy that has dominated the past few decades. It's time to assert a fundamental truth: that markets are a means to an end, not an end in themselves. Markets are there to serve our society, not to suck the joy out of it or trample over its values. So we must shape capitalism to suit the needs of society; not shape society to suit the needs of capitalism.

   That is what I mean by responsible business. Business helping to create a society that is greener, safer, fairer - and where opportunity is more equal. Business helping to create a society that is more family-friendly, where responsibility and power are decentralised, and where we value and build up the institutions of the public realm and civic society.

   So if markets, and capitalism, and the activities of individual businesses conflict with our vision of the good society and a better life if damage is being done to our environment, or if family life is being undermined we must not sit there and take it, going along with the old orthodoxy that nothing should be allowed to impede the pursuit of profit. We must speak out.

   Yes, as I've said many times, we must stand up for business, because it's businesses, not governments or politicians, that create jobs, wealth and opportunity, it's businesses that drive innovation, and choice, and help families achieve a higher standard of living for a lower cost. But we must also stand up to business when the things that people value are at risk. So it's time to place the market within a moral framework - even if that means standing up to companies who make life harder for parents and families.

   It's time to help create vibrant, local economies - even if that means standing in the way of the global corporate juggernauts. And it's time to decentralise economic power, to spread opportunity and wealth and ownership more equally through society and that will mean, as some have put it, recapitalising the poor rather than just the banks.

   The best chapters in our economic history are those that embrace the many, not the few. In America in the 1950s there was a sense that everyone could have a slice of the pie. In the 1980s Margaret Thatcher led an ownership revolution that gave millions a new stake in our economy. That was truly popular capitalism, and we've never needed it more than we do today.

   All of us - politicians, campaigners, economists, business leaders - need to help lead the change. Our financial system boasts people so bright they've created financial instruments beyond even their own understanding. Now they need to use those talents to help the poorest build assets. To go into our most deprived communities, giving them the tools to make the most of the market, to help them with banking and saving and owning.

Comments:

1. Inclusive Capitalism
   Dr. Mo Ibrahim's inclusive capitalism sounds to me like good old-fashioned free market economics and common sense. Consequently, Dr. Ibrahim's qualified capitalism is no different from unqualified capitalism.
   
2. Creative Capitalism
   Mr. Gates proposal, seems to me, to be based on ideas that are fundamentally opposed to the principles of free market economics. It is based on the notion of "market failure". But in order to ascertain whether markets have failed, we need to be clear as to what exactly the purpose of the markets is. If we approach the issue from that angle, we see quite clearly that what Mr. Gates calls failure is actually something that lies outside the scope of markets. Healthcare markets, for example, do exist in both rich and poor countries, as do markets for other goods and services, but their exact characteristics are determined by (0ther) factors outside their direct scope and control. Humanitarian initiatives, such as those spearheaded by the Gates Foundation, can help alleviate human suffering in the short-term, and perhaps even eradicate certain diseases. That is commendable. But the long term solutions lie in poor countries putting their own houses in order. Mr. Gates' qualified capitalism is misguided and would ultimately be ineffective (or perhaps even counterproductive) in achieving its stated aims.
   
3. Moral Capitalism
   Mr. Cameron's proposal is, unfortunately, the most mistaken of all. Initially this seems rather surprising coming from a Conservative Party leader, but on reflection perhaps not such a surprise given the seismic (leftward) shift that Tony Blair's decade in power wrought on British politics. Mr. Cameron's proposal is highly interventionist and, if carried out, would exacerbate the UK's already dire economic situation. The morality Mr. Cameron is saying should be added to capitalism is already there: a free market economy cannot function outside a strong moral framework of trust, respect for the law, respect for contracts, and so forth. Mr. Cameron's qualified capitalism would be an economic disaster.

Conclusion:

Adam Smith still has it broadly right, some 233 years after he figured out how it all works.

Here's what the great man said in The Wealth of Nations (among very many other things, of course):

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.

(Book One: Of the Causes of Improvement in the Productive Powers of Labour, And of the Order according to which its Produce is Naturally Distributed among the Different Ranks of the People, Chapter II: Of the Principle which gives occasion to the Division of Labour)

And:

But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

(Book Four: Of Systems of Political Economy, Chapter II: Of Restraints upon the Importation from Foreign Countries of such Goods as can be produced at Home)

The Prodigal Son in the Key of F

I love words. Their sound and their texture, their look and their feel.

I love words well selected, well used and well arranged. The following piece is one of the best applications of the literary device of alliteration that I've ever come across.

