I find sometimes a pithy slogan is the best way to remember and contemplate a profound thought. I often teach some of these maxims to my students to help them organize the details of what we learn and remember key principles. Among my favorite authors of witticisms are Benjamin Franklin, Friedrich Nietzsche, and Mark Twain. Unless otherwise noted, these witticisms are my own.
Happiness comes from what you do, not what you have
Consumer culture inculcates the notion that those who own or consume more things are “successful” and happy, but psychological research contradicts this. Feeling good depends more on knowing what you do is valuable and thereby feeling worthy among your peers.
The pleasures of consumption end with our death; what we produce is our immortal legacy
This is a corollary of the previous maxim. Subsistence consumption is necessary for life, but conspicuous or excessive consumption gives transient pleasure at best. Viewed socially, excessive consumption is destruction of what others may need. People’s immortal contribution is what they produce, including their work and children. If you cannot view your work as socially useful, perhaps there is something more useful you could do that becomes your immortal legacy.
Death is the mother of beauty
This is one of many worthy ideas in the poem, “Sunday Morning” by Wallace Stevens. At first it may seem confounding if not repulsive. Yet it embodies a double positive meaning. On the one hand, the fact of death, the finitude of life, is what makes it precious and therefore beautiful. On the other hand, death is the gift of the aged to the new life of the young. Sooner or later, us grey hairs need to make way on this crowded planet for the new ideas and new life that follow. We survive in them because of our legacy. That is the true immortality of the spirit.
I am a card-carrying Machiavellian
This is my enigmatic answer when people ask me about my politics. I find most political labels misleading anyway. In the U.S. today our more conservative (conserving the established ways of power) party, the Democrats, thinks of itself as liberal, whereas the Republican Party that proudly calls itself “conservative” is veering toward radical anarchism, i.e., the deconstruction of government in favor of the unfettered rule of corporate greed. The “card carrying” reference is to the McCarthy era when the accusation “card-carrying Communist” was notorious. I mean it as a pun both to identify with the political rights of despised minorities and to suggest that my commitment to Machiavelli’s political realism is fervent, like a party membership. Political realism values speaking truth about power, despite the consequences. Machiavelli himself was tortured for his republican beliefs when the aristocratic Medici family overthrew the Florentine republic he had served. All of his great works were written after that.
Saints are rare at the top
Most of the great works in history have been achieved by billions of virtuous ordinary people working hard and raising children. Unsung heroes are the majority. I saw this growing up in small-town middle America. Most “great” leaders are ordinary people with a large and talented staff to make them look good. Few people known as great in history are actually as admirable when examined closely. They just got good press. Often “great” people were just ordinary people who were lucky to be at the right place and time to make a difference. Don’t get me wrong, I admire quite a few extraordinary thinkers, artists, and even business and political leaders, but among all the people known as great or powerful, few are saints or geniuses. The classical Athenian democratic method was selecting magistrates by random lot, not election, because Athenian democrats really did believe that ordinary people were qualified to govern.
Most people prefer a pretty lie to sordid truth
The realities of the struggle for wealth and power are typically corrupt. Most powerful people aim not to help others, but to elevate and enrich themselves. Nowadays most ordinary people avoid thinking too much about politics or business most of the time, while distancing themselves from the nitty gritty reality by means of myths, euphemisms and generalities. Economics panders to this. However, it is no use to cling to such blinkered methods if you intend to pursue truthful study of political economy or business. Since I was raised by a school teacher and a newspaper editor, truth has always been my lodestar, but the older I get the more I realize how difficult and painful for most people truth would be. Humor helps us stomach truths we might otherwise eschew.
Corruption is a constant but scandal is a variable
Like it or not, the realities of the struggle for power and wealth are typically corrupt. Sure, in North America and Europe, the administrative agencies that many people typically encounter may be rule governed and relatively fair, but at the peaks of politics and business, where the stakes are highest, corruption is persistent. When corruption episodically erupts into scandal it is usually because of struggles among the elite whereby one group reveals the corruptions of another to gain advantage. Such scandals may afford a temporary glimpse into the inner workings of power for those who recognize this maxim.
