On Finance and Inequality | Two book reviews

And some other notes

Dec 01, 2020

Hi everyone,

One of the most important and actionable insights from the literature on cyclical history is the role played by finance and inequality in inducing a societal decline. Peter Turchin has discussed this, and it also comes up in Spengler and some of the histories of the late Roman Republic.

Today, I wanted to highlight how two of the chapters in the book tie into this theme.

First, I have long been of the view that the financial sector, and the existing body of financial regulation, is unnecessarily complex. This benefits both banker and regulator alike: complex regulations inhibit the entry of new banks into the market, and more regulators are needed to monitor the implementation of rules.

More generally, it also seemed to me that the fractional-reserve banking system is outdated, that it really only made sense in a world where money was scarce due to being linked to some commodity such as gold.

For this reason, I spent quite a while thinking about how one could simplify finance without throttling credit, and the best solution I found was a full-reserve banking system — that is, a system where money creation is the sole prerogative of the central bank.

But I was not happy with the various solutions proposed, so I set about synthesising them. The result is Chapter 8 of the book.

But finance is not the sole cause of inequality. Increased international trade and technological disruption can also lead to significant divergences in wealth, resulting in bitterness which can threaten the stability of whatever system of government exists.

I wanted to have a specific solution for this: one which help overcome, or at least de-escalate, the conflict between capital and labour. The result is a design for a Public Equity Fund, in which every citizen would have an account. Two key questions for any such fund are 1) how would it be capitalised? and 2) when could people withdraw or use their funds?

Regarding the first question, in a previous chapter I discussed how the state or community could help convene creative clusters, who could subsequently set up companies (among other things). In that case, the Public Equity Fund could own part of the shares in return for this support. Alternative sources of revenue for the fund includes budget surpluses and seigniorage revenues.

Regarding the second question, disbursements could be allowed on certain life events e.g. graduation or marriage. The account could also be deducted when people use public services. But if the account is empty, they would still have access to those services that are currently universally provided. This is a way to disincentivise wasteful consumption of public services, while maintaining access for those in need.

If interested, you can read more here.

New Book Reviews/Summaries

‘History Has Begun’ by Bruno Maçães

The essential premise of this book is that American liberlaism is mutating into a system whereby reality is replaced with fiction. These fictions and narratives would co-exist, and nobody would try to impose them on unwilling others. The author terms this “political virtualism”. As examples of virtual politics, he identifies Trump, the New Green Deal of Ocasio-Cortez, and Wokeness. For Maçães, the common factor linking them is an emphasis on theatre, plot, and cinematic reasoning; what they all lack is a durable effect or concrete programme that outlasts the drama.

I think the lens is valid in some instances, but is not a workable model for an entire society. Maçães doesn’t outline how people with incommensurable narratives and moralities would be brought to accept the very different worldviews of others. In addition, a society entranced by the unreal will be one where problems go unsolved.

Anyway, there’s a lot more in the review (around 3,000 words) which you can find here.

‘After Virtue’ by Alasdair MacIntyre

This is a great book, highly recommended. Nevertheless, there is some vagueness regarding the proposals MacIntyre makes. I outline how Metasophism compensates for this towards the end of the summary. To give you a taste of the article, here are the first two paragraphs:

The Enlightenment project for morality has failed. The limited expertise of our governing elites cannot justify the vast power they claim. And navigating a way out of our current societal malaise requires us to resurrect an older form of morality.
That is a crude albeit faithful summary of Alasdair MacIntyre’s After Virtue, first published in 1981. In making such claims the book has proved to be prescient: the faltering hegemony of liberalism and recurrent surges of anti-elite sentiment across the West testify to that. But can the solution to our malaise really lie in the resurrection of a form of ethics first outlined by Aristotle and later integrated into Christianity by Thomas Aquinas?

The article received nearly 900 upvotes on the philosophy subreddit and triggered a very good discussion there.