Following is a speech to the Committe for Monetary Research & Education at the CMRE Fall Dinner Meeting, Thursday, October 6, 2005 in New York City.
At the risk of raising some eyebrows - globalization of what?
The other question is - how long will this form of it last? Both are answerable.
In my own recollection, the term might have gained visibility as a social buzz phrase at one of the 1990s' Davos gatherings of intellectual speculators. It also seemed to arrive with the acronym NGOs. Some eventually figured out that most non-governmental organizations exist to lobby governments to do what governments want to do, which is to expand expenditures and power.
Of course, and to be serious, the best way to understand a social buzz-phrase is to look at those who are against it and those who are for it.
The left is distressed by the new globalization so it must be good.
Confirmation of this can be provided by looking at the old globalization movement that was so popular with politicians, neurotic intellectuals, academics, and so many leading newspapers during most of the 20th Century. By far, the most persuasive movement was the global expansion of international socialism - more precisely known as Communist International or Comintern.
The spread of doctrinaire authoritarianism through most of the 20th Century has been the most invidious and powerful such movement since the Catholic Church was corrupted into a bureaucratic monster in the 1500s.
The purpose of this brief address is to outline that the transition from global authoritarianism to increasing regionalism, personal freedom, markets, and international trade is not new. It has happened before and, because the left is so accustomed to having its way - often brutally - the transition has not been easy and will not be easy. Like rusting cars - arbitrary intervention never sleeps.
It is essential to outline just how big the ongoing political change is. The change from so many murderous police states prior to the 1980s to greater degrees of freedom and democracy has only happened three times in the last 2000 years.
The mechanism of change seems to be that after about 80 years of experiment in authoritarian government, those at the top lose the will to impose authority as the oppressed public suddenly loses the complacency of submission. That process began its initial phase in the late 1980s and the symbol was the Berlin Wall coming down.
Many cherish Ronald Reagan's "Mr. Gorbachev, tear down this wall" speech of July, 1987. Lech Walsesa, Margaret Thatcher, and Pope John Paul II were highly influential as well, but it was the people who physically tore down the wall and big-name dictators couldn't stop it.
As an aside to this action, in 1975 Barbara Grey made similar conclusions about similar regime changes in ancient Egypt.
That's the big picture, which sketches the biggest political reformation since a similar process conducted by Protestants, Dissidents, and Non-Conformists, to name only a few of the political-religious movements of the late 1500s and early 1600s. The so-called Protestant Reformation was not limited to religion, but involved an intellectual and practical correction of the bullying political culture. The enduring attempt by alchemists to generate something for nothing was displaced by sound money and a broadening of public participation in debt and equity markets. As you can understand, mainly it was governments that were gullible enough to fund alchemists.
The change to sound money represents the advent of modern finance and the discipline of chemistry displacing the superstitions of alchemy represents the advent of science and applied science.
The resulting product innovation provides the greatest health, prosperity, and longevity that society has ever enjoyed.
Given the intensity of the left's lobby to oppose or amend the new phase of globalization, it is a sound movement and, of course, of interest to both sides is - how long will the trend last?
There is an old saying in physics. "If you keep your data base short enough, it will fit your theory." This, of course, was epitomized by Keynes' very personal notions about how the economy ought to work. Friedrich Hayek noted that when Keynes was writing his main thesis, he was "totally ignorant of economic history", which makes for a very short data base.
All three great experiments in authoritarian government were global and ran for some 80 years. During this, the movement used any cult or superstition that enhanced the power and wealth of the state. Or, as it was called in Roman times - the "Genius of the Emperor".
Over most of the last 100 years, the genius of policymaking has been revered and celebrated in most of the world. No matter how bullying, brutal, or murderous the state became, celebrants outnumbered skeptics. Jean-Paul Sartre summed it up with an apology "Judge communism by its intentions and not by its actions."
Back in Roman times, not all worshipped policymakers. Gaius Tacitus was a historian. Despite this, he was sceptical of grand ideas.
"Corruptisima republica plurimae legis" which, roughly translated, reads as "the more laws, the more corrupt the republic".
