Hannibal iterum ad Portas

That soul which once convulsed the world will meet its end,
Not from a sword, or stones, or spears, but from an object
Which, avenging Cannae, will take reprisal for all that bloodshed –
A poisoned ring. Go on, you maniac; charge through the Alpine wastes
To entertain a class of boys and become an oration!

— Juvenal Satire X

Six years ago, on a similar occasion to this, I delivered a speech entitled ‘Hannibal ad Portas’ – ‘Hannibal at the gates’ – in which I outlined many of what I then perceived as building threats to wealth and capital preservation.

Reviewing it now, two things strike me most forcibly: firstly, that what I said was not really so profound, but merely a dogged application of common sense, leavened with the wisdom of the Austrian masters; and, next, that I obviously did a poor job of making my case since I have had to address many of the same points over and over again in the intervening years!

During that time, a good number of the risks I tried to identify have come to a baleful fruition – though I must disclaim any notion of prophethood by declaring that I could neither give any hints as to the timing of the collapse, nor single out its proximate cause, much less detail the specifics of its progress thereafter.

What I did say – and what I have scarcely ceased from repeating since – is the fact that these evils have been visited upon us due, in good part, to the wilful insistence of the court astrologers and lackey alchemists on looking at things economic in entirely the wrong manner, and in no little measure because of our own deranged faith in the conclusions they draw from their necromancy, despite an appalling record of incomprehension and outright falsehood with which we are only too familiar.

In retrospect, ‘Hannibal’ came just as the Boom which has since wrecked us was just beginning to well up toward the fantastical heights it ultimately reached, before rolling over and breaking, and scattering the hopes and dreams of many, like driftwood on a rocky shore.

Though it had its roots a further six years back, one of the salient features of this Boom was the accelerating tendency to create a majority of the new jobs called into being and to invest a dominant share of the new capital being laid down in the export industries of the East, principally – though not exclusively – in China.

But if this meant we Westerners were no longer bothering to increase our productive capacity to make things in quite the way we once did, what were we going to exchange for all the new riches of the Orient which would be pouring out of their shiny, new factories? Why, our IOUS, of course!

In the classical model of this, those IOUs would eventually be presented for redemption. The buyers would have to surrender hard value – gold or silver, typically – and with money becoming scarcer as a result, prices would fall, with the converse happening when the sellers began to spend their swelling revenues at home. This soon would choke off the attractiveness of exporting in the latter and increase the incentives to do so in the former, so restoring balance before things became too far gone and both parties got in over their heads.

Alas, since money has no tangible backing today, that part of it which is surrendered can all too easily be replaced and more excess spending be undertaken – and more debt be contracted – so turning off the regulator at source.

Compounding this mistake, the recipients chose to use this foreign money as the backing for new issues of their own domestic currency and so they absorbed very much more of it than would have been the case if it were simply being used to move container ships around the world. Thus, the ratio between our currency and theirs on the foreign exchanges did not come to reflect the markedly one-way nature of the trade being undertaken with them – theirs did not gradually strengthen, nor ours sufficiently weaken, to disincentivize slowly all but the most competitive exporters there.

Intriguingly, a similar system had been in operation once before as the West sent vast sums of American-mined silver seaward to Asia in return for their exquisite silks and calicoes, their exotic spices, and their translucent porcelains and finely-decorated ceramics.

One essential difference of course, was that the silver had to be won from the bowels of the earth and transhipped perilously across the globe: it was not simply conjured into being in the computer hard drives of some too-big-to-fail banking behemoth and so it remained both scarce and costly to produce. One essential motivation on the part of the Chinese was that the silver helped them ward off the curse of paper money whose use had plagued them ever since the 10th century and which had bought no less than three successive dynasties to their ruin.

For more than three hundred years, this interchange worked to the benefit of both parties – right until we added tea to the list of our wants and found we liked it so much that those of us not dressing up as Indians and dumping it in the harbour could no longer pay our way without offering them something much less benign than silver in return – and so hit upon the opium which we almost literally forced into their nostrils at the point of a gun.