Years ago, I had the privilege of hearing the late Rev. John Garlock recite the piece live. The piece was originally written by Rev. Garlock and Gwen Jones in the 1940s (see p. 10 of A/G Heritage, Fall 1990). It has been copied and reproduced countless times since without attribution. The theme is one of the most famous Bible stories, the Parable of the Prodigal Son (Luke 15: 11-32). Here it is, the Prodigal Son in the key of F:

Melody in F

Feeling footloose and frisky, a featherbrained fellow forced his fond father to fork over the farthings. He flew far to foreign fields and frittered his fortune, feasting fabulously with faithless friends.

Finally facing famine and fleeced by his fellows-in-folly, he found himself a feed flinger in a filthy farmyard. Fairly famishing, he fain would have filled his frame with foraged food from the fodder fragments. "Fooey, my father’s flunkies fare far fancier," the frazzled fugitive fumed feverishly, frankly facing facts.

Frustrated by failure and filled with foreboding, he fled forthwith to his family. Falling at his father’s feet, he floundered forlornly, "Father, I have flunked and fruitlessly forfeited family favor . . ." But the faithful father, forestalling further flinching, frantically flagged the flunkies to fetch forth the finest fatling and fix a feast.

The fugitive’s faultfinding frater frowned on the fickle forgiveness of former folderol. His fury flashed but fussing was futile. The far-sighted father figured, "Such filial fidelity is fine, but what forbids fervent festivity-for the fugitive is found! Unfurl the flags. With fanfares flaring, let fun and frolic freely flow. Former failure is forgotten, folly forsaken. Forgiveness forms the foundation for future fortitude."

Progress depends on retentiveness

"Those who cannot remember the past are condemned to repeat it."

This quotation, and numerous variations of it, has attained extraordinary ubiquity and immortality in the world of quotations.

But who first said it? And where?

The answer to the first question is George Santayana (1863-1952), the eminent Spanish American thinker.

The answer to the second (in context) is as follows.

Excerpt from: Chapter XII ("Flux and Constancy in Human Nature"), Volume One ("Reason in Common Sense") of The Life of Reason; or, The Phases of Human Progress (five volumes), 1905-1906
Author: George Santayana
Source: Project Gutenberg
Stable URL: http://www.gutenberg.org/files/15000/15000-h/vol1.html

Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it. In the first stage of life the mind is frivolous and easily distracted; it misses progress by failing in consecutiveness and persistence. This is the condition of children and barbarians, in whom instinct has learned nothing from experience. In a second stage men are docile to events, plastic to new habits and suggestions, yet able to graft them on original instincts, which they thus bring to fuller satisfaction. This is the plane of manhood and true progress. Last comes a stage when retentiveness is exhausted and all that happens is at once forgotten; a vain, because unpractical, repetition of the past takes the place of plasticity and fertile readaptation. In a moving world readaptation is the price of longevity. The hard shell, far from protecting the vital principle, condemns it to die down slowly and be gradually chilled; immortality in such a case must have been secured earlier, by giving birth to a generation plastic to the contemporary world and able to retain its lessons. Thus old age is as forgetful as youth, and more incorrigible; it displays the same inattentiveness to conditions; its memory becomes self-repeating and degenerates into an instinctive reaction, like a bird's chirp.

Not all readaptation, however, is progress, for ideal identity must not be lost. The Latin language did not progress when it passed into Italian. It died. Its amiable heirs may console us for its departure, but do not remove the fact that their parent is extinct. So every individual, nation, and religion has its limit of adaptation; so long as the increment it receives is digestible, so long as the organisation already attained is extended and elaborated without being surrendered, growth goes on; but when the foundation itself shifts, when what is gained at the periphery is lost at the centre, the flux appears again and progress is not real. Thus a succession of generations or languages or religions constitutes no progress unless some ideal present at the beginning is transmitted to the end and reaches a better expression there; without this stability at the core no common standard exists and all comparison of value with value must be external and arbitrary. Retentiveness, we must repeat, is the condition of progress.

The Power of One

Alex Dalmady is a 48-year-old Venezuelan independent financial analyst based in Florida. By his own account, Mr. Dalmady got a call from his friend Roberto in October 2008 asking for help with his investment portfolio, a substantial part of which consisted of CDs (Certificates of Deposit) at Stanford International Bank (SIB), an offshore bank based in St. John's, Antigua.

Mr. Dalmady visited SIB's website, downloaded the bank's financial statements and analysed them. He then presented his unequivocal conclusion to his friend: "Roberto, take your money out YESTERDAY." And this Roberto proceeded to do, somewhat slowly, but he was out by December 2008.