Once Rome's experiment in authoritarianism collapsed, and it should be added that they invented the "New Deal" long before Roosevelt did, the culture of northern Europe was population expansion and a long but slow period of innovation. The "Dark Ages" was an inappropriate description by humanist scholars. The "Quiet Centuries" would be more accurate. The measure of success was that the population in the north thrived as the Mediterranean basin suffered depopulation.
Although covering an immense span of history, the essential pattern can be identified and that is almost a hundred years of the globalization of authoritarian politics. The first example ran through the 3rd Century and was accompanied by a hundred years of rampant but, as with our example, policy-driven price inflation.
For much of the period that followed, similar attempts to centralize authority didn't really hook up until the 1500s.
Then, for a number of reasons too extensive to cover in this paper, Spain led the globalization of brutal and murderous authority. With huge shipments of gold and silver from the new world, Spain enjoyed the biggest treasure windfall in history. As with ambitious governments before and since, the greatest accumulation of wealth in history has been inadequate and the state resorted to massive borrowings and currency depreciation.
Three defaults during the 1500s did not temper Spain's relentless ambition, but nevertheless the international canker of authoritarianism and rampant inflation ended in the early 1600s.
England's history provides the clearest and least brutal transition to greater sovereignty of the individual.
The monarchy was often tempted to enlist France's assistance to impose authority. Due to a massive effort by Protestant business leaders in London , the "Glorious Revolution" of 1688 was successful. This completed the limitation of the Crown's tendency towards absolutism.
The next attempt at centralization was associated with a minor but nevertheless 20-year inflation that culminated with Napoleon. The emperor, himself, described England as a "Nation of Shopkeepers", which must have made his defeat all that more dismal.
Actually, the description was not original, but derived from The Wealth of Nations, published in 1776. In it, Adam Smith explains "To found a great empire for the sole purpose of raising up a people of customers, may at first sight appear altogether unfit for a nation of shopkeepers; but extremely fit for a nation that is governed by shopkeepers."
Fortunately, this nation of shopkeepers and consumers, under the umbrella of 19th Century liberalism, prevailed until, well, the 20th Century.
The thesis that derives from the review of rampant inflation and equally rampant experiments in authoritarian government can be summed up with a few key points. And this brings us to the question - how long will this benevolent form of globalization last?
One point is that the tyrannical centuries have only happened with extraordinary accumulations of wealth and when traditions of limited government become corrupted by ambitious politicians and bureaucracies. In England, impressive increases in general prosperity and the standard of living began in the mid-1600s. Urges for authoritarianism were thwarted by constitutional liberties, a free press, and sound currency.
Given a full understanding of previous political excesses in the Third and Sixteenth Centuries, it would have been impossible in 1895 to forecast that the 20th Century would replicate authoritarian horrors that were the feature of earlier examples.
More specifically, it would have been impossible to forecast that the U.S. would begin yet another experiment in central banking with the seductions of a flexible currency. Also, it would have been impossible to predict the arrival of charismatic economics with Keynes' personal notions made formal in his book of 1936.
However, given the details of the duration then and the symptoms of the collapse of the two previous tyrannical centuries, it is possible to derive some conclusions about this phase of globalization. But before getting there, it's worth noting that this year a Canadian socialist, John Ralston Saul, published The Collapse of Globalism, which claimed that "Globalization, like many great geopolitical ideologies before it, is now officially dead." [emphasis not added].
Of course, only time will tell, but given the huge and recurring data base, will the trend away from collectivism towards the sovereignty of the individual continue to work out? After all, under Clinton in the U.S., Chretien in Canada, with Schroeder and Chirac in Europe, the last decade of credit inflation and booms has seen a revival of ambitious neo-authoritarians.
Historically, the surrender of centralized power to the individual has occurred on the contractions following huge asset inflations. Obviously, the world is eligible for a contraction that could be more deep and widespread than the one that followed the inflation in tech stocks in 2000.
In which case, politics should resume the great reformation symbolized by the fall of the Berlin Wall.
This brings us to some concluding philosophy. While there is no guarantee that this reformation will continue, there is no guarantee that it won't.
Now is about the time when the antidote to the disease of central planning is due to resume its liberating course. Those who think that globalization is "officially dead" need to expand their data base.