Capitalism is a two-party system
I invented this slogan after rereading James Madison’s famous Federalist Papers No. 10. Madison notes that people’s interests are divided by those with property and those without, by debtors and creditors, and by farmers and manufacturers. I had already been influenced by the Marxian notion of capitalism polarizing society into capitalists and workers (related to Madison’s first pair), but by the time I thought of this maxim I had realized that capitalists inevitably polarize into rival camps of bulls and bears, based on conflicting investment bets on the direction of asset prices, which is strongly influenced by the struggle over the expansion or contraction of credit. It is in this latter sense, deriving from Madison’s second pair, that capitalists polarize in their day-to-day competition, which also explains capitalism’s boom-and-bust cycle.
There are winners and losers in every economy
No state of the economy is good for everybody. Textbooks try to convince you otherwise. The myth is that everybody wants stable growth. Actually, instability is much more profitable for big investors in a world rife with financial derivative contracts. Furthermore, every derivative contract has two sides, bear and bull; one party will always pay the other. Like any bet, there is a winner and a loser. With the face value of all the world’s derivative contracts approaching a quadrillion dollars (something like 15 times greater than the market value of all the world’s corporate stocks), every boom and bust, every ripple, large and small, produces both winners and losers. Keep this in mind the text time you hear happy music playing during a report that stock market indices are up. It is true that episodic bears tend to be more common at the top of the financial pyramid, but please do notice how this predisposes the powerful to profit from an occasional financial crash.
All wars are financed
History and international relations typically ignore this critical fact. I wrote my book, International Political Economy: The Business of War and Peace, to bring the financial and business aspects back into the story. It is a bare outline, because there is so much to be said on this topic. I first discovered this during archival work in bankers’ papers while researching my University of Chicago PhD dissertation, “Business Conflict and the Origin of the Pacific War.” I saw how important the shifting views of financiers were to the viability of each country’s foreign policy. Subsequently I found out much more about this. Credit-worthiness looms large as a consideration of state. A corollary to this is the rise of Europe to world dominance was largely because of the development of bond-financed fleets and trade that started in the merchant republics of northern Italy. This is sometimes called the financial revolution.
All trade is financed
If you study a course called “international economics” (which I have taught) you will find it is divided into two distinct halves: first trade then finance. Both sections contain among the most bizarre and unworldly models in all of economics. At the root of the unreality of each section is that they are separated so distinctly, whereas in the real world they are so intertwined. The short-term credit system, the bread-and-butter business of banking for a millennia, thrives because all trade is financed. Credit conditions determine many of the advantages and conditions of trade. This has become a sticking point, by the way, in U.S.-China trade disputes today. This maxim is most evident during a financial crisis, when trade plummets, as it did in 2008. Without government bailouts to backstop the trading system, the Great Recession would have become another Great Depression. Trade depends on financing for its profitability.
Money is a unit of measure that always varies
Few people understand money, including those who have taken economics courses since much that is taught is more myth than reality. Even when currencies were linked to a certain quantity of gold, they still varied in value from year to year relative to everything else since the relative value of gold fluctuated too. Since the demise of any link between major currencies and gold a third of a century ago, people start to realize this insecurity more. Although we measure so many things in currency units, this unit of measure itself varies. This is especially important for the value of long-term contracts like debts. Borrowers promise to pay back a certain money amount, but whether this is more or less than the value they borrowed originally is anybody’s guess, since the value of money itself keeps changing. This insight turns out to be crucial for understanding why capitalism is a two-party system.
Economics teaches the myth that modern economies are fair, efficient and stable
Textbook or neoclassical economics is not a science of the economy. It is propaganda designed to show that so-called market economies are fair, efficient and stable. Any evidence or models that would cast doubt on any of these preconceptions is not entertained at all or is consigned to the fringes of economic thought. I argue this in Chapter 3 “Political Economics” of my book.
When your only tool is a hammer, every problem is a nail
Economists are lousy at understanding the economy because their methods train them to use an abstract free market model that ignores private power and strategy. They see this mythic idealization as universal because it is the only tool they know well how to use. Oh yes, this is an old saying. I did not invent it, just this application of it.