But, we digress.

This time around, the new possibilities which had emerged upon the fall of the old communist order in 1989 began a movement which only quickened after the Asian currency collapse of the late-1990s. This allowed us to tap a new, cheap and seemingly inexhaustible source of labour amid the rubble of left by the fallen ‘Tigers’. As the costs of many other productive inputs which were needed by these workers – such as land, financial capital, and energy – were also suppressed by a deliberate act of policy – and with a multitude of tax rebates and other incentives also tipping the scales – the prices of more and more of the goods in the shops our progressively over-spending, chronically under-investing, Occidental countries not only did not rise, they even had a tendency to decline.

Since those in charge of the money presses in each buying country only ever looked at the price of some artificial basket of those goods which were bought by end-consumers – and given that they even fretted if these were not actually increasing at some outwardly modest, but nonetheless profoundly corrosive, rate – this meant they were happy to strike more and more sparks upon the tinder, until they fanned the flames into a worldwide conflagration.

Of course, with money so easy and credit so cheap – and becoming ever cheaper and more accessible, thanks to the seductive artfulness of the banking industry – it was not long before the prices of everything not being made in China and its peers started to become more expensive instead. Houses started to appreciate and the stock market rallied: the market’s estimation of more and more risky credits improved. Classic cars, antique watches, vintage wines, diamonds, contemporary art – you name it: once people became aware that these things were going up in price faster than the interest balance on their loans, we were off to the races.

But since these were ‘assets’, not mere goods – and so were presumably priced in a fully efficient market by thoroughly rational participants – this was held to be no business of those in the central banks to interfere with. Accordingly, the monetary Hoi Phyllakes, wittingly or not, kept on adding fuel and pumping in air to a speculative inferno which was by now well and truly ablaze.

More debt meant higher prices. Higher prices meant better collateral valuations. More collateral meant more possibilities for lending and so on round again.

Now, you may have found that the whole troupe of formerly cheerleading authors of the profusion of books and newspaper articles which have been rushed out to do a little Monday morning quarterbacking on the debacle this caused are annoyingly keen to bamboozle you with all sorts of highly technical language and confusing terminology, in order that you think they are smart. PIK notes, covenant-light loans, toggles, average-rate securities, structured notes, credit default swaps, constant-proportion debt obligations, CLOs, CDOs, CDO-squareds and even cubeds – these are some of the many buzzwords bandied about by the cognoscenti .

But trying to unpick all this complexity is beside the point: the real crux was that Finance – both High and Low – was no longer allocating genuine savings to potentially useful ends, but rather conjuring up the illusion that there was a Horn of Plenty into which we could all dip – once we had paid our bankers, brokers, and fund salesmen their none-too modest fee, of course.

There was no scarcity; no waiting time was necessary; there was no need to actually produce more value in order to enjoy a better lifestyle. Just sign here, please, Dr. Faustus, and we’ll get you a higher loan-to-value, extended payment terms, and the chance to refinance when the price goes up and the rates come down, as you and I both know they will!

Certainly the specific instruments of economic torture may differ and the incantations may contain altered language, but the same twisted ingenuity of this Guild of Sorcerers’ Apprentices has, over the past 350 years, brought about the Tulipmania of the 17th century; the South Sea and Mississippi Bubbles of the 18th; the canal, gaslight and railway manias of the 19th; the utility and holding company boom of the early 20th; the Tech and Telecom madness of the turn of the 21st, and many, many more episodes of mass insanity in between.

Unsound money and unrestrained credit combines far too readily with Man’s inherent disinclination to live off the sweat of his brow to make him an easy mark for every smooth-tongued, silk-suited chancer who promises him a ticket out of the Land of Nod and, once, again, this fatal weakness has led us to a ruin which has engulfed the innocent along with the guilty.

This collapse, so our friends on the left were only too happy to declare, marked the ‘Death of Capitalism’, but it looks as though their declaration may have been just a little premature. Here we are, only two years after they jubilantly read the rites over the first corpse and the trillion dollar wake they threw may have led directly to the demise of their beloved Provider State as well.

