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If credit is such a wonderful thing, why did nobody think of it earlier? Of course they did. Credit arrangements of one kind or another have existed in all known human cultures, going back at least to ancient Sumer. The problem in previous eras was not that no one had the idea or knew how to use it. It was that people ...
If the global pie stayed the same size, there was no margin for credit. Credit is the difference between today’s pie and tomorrows pie. If the pie stays the same, why extend credit? It would be an unacceptable risk unless you believed that the baker or king asking for your money might be able to steal a slice from a co...
That was fine for kings (as long as their subjects remained docile), but a scullery maid who had a great idea for a bakery and wanted to move up in the world generally could only dream of wealth while scrubbing down the royal kitchens floors.
A Growing Pie
Then came the Scientific Revolution and the idea of progress. The idea of progress is built on the notion that if we admit our ignorance and invest resources in research, things can improve. This idea was soon translated into economic terms. Whoever believes in progress believes that geographical discoveries, technolog...
The belief in the growing global pie eventually turned revolutionary. In 1776 the Scottish economist Adam Smith published The Wealth of Nations, probably the most important economics manifesto of all time. In the eighth chapter of its first volume, Smith made the following novel argument: when a landlord, a weaver, or ...
Smith taught people to think about the economy as a ‘win-win situation’, in which my profits are also your profits. Not only can we both enjoy a bigger slice of pie at the same time, but the increase in your slice depends upon the increase in my slice. If I am poor, you too will be poor since I cannot buy your products...
All this depends, however, on the rich using their profits to open new factories and hire new employees, rather than wasting them on non-productive activities. Smith therefore repeated like a mantra the maxim that ‘When profits increase, the landlord or weaver will employ more assistants’ and not ‘When profits increase...
The idea that ‘The profits of production must be reinvested in increasing production’ sounds trivial. Yet it was alien to most people throughout history. In premodern times, people believed that production was more or less constant. So why reinvest your profits if production won’t increase by much, no matter what you d...
In the modern era, the nobility has been overtaken by a new elite whose members are true believers in the capitalist creed. The new capitalist elite is made up not of dukes and marquises, but of board chairmen, stock traders and industrialists. These magnates are far richer than the medieval nobility, but they are far ...
Medieval noblemen wore colourful robes of gold and silk, and devoted much of their time to attending banquets, carnivals and glamorous tournaments. In comparison, modern CEOs don dreary uniforms called suits that afford them all the panache of a flock of crows, and they have little time for festivities. The typical ven...
It’s not just Versace-clad business moguls who invest to increase productivity. Ordinary folk and government agencies think along similar lines. How many dinner conversations in modest neighbourhoods sooner or later bog down in interminable debate about whether it is better to invest one’s savings in the stock market, ...
Capitalism began as a theory about how the economy functions. It was both descriptive and prescriptive – it offered an account of how money worked and promoted the idea that reinvesting profits in production leads to fast economic growth. But capitalism gradually became far more than just an economic doctrine. It now e...
This new religion has had a decisive influence on the development of modern science, too. Scientific research is usually funded by either governments or private businesses. When capitalist governments and businesses consider investing in a particular scientific project, the first questions are usually, ‘Will this proje...
Over the last few years, banks and governments have been frenziedly printing money. Everybody is terrified that the current economic crisis may stop the growth of the economy. So they are creating trillions of dollars, euros and yen out of thin air, pumping cheap credit into the system, and hoping that the scientists, ...
Columbus Searches for an Investor
Capitalism played a decisive role not only in the rise of modern science, but also in the emergence of European imperialism. And it was European imperialism that created the capitalist credit system in the first place. Of course, credit was not invented in modern Europe. It existed in almost all agricultural societies,...
However, in the sociopolitical systems of China, India and the Muslim world, credit played only a secondary role. Merchants and bankers in the markets of Istanbul, Isfahan, Delhi and Beijing may have thought along capitalist lines, but the kings and generals in the palaces and forts tended to despise merchants and merc...
In Europe, on the other hand, kings and generals gradually adopted the mercantile way of thinking, until merchants and bankers became the ruling elite. The European conquest of the world was increasingly financed through credit rather than taxes, and was increasingly directed by capitalists whose main ambition was to r...