This is a capitalist economy, not necessarily a market economy
Capitalism is dominated by the accumulation and valorization of capital. There are markets in capitalist economy, including the asset markets for stocks, bonds and commodities. However, even these are infused by insider power, so it would be a stretch to call them “free markets” in the sense that term is used in economics textbooks. Other than the asset markets, most business-to-business transactions are negotiated deals rather than arms-length free-wheeling market transactions. Yes, there is competition for such deals, but it is more like oligopolistic or monopolistic competition rather than the free market competition that is generally assumed throughout most economics textbooks and models. Not every transaction takes place in a market, yet economics always plays make-believe, treating many things as markets that are not. There is only one point to this: ignoring private power.
Capitalism is not predominantly a free-market system
Capitalism is a social system that accumulates and concentrates wealth. Wherever private power is concentrated, market solutions are avoided in favor of negotiated and enforced deals like cartels, initial public offerings, financial consortia or syndicates, orderly marketing agreements, licensing monopoly powers, etc. Markets are the refuge of the weak. The powerful seek out every way to avoid or manipulate them. A century ago liberals and progressives of both political parties championed anti-trust laws and other regulations to curb the giant new concentrations of capital celebrated by J.P. Morgan as “organized capitalism.” During the past century the trend toward inexorable centralization has been occasionally reversed by antitrust actions. However, victories against corporate power have tended to be episodic compared to the inexorable and multi-dimensional consolidation of concentrated private power. Today the “free market” has been redefined to refer to almost anything investors or corporations desire, no matter how far it deviates from the “free market” theory.
All prices are political
That is, all prices are infused by relations of private power. Classical political economy understood this. Unfortunately the rise of economics since the mid-19th century has obscured this. Economics restricted its scope largely to a supposed free-market realm devoid of power, where all transactions are free and mutually beneficial. Market transactions are typically voluntary, although for most people compulsion to work in order to live makes renting one’s power to labor necessary. Furthermore, capitalists, if not workers, are organized to influence wage rates, so the labor market is never devoid of power. Even Adam Smith knew this. This was a truism of classical political economy that economics has since ignored. Furthermore, capital itself, in the form of credit, is accessible only by permission of a creditor. It is a privilege of the creditor to grant or withdraw credit at whim. The issuance of credit therefore bears no relation to the idealized view of markets in textbooks. Preferential access to credit grants power.
Furthermore, cartels and monopolies are ubiquitous, particularly today when the price of most products is a negotiated result of myriad monopoly rights based on patents, trademarks, and copyrights. As Joni Mitchell sang, “You don’t know what you’ve got ‘till it’s gone,” so today we make a fetish of the mythical free market when there is so little of it left. “Free market” is today used as little more than a euphemism for whatever powerful corporations want to do.
Big banks have collective power against inflation: tightening credit
Throughout the history of capitalism the largest banks have has the interest and power to fight inflation by periodically restricting credit. Textbooks say it is the monetary power of governments that determine the money supply and thereby controls inflation. But this is a new and uncertain power. The power of banks to expand or contract credit is a long-standing power. For centuries, most banks own lots of bonds, loans and currency. These assets are all denominated in money units, such as dollars or euros. Inflation (rising prices) can also be expressed as the falling value of money. Banks whose portfolios are shrinking because of inflation, the falling value of their money-denominated assets, have a potent if blunt weapon to fight this trend: curtailing credit. When credit tightens, business slows, unemployment rises, and prices tend to fall. Falling prices restore the relative value of bankers’ typical assets: loans, etc. When a broad bear party forms, banks are typically the organizers. Conversely, a boom starts when banks ease credit.
You save money to make other people rich
I don’t watch much TV, but when I do I am struck by how many ads there are for drugs and financial advice. Advertised pharmaceuticals of course are patented monopolies, so they extract massive profits from huge mark-ups and then advertise to encourage over-prescription. The financial adviser ads are selling the idea of the good life in retirement. As a general rule, it is good to save for contingencies, but do it yourself, do not pay someone who does not have your interest at heart. Few people ever get rich using their own money. Most of the people who gain wealth do so by borrowing other people’s money to leverage their own capital and thereby magnify their success (or failure). If you are not confident in your ability to invest well, don’t borrow. If you don’t borrow, don’t expect to gain much wealth either. You will be lucky to maintain the value of whatever you save. Any complicated financial product is most likely designed to transfer most what your savings could earn into other people’s pockets.