The irony here is that while people may be blind to the notion that their own reckless borrowing and determined over-consumption was what led to disaster, they are far more likely to acknowledge that a similar act of untoward extension by the State is not to be countenanced.

As the limitations of ‘Crude Keynesianism’ became more apparent, the debate swiftly moved on from the phoney war of whether there should have been a bail out or not to a similarly heated one about whether we now need something categorised as ‘austerity’ or  a further dose of Big Government stimulus.

The truth is that even to frame the issue in this simple, sound-bite fashion is to concede half the argument.

What is ‘stimulating’ about plying the drunkard with more drink or offering the glutton another helping of cake and what is ‘austere’ about the profligate being told to live once more, within his means?

The only thing austere is the message that there can be no further self-delusion; that there are no easy fixes. That there is no macro-economic diet pill, only hard work, honest endeavour, persistence and self-discipline – in other words, only the traditional route to prosperity. If we are to have a ‘policy’ to promote this, it should be a policy of lubricating, not leading; of facilitating, not force-marching.

The world has changed irrevocably with the bursting of the bubble, so what is needed now is the maximum of flexibility in adapting to such altered circumstances: what the original Austrians called, amid the traumas of the 1930s, an ‘Auflockerung’ – a ‘loosening’ of all the self-imposed rigidities which plague our economic interrelations and hamper a genuine recovery.

Perhaps THE greatest mistake in the whole, vast litany of stupidity which we daily celebrate is to imagine that there actually exists such a discipline as ‘macro-economics’.

The truth is much simpler than this sad parody of physics suggests. The world really is the sum of its parts. It is no more than a summing up of the actions we each take as individuals, a superposition which, contrary to the mainstream prejudice, never does cross some reverse quantum threshold of weirdness whereby what makes perfect sense when I strike a deal with you, you conclude a bargain with him, and he then conducts business with me, somehow produces strange and perverse effects when there are a hundred of   him, a thousand of you, and a million of me.

Once fall prey to this fallacy, however, and you will be ready to believe that to burn the house down is better than to put out the fire; that, if the whole family falls ill, the kids must run a marathon to compensate for the parents; time in the sick bed; that the retreat of an occupying army is bad news because the soldiers won’t be spending the money they first took from us on the few, threadbare goods left in our shops.

To hold this sham of a theory is to believe that capital is an undifferentiated, instantly transformable porridge, not a near infinity of tools, equipment, plant and machinery, fixed in stone, cast in steel, and intricately engineered to serve what is often a very specific purpose.

It is also to imagine that labour is a faceless, uniform, ant heap of automatons, not actual people – to smooth into dull anonymity all the bakers, barristers, scientists, and secretaries all scrambling out of bed each morning to earn a living providing what all the other bakers, barristers, scientists, and secretaries fancy they need to make their individual lives more complete.

Those who do hold this for their revealed truth – the Collectivists, the Keynesians, the Planners, and the Utopians – all have a fundamental disregard for the sanctity for the individual human soul and a profound disrespect for the potential of the individual human mind. Only they can guide us, lead us: only they can refashion our poor human clay in their own, idealized self-image.

This is a Jacobin doctrine of the kind which a religious man might categorize as Satanic in its presumption and yet those who espouse it are the Whitened Graves who routinely slander us Austrians as being dogmatic, desiccated, and discompassionate. Much better to be manifestly pro-market than a Modern Promethean, I would contend.

But, given that our rulers very much do hew to these false gods, what does their worship imply for our wealth? What does it portend for our ability to earn – and keep – an income?

The first thing to realise is that the caterer’s bill for our Banquet of Fools cannot possibly be paid, that our debts are already too high and our promises cannot be redeemed in full.

But, if not the capital R of Redemption, then what? I fear we are in for one of the other R’s; Repudiation, Rescheduling, Refinancing, Redistribution, Repression, or Redenomination.

