Sneering at the Messenger

As concerns about Greece escalate, it seems that a greater proportion of the general public are entertaining the possibility of a default (whether they call it a ‘voluntary rollover’ or whatever else). Yet, to get here, a small minority of alert speculators and commentators had to be castigated. Their crime was having the audacity to conceive of the truth before the general public could understand it.


Peculiarly, however, the condemnation that was involved in this castigation seemed to be coming from all directions — from the political, academic and working classes alike. Here, I get to grips with the motives, prejudices and errors that are behind the propensity to shoot the messenger when it comes to monetary & economic affairs.


The Worst of the Bunch:


The socionomic tide against all things pertaining to finance (banks, pension funds, hedge funds, yada yada yada…) seems to have a particular focus on a small group of fairly contrarian speculators. The speculators that own CDSs (especially in European Sovereign debt), that engage in commodities futures trading (particularly on the long-side of the oil market), and engage in short-selling (particularly in stocks) are often regarded as the worst of the bunch. ‘The bankers are bad’ – they say – ‘but they’re not as bad as those damned short sellers!’. The hilarious irony of this is that these prejudices seem to be held even in the banking community of London (where we at are based)! If this doesn’t highlight the complete lack of good thought in such scapegoating, then I don’t know what does. It brings to mind what Hugh Hendry (the London-based hedge fund manager - Eclectica AM) said a few years back on a television interview (paraphrasing since I don’t recall the particular video):


We live in a capitalistic system, but — somehow — when prices go down, there’s got to be a bad guy behind it all! When people jam prices up, that’s ok, but when they go down, there must be a bad guy somewhere.


We’ve always got to remember that a financial market is simply an arena where different people go to swap stuff. In our advanced economies, money trades on one side of all of these transactions. However, this doesn’t take away from the fact that people are swapping things with each other. If one has a problem with short-sellers in the stock market, one cannot be sanguine towards those people with long positions (which is virtually everyone by the way – via pensions, insurance schemes etc.).


Needless to say, I don’t see disconnects between the intellectual insights of morality, political economy and economics. Insofar as we’re dealing with people who are using their own property (that is, people who take the downside as well as the upside), there should be no contradictions between money-making and its moral viability. So, with this in mind, let’s get on to the thought processes that spur such needless angst.


The Academicians:


The phrase that I just cannot get out of mind is Lord Keynes’ famous catchphrase:


In the long-run, we are all dead.


This inevitably amounts to a denial of reality that is incredibly peculiar. As I explained here, the rudimentary problem of the business cycle is that entrepreneurs are drawn to ventures that are only suitable for a fictitiously wealthy and/or abstinent parallel universe. The unfortunate prejudice that academics seem to hold is simple, but ghastly: That as long as we are oblivious to the absurdities of our activities, we can be — well — oblivious to them (and hence continue preparing for said fictitious world). Keynes’ statement says ‘Who cares about the eventual completion of these projects, as long as we can continue to prepare for an even more reality-denying world?’.


To me, this sounds silly, but seemingly to others (academics included), this is the path to the short-term preservation of the status quo, and so ideas that are aimed at ‘tricking ourselves’ seem to gain currency in periods of financial & economic distress (i.e. during periods where the extent of our follies becomes clear).


In short, we’re suckers to the avoidance of short-term pain. Consequently, it would seem, academics who claim to provide mechanisms by which we can ‘trick’ ourselves seem to prevail.


The Masses & Politicians:


The subjects of money, credit, exchange and speculation are extremely convoluted, and yet all people — to one degree or another — are required to partake in them. Virtually everyone owns a money balance, virtually everyone regularly swaps money for things, virtually everyone is either a net creditor or a net debtor and virtually everyone makes execution decisions (the success of which are contingent on the future supply/demand balances dictated by others) [e.g. with retirement accounts, insurance schemes, housing purchases, filling-up the gas tank of the car etc.]. However, although everyone partakes in the above activities, they do not necessarily understand them very well. (In fact, to our knowledge, no one has come up with a crystal clear definition of a dollar, euro, pound etc.). So, when things pertaining to this peculiar field go wrong, it shouldn’t be surprising that the masses cannot understand why. Irving Fisher described this quite well in his neat little book, ‘The Money Illusion’ (available at the book store):


An alienist who became interested in this problem remarked that unstable money seemed a sort of social insanity analogous to insanity in an individual. The individual who has an “unconscious conflict” does not know what ails him, but is restless and assigns the blame to the wrong cause. The public likewise do not understand inflation and deflation with their attendant evils, but do have a keen sense that someone is benefiting at their expense. The public therefore put the blame on the supposed rascal. When the price level is falling, the money-lender (the bondholder) is getting the advantage of the changing conditions and the public nickname him, as in the Bryan days of 1896, the “gold bug of Wall Street” or the “bloated bondholder.” These, the banker and the money-lender, become the targets of popular discontent. When, on the other hand, the price level is rising the public blame and denounce the profit-taker and nickname him a “profiteer”.


So, the masses, whose opinions are ripe for manipulation on this particular matter are then easily subjected to the ‘talents’ of our politicians – who are incentivised (and perhaps genuinely confused) into demonizing those who are closest to the action – the speculators. As Hans Hermann Hoppe wrote in ‘A Theory of Socialism & Capitalism’ (also available at the book store):


It becomes irrelevant, or is at least of reduced importance, to be a more efficient producer or contractor in order to rise in the hierarchy of income recipients. Instead, it is increasingly important to have the peculiar skills of a politician, i.e., a person who through persuasion, demagoguery and intrigue, through promises, bribes, and threats, manages to assemble public support for his own position.


So, given that politicians are mostly engaged in persuading “through promises, bribes, and threats”, and speculators are mostly engaged in thinking about risk, exchange, speculation, money, credit, opportunities (etc.); it should be no wonder that they are swayed by the politicians rather than by the speculators (who don’t intend to persuade at all and who are only defended by the likes of Walter Block).





The socionomic tide against speculators, financiers, bankers et al. seems to worsen each year. Although one may find it tempting to go along with it, one should always keep this oh-so-simple insight in mind: each person owns himself and his own stuff. It is the progressively larger denials of this truth that should be scorned, rather than scapegoats such as speculators, bankers etc.

See here for our collection of rare historical economic data.

Posted Jun 22, 2011
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