Crises occur at the extremes, not at the dull gray averages
Economists love averages. Most data they feed into macroeconomic models is either aggregate data like GDP or average data like “the” interest rate or the marginal propensity to invest. It is no wonder then that economists are so bad at predicting crises. These start not at the average of any data set, but at the extremes, especially at the extremes of debt and of bull and bear positions. The leading indicators of crisis are the rapid growth of extremes of bullish leverage and bearish short positions, both increasing rapidly. Keynes called these “culminating points,” but you can get a PhD in macroeconomics and never encounter this concept because it, like so much of Keynes’ original thinking, has been purged from textbooks in favor of dull gray aggregates and averages. Polarization, not any particular mean value, is is root of all crises.
Equal percentage gains and losses produce losses
It is interesting that economists take great pride in their mathematical sophistication, but then teach and calculate in ways that routinely violate mathematical principles. Economists emphasize average growth rates and their effects. However, many economic variables are volatile because of the cyclical nature of economic phenomena, the boom-and-bust business cycle and smaller fluctuations. Economists do not typically teach how much volatility affects the meaning of averages. Percentage changes are not reciprocal. If you lose 50% then gain 50% you are not back to where you started, but have lost 25% overall. Order does not matter: if you gain 50% then lose 50%, you are still down 25% overall. This is one reason volatility is more important than mean values. Volatile markets tend to create permanent losers, especially among the weak outsiders who cannot influence prices. Furthermore, if your investments are leveraged to magnify gains, you may have to sell on a loss to avoid insolvency when the price is down. For many investors, exhilarating paper gains are replaced by realized losses. Average growth rates obscure the few who gained much and the many who lost everything.
The data you need most are not readily available
Most economists believe knowledge comes from inputting data into (deficient) models to get (hopefully) significant output values. What they study is thus strongly shaped by data that is readily available. However, my strategic method recognizes that power is based on deception, so the data that is most accessible is typically the least useful. Like in war, what you really want to know is what your adversary most wishes to hide. Consider an example: you want to predict the movement of oil prices for the coming months. Economists teach that you should develop a statistical model based on past price movements and project this into the future. However, what you really should want to know is insider positions and intent. You want to know the production and pricing plans of major companies and the derivative bets of major investors. These are hidden from the public. However, even a few ad hoc clues about the real intent of insiders are much more valuable than almost any statistical model. If you have the opportunity and resources, you might spy on insiders, as happens in war. However, if not, you can only piece together the clues that inadvertently fall into the proverbial waste basket. Still, such clues, like the peaks of icebergs, may help reveal something big that is not visible, i.e., not evident in the public data.
Losers lobby
Sometimes when people ask me what I study, I may say business power and politics. A common response is, “oh, lobbying.” Indeed, political science has created the myth that lobbying is the main relationship between business and politics. So my stock response is “No, lobbying is not mainly what business power involves. Losers lobby.” Literally, to be waiting out in the lobby for the attention of a politician is a sign of weakness, not strength. In my archival work I have found that the most powerful elements of business are not those who lobby, but those who are so important that presidents call them to ask for their help or cooperation on this or that matter. If they need something, they call the president or a cabinet member directly. They do not waste time in anyone’s lobby. Furthermore, many powerful business actions take place outside the realm of government, including where and how to invest, whether to expand or curtail credit, etc. Business actions create most economic facts, not the government. Business leaders know crucial data in real time (including their own intent); governments typically gather only aggregate data and only with a time lag.
Talk is cheap
An amazing amount of the social sciences and humanities is about public discourse. My response is “talk is cheap.” Of course, this is an old adage, but one that applies well here. The vast majority of public discourse, whether corporate advertising, sales pitches, public relations, political speeches, position papers, etc., is literally designed to be misleading. It is not information, but disinformation. You can understand little about power if you confine your studies to public discourse, unless you merely wish to study the relative efficacy of different types of propaganda for different audiences. Yet much academic pontificating treats this plethora of disingenuous drivel as the main raw material for understanding what is going on. Some journalists and academics still know better, and perhaps their ranks are growing with recent broad assaults of bombast, but I remain disappointed how few.