However, Mr. Dalmady's curiosity had been piqued and he kept on investigating SIB (all from his desk in Florida and using the limitless power of the Internet-Yay!). In January 2009, he sat down and wrote up his findings in an article that was published in the January 2009 issue of the monthly newsletter of VenEconomia (VenEconomy in English), a leading Venezuelan economic and financial publisher.

The article was entitled "Duck Tales". An English version is posted here.

Why "Duck Tales"? Well, here's the synopsis of the article:

One does not have to be a detective, or even a financial expert, to spot financial institutions that may prove insolvent, or worse, with the passage of time. As the saying goes, if it looks like a duck, if it waddles like a duck and if it quacks like a duck, it must be a duck.

Mr. Dalmady tells his tale in a witty and entertaining style. Unfortunately, the moral of the tale is not quite so amusing. SIB appeared to be a "duck", a massive financial fraud.

And so it has proved to be.

Mr. Dalmady's article ignited the blogosphere when it was posted on Miguel Octavio's blog on 9 February 2009. From there, the story was picked up by the mainstream media and the rest is very recent financial history. U. S. federal authorities (and no doubt other authorities elsewhere) are now investigating SIB and its flamboyant owner, R. Allen Stanford, Knight Commander of the Most Distinguished Order of the Nation (Antigua and Barbuda), World Finance's 2008 Man of the Year, and Forbes List billionaire (Forbes also has an in-depth profile of Mr. Stanford and features him in its Secrets Of The Self-Made series).

All this, the result of one single individual, Mr. Dalmady, applying his own mind to the facts that everybody else was seeing, but missing the significance of.

Truly, the Power of One.

U and I

(The title of this post is borrowed from the title of Nicholson Baker's deliciously quirky book on his literary obsession with John Updike.)

John Updike died last week.

He was one of the most skillful craftsmen (or is it craftspersons in these politically correct times?) of the English Language. One of my personal favourites certainly, right up there with Joseph Conrad, V. S. Naipaul, and G. H. Hardy.

He was a remarkably versatile writer: fiction and non-fiction; prose and poetry; art criticism and literary criticism; short stories and novels; plays and plays-on-words; a humourist and a "serious" writer; journalist and essayist; children's books and adults' books; and on and on it goes. He even tried his hand at an African novel (The Coup, 1978) and, post-9/11, a terrorism novel (Terrorist, 2006). Oh, and he was a cartoonist too.

He was also a remarkably prolific writer: literally hundreds of pieces for The New Yorker alone; almost 30 novels; and much, much else besides.

One of the tests of great writing for me is simply this: Does it live on in the mind long after it's been read?

Does Updike's writing pass this simple test?

Let me answer obliquely by reference to a personal reading experience of mine of a few years ago. It was The Oxford Book of Short Stories (1981) edited by V. S. Pritchett, himself one of the finest exponents of the short story form. The book contains masterpieces by a veritable who's who of the greats of literature in English: Hawthorne, Poe, Twain, Conrad, Kipling, Maugham, Joyce, Lawrence, Faulkner, Hemingway, Pritchett (no false modesty here), Narayan, Welty, Lessing, and others. But for me, the story that really stood out then and still stands out now was the very last one in the anthology: Lifeguard by John Updike, which was first published in 1961 in The New Yorker. Out of all those outstanding stories, it is Updike's story, as short and plotless and apparently ephemeral as it is, that has left the deepest impression on my mind. If you're not a subscriber to The New Yorker, there's a bootleg version of Lifeguard here.

A word about the name Updike. It's an Americanised version of the Dutch name Op de Dijk.

The Encyclopedia of African Politics

I wrote the first version of the following satirical piece in July 2005. Over three and a half years later, I see it's still very relevant and very topical. It was also published last week on the blog of my friend and Stanford research fellow Chanda Chisala (The African Radical Capitalist!) and on Zambia Online.

The Encyclopedia of African Politics is the definitive guide to modern African politics. Some sample entries are reproduced below.

2000 US Presidential Election: Ironically enough, a landmark event in African politics. Powerful reason to justify any "lapses" in the democratic electoral process. (A typical statement would be: "There is no perfect democracy in this world. Even the 2000 US Presidential Election was flawed.")

Aid: Classically defined by the economist Peter Bauer as "A process by which the poor in rich countries subsidise the rich in poor countries." In more recent times, it has proved a very useful tool for enhancing the public profiles and private purses of aging Irish rock stars.

Bribes: Inappropriate inducements, financial or otherwise, given or received by one's political enemies. Or indeed, by one's political cronies if they break the 11th Commandment ("Thou shalt not get caught"). Not to be confused with consultancy fees, which are entirely legitimate emoluments for politically facilitating transactions of various kinds.