The hidden benefit of the first, an outright Repudiation, however wrenching the experience may be, is that it might once more drive home the lesson that, no matter what the credit ratings agencies may say, the worst person to lend to is your overlord.

The second – a Rescheduling – is more insidious since it is a hidden form of the first; an outward pretence to repay, but one undertaken on a sufficiently lengthened schedule that the full value will not be rendered to the lender.

Refinancing is really no solution, but only a procrastination which will last only so long as the weaker can piggy-back on the credit of the stronger. Then, one day, all the musicians of Bremen will be found atop one another, each braying plaintively for yet another loan to stagger on awhile further, but each unable to find a further back upon which to clamber.

Redistribution entails a further harvest of the tall poppies, taking what the remnant have so far managed to salvage and adding it to the bonfire of our masters’ vanities. So great are the obligations, however, that even the most swingeing taxation, even the most relentless confiscation, will not yield enough to settle the accounts, so this, too, will prove futile in the end.

By Repression we mean that all pretence at maintaining a market will be abandoned. Increasingly Scarce resources will be allocated not according to price, but by political favour. The ration book will replace the auction house, the commissar will be always right, not the customer, and the border will become a prison wall.

Redenomination means the debt may be repaid in name, but not in substance. This is the Weimar way, the shameless resort to the wheelbarrow as a getaway car for the robbers-in-office whom we elect.

The common factor binding each of these is that they imply a future struggle over who will bear the costs and a battle to determine how long the subsidized can continue to guzzle hungrily at the table of the surcharged.

Now that the camouflage of postponement by further borrowing has been largely stripped away, this has become an urgent question – one whose resolution will affect us all most deeply.

Hence, this is a time that calls for the maximum of adaptability, as well as for a considerable display of both intellectual conviction and moral courage. If we do not have it within ourselves to do, we need to enlist the aid of men – entrepreneurial men, clear-thinking men, men of unflinching resolve – who will seek out opportunities to thrive even amid the wreck of the state and who will find safe havens for our capital regardless of the destructive death throes of Leviathan itself.

If we can persuade such men to look after our material fortunes, we can steel ourselves to face the many other challenges we will doubtless confront, secure in the knowledge that, whatever else these uncertain times may bring, we may yet be spared the worst of the coming recognition of the widespread, societal impoverishment to which the utter abnegation of classic, Manchester liberalism has reduced us.

As I mentioned at the start, the speech I gave six years ago was entitled, ‘Hannibal ad Portas’ in allusion to the admonition made by Roman matrons to their naughty children that, if they did not behave, the foreign bogeyman would take them.

But if Hannibal knocks again, perhaps we should welcome his approach, not fear it and by analogy, perhaps we, too, should embrace our own coming crisis as a rare, precious chance to make things better.

After all, the Romans were plunderers and extortioners on a truly grand scale – and, on that score, have been admired and emulated by power-worshippers and oppressors ever since. For all its specious majesty, Rome, at root, was nothing but a vast, highly-organized, Mafia state which reached its baneful zenith once it had ‘created a desert and given it the lying name of Peace’ in all the fertile lands and amongst all the sophisticated peoples within reach of its hordes of legionary killers.

Carthage, by contrast, was built largely on the gains from peaceful trade by a race – the Phoenicians – which, for a millennium or more, had been renowned for its commercial acumen and enterprising outlook, all along the Middle Sea and out into the terrifying deeps of the Ocean itself.

That reputation, that record of sustained success, strongly hints that, for all the supercilious Roman jeers about ‘Punic treachery’, the Carthaginians knew how to keep their bargains and how to give their many diverse customers mostly what they wanted at a price they were happy enough to pay

So let us not be fooled by fact that Hannibal’s name was taken in vain by the snarling creatures of a jackal-empire who enslaved a world, yet maintained they had never fought an aggressive war.

Perhaps history would have been changed very much for the better if, rather than barring the city gates in his face, the Romans had flung them wide open, and invited the head of the venerable House of Barca to step inside and give them a lesson in business management and accounting principles instead.