Connectocracy: Literally "rule or government by connections". In this political system, the key skill is "social networking" and the key knowledge is technical know-who.

Democracy: Government of the people, by my people, for my people. (Replace the phrase "my people" with "me" as required.)

Due Process: The process by which predetermined outcomes are reached. Most frequently applied in crucial court cases and elections.

Freedom of Speech: The fundamental right of citizens and the media to praise the government of the day.

Good governance: A geopolitical term, frequently used by the most powerful governments in the world in relation to uncooperative African governments. Cooperative governments, even with exactly the same behaviour, are automatically exempted from this phrase.

Law of Rule: Mirror image of the more widely known Rule of Law. Closely related to the Logic of Power and Government of Men, not Laws, the antitheses of the Power of Logic and Government of Laws, not Men, respectively.

Life President: Member of a predatory dinosaur species that has achieved immortality and divinity. Was thought to be extinct until quite recently, when several live specimens were discovered in various parts of the continent.

Nelson Mandela: Mythical African leader who, according to legend, served only one term in office and had such deeply-held idealistic beliefs that he was willing to die for them. It is said that Mandela emerged from decades of imprisonment with enormous dignity and magnanimity. Notable historians of Africa are unanimous in the view that Mandela never existed and was probably fabricated to tarnish the image of the African political classes.

Opposition Party: Dissident group of disgruntled individuals from the ruling party. Highly volatile. Known to frequently remerge with the ruling elite under the right conditions or in the presence of a suitable catalyst (see Bribes).

Personal Domestic Product (PDP): A distant relative of the Gross Domestic Product (GDP). Very distant. All the wealth in the country becomes the personal property of the ruler to do with as he pleases (it's always a "he").

Third Person Syndrome: Tendency of African leaders to talk about themselves in the third person. Indicative of megalomania.

Remembrance of John Archibald Wheeler by Daniel Holz

One of the best pieces of writing I read this year was a short remembrance of the great American theoretical physicist John Archibald Wheeler (9 July 1911-13 April 2008). It was written by Daniel Holz, a theoretical physicist who was mentored by Wheeler as an undergraduate physics student.

The writing is simple, elegant, sincere. It uses a few classic literary tools to great effect. The title is one simple, evocative word: Goodbye.

Commentary on Keynes' General Theory, part 2: Book I (Introduction): Chapter 1 (The General Theory)

Book I : Introduction

• Chapter 1: The General Theory
• Chapter 2: The Postulates of the Classical Economics
• Chapter 3: The Principle of Effective Demand

Chapter 1 ("The General Theory") is extremely short (a single page), so we can quote it in full:

I have called this book the General Theory of Employment, Interest and Money, placing the emphasis on the prefix general. The object of such a title is to contrast the character of my arguments and conclusions with those of the classical¹ theory of the subject, upon which I was brought up and which dominates the economic thought, both practical and theoretical, of the governing and academic classes of this generation, as it has for a hundred years past. I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilibrium. Moreover, the characteristics of the special case assumed by the classical theory happen not to be those of the economic society in which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.

Footnotes (in the original text)

1. “The classical economists” was a name invented by Marx to cover Ricardo and James Mill and their predecessors, that is to say for the founders of the theory which culminated in the Ricardian economics. I have become accustomed, perhaps perpetrating a solecism, to include in “the classical school” the followers of Ricardo, those, that is to say, who adopted and perfected the theory of the Ricardian economics, including (for example) J. S. Mill, Marshall, Edgeworth and Prof. Pigou.

We make the following two comments:

• The "general" in The General Theory serves to contrast Keynes' theory with what he calls the classical theory. According to Keynes, the classical theory is only applicable to a special case and not to the general case.
• Keynes argues that the characteristics of the special case assumed by the classical theory are not applicable to the prevailing economic situation (circa the 1935).

Three questions must be borne in mind constantly as we go through The General Theory:

• Does Keynes accurately describe the alternative, or indeed alternatives, to his General Theory?
• Do the postulates of the alternative, be it the so-called classical theory or some other alternative, indeed apply only to a special case?
• Do the characteristics of the alternative differ from those of the prevailing economy (circa 1935, OR circa 2008 for that matter)?

At all times we must closely examine the premisses and basic assumptions of both Keynes' theory and other alternatives.

A final comment. It's not clear to me what Keynes means when he says: "I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilibrium." Specifically the second part of the sentence: "...the situation which it assumes being a limiting point of the possible positions of equilibrium." What is "it": The "classical theory"? The "special case"? Or the "general case"? And what is "a limiting point of the possible positions of equilibrium"? Presumably this will be clarified as we read on. We shall see. We shall certainly come back to this sentence.

Commentary on Keynes' General Theory, part 1

On 13 December 1935, exactly 73 years ago to the day, John Maynard Keynes completed the preface to what was to become one of the most controversial and influential books of the 20th Century: The General Theory of Employment, Interest and Money.

Judging by the revival of interest in Keynesian economics that has come in the wake of the recent (and ongoing) global economic crisis, Keynes' General Theory looks set to become one of the most controversial and influential books of the 21st Century as well.

In his preface, Keynes notes that although his book "is chiefly addressed to [his] fellow economists", he "hope[s] that it will be intelligible to others."

This, then, marks the beginning of a detailed commentary on Keynes' General Theory by an interested non-economist.

Why undertake such a task?

There are three reasons.

First, the growing influence of The General Theory on current global economic policy. It is vital that we, economists and non-economists alike, have a clear understanding of Keynes' ideas. And more importantly, their implications.

Second, to the best of my knowledge, there is no such commentary available online.

And third, because you're worth it.

OK, that third reason is just some debris from the world of global cosmetics advertising that floated into my mind after I typed "And third". But it sounds good and three's a good number, so it stays.

The book consists of six main sections, or books as Keynes calls them:

Book I : Introduction

• Chapter 1: The General Theory
• Chapter 2: The Postulates of the Classical Economics
• Chapter 3: The Principle of Effective Demand
  

Book II: Definition and Ideas

• Chapter 4: The Choice of Units
• Chapter 5: Expectation as Determining Output and Employment
• Chapter 6: The Definition of Income, Saving and Investment
  Appendix on User Cost
• Chapter 7: The Meaning of Saving and Investment Further Considered

Book III: The Propensity to Consume

• Chapter 8: The Propensity to Consume: I. The Objective Factors
• Chapter 9: The Propensity to Consume: II. The Subjective Factors
• Chapter 10: The Marginal Propensity to Consume and the Multiplier

Book IV: The Inducement to Invest

• Chapter 11: The Marginal Efficiency of Capital
• Chapter 12: The State of Long-term Expectation
• Chapter 13: The General Theory of the Rate of Interest
• Chapter 14: The Classical Theory of the Rate of Interest
  Appendix on the Rate of Interest in Marshall’s Principles of Economics, Ricardo’s Principles of Political Economy and elsewhere
• Chapter 15: The Psychological and Business Incentives to Liquidity
• Chapter 16: Sundry Observations on the Nature of Capital
• Chapter 17: The Essential Properties of Interest and Money
• Chapter 18: The General Theory of Employment Re-stated

Book V: Money-Wages and Prices

• Chapter 19: Changes in Money-Wages
  Appendix on Prof. Pigou's Theory of Unemployment
• Chapter 20: The Employment Function
• Chapter 21: The Theory of Prices

Book VI: Short Notes Suggested by the General Theory

• Chapter 22: Notes on the Trade Cycle
• Chapter 23: Notes on Merchantilism, the Usury Laws, Stamped Money and Theories of Under-consumption
• Chapter 24: Concluding Notes on the Social Philosophy towards which the General Theory might lead

The entire book is available online here.

So much for introductory remarks.

Let's proceed to the Preface which begins as follows:

This book is chiefly addressed to my fellow economists. I hope that it will be intelligible to others. But its main purpose is to deal with difficult questions of theory, and only in the second place with the applications of this theory to practice. For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premisses. Thus I cannot achieve my object of persuading economists to re-examine critically certain of their basic assumptions except by a highly abstract argument and also by much controversy.

We must note the following points:

• Whilst The General Theory is addressed primarily to economists, Keynes hopes that it will be intelligible to non-economists.
• The primary purpose of The General Theory is to deal with difficult theoretical issues and only secondarily with applications of this theory to practice.
• Keynes argues that the fault of orthodox economics (circa 1935) arises from its erroneous premisses and two characteristics of these premisses or basic assumptions in particular: their lack of clarity and generality.

Keynes ends his Preface much as he begins it:

The composition of this book has been for the author a long struggle of escape, and so must the reading of it be for most readers if the author’s assault upon them is to be successful,— a struggle of escape from habitual modes of thought and expression. The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.

We note that, according to Keynes: "The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping from the old ones". This suggests that, if anything, the non-economist may be better placed than the economist to judge The Classical Theory and its alternatives on their own merits, unencumbered by any professional prejudices.