In 1484 Christopher Columbus approached the king of Portugal with the proposal that he finance a fleet that would sail westward to find a new trade route to East Asia. Such explorations were a very risky and costly business. A lot of money was needed in order to build ships, buy supplies, and pay sailors and soldiers –...
Like a present-day start-up entrepreneur, Columbus did not give up. He pitched his idea to other potential investors in Italy, France, England, and again in Portugal. Each time he was rejected. He then tried his luck with Ferdinand and Isabella, rulers of newly united Spain. He took on some experienced lobbyists, and w...
A hundred years later, princes and bankers were willing to extend far more credit to Columbus’ successors, and they had more capital at their disposal, thanks to the treasures reaped from America. Equally important, princes and bankers had far more trust in the potential of exploration, and were more willing to part wi...
But these expeditions remained chancy affairs, so credit markets nevertheless remained quite cautious. Many expeditions returned to Europe empty-handed, having discovered nothing of value. The English, for instance, wasted a lot of capital in fruitless attempts to discover a north-western passage to Asia through the Ar...
Decade by decade, western Europe witnessed the development of a sophisticated financial system that could raise large amounts of credit on short notice and put it at the disposal of private entrepreneurs and governments. This system could finance explorations and conquests far more efficiently than any kingdom or empir...
In 1568 the Dutch, who were mainly Protestant, revolted against their Catholic Spanish overlord. At first the rebels seemed to play the role of Don Quixote, courageously tilting at invincible windmills. Yet within eighty years the Dutch had not only secured their independence from Spain, but had managed to replace the ...
How exactly did the Dutch win the trust of the financial system? Firstly, they were sticklers about repaying their loans on time and in full, making the extension of credit less risky for lenders. Secondly, their country’s judicial system enjoyed independence and protected private rights – in particular private propert...
Imagine that you are the son of a solid family of German financiers. Your father sees an opportunity to expand the business by opening branches in major European cities. He sends you to Amsterdam and your younger brother to Madrid, giving you each 10,000 gold coins to invest. Your brother lends his start-up capital at ...
The year passes. The Dutch merchant sells the land he’s bought at a handsome markup and repays your money with the interest he promised. Your father is pleased. But your little brother in Madrid is getting nervous. The war with France ended well for the king of Spain, but he has now embroiled himself in a conflict with...
Now, to make matters worse, the king sends a treasury official to your brother to tell him, in no uncertain terms, that he expects to receive another loan of the same size, forthwith. Your brother has no money to lend. He writes home to Dad, trying to persuade him that this time the king will come through. The paterfam...
Your father is furious, and tells both of you it is time to unleash the lawyers. Your brother files suit in Madrid against the Spanish monarch, while you file suit in Amsterdam against the erstwhile wooden-shoe wizard. In Spain, the law courts are subservient to the king – the judges serve at his pleasure and fear puni...
And your brother’s travails are not over. The king of Spain desperately needs more money to pay his army. He’s sure that your father has cash to spare. So he brings trumped-up treason charges against your brother. If he doesn’t come up with 20,000 gold coins forthwith, he’ll get cast into a dungeon and rot there until ...
Your father has had enough. He pays the ransom for his beloved son, but swears never to do business in Spain again. He closes his Madrid branch and relocates your brother to Rotterdam. Two branches in Holland now look like a really good idea. He hears that even Spanish capitalists are smuggling their fortunes out of th...
In such ways did the king of Spain squander the trust of investors at the same time that Dutch merchants gained their confidence. And it was the Dutch merchants – not the Dutch state – who built the Dutch Empire. The king of Spain kept on trying to finance and maintain his conquests by raising unpopular taxes from a di...
If you thought a company was going to make a big profit but it had already sold all its shares, you could buy some from people who owned them, probably for a higher price than they originally paid. If you bought shares and later discovered that the company was in dire straits, you could try to unload your stock for a l...
The most famous Dutch joint-stock company, the Vereenigde Oostindische Compagnie, or VOC for short, was chartered in 1602, just as the Dutch were throwing off Spanish rule and the boom of Spanish artillery could still be heard not far from Amsterdam’s ramparts. VOC used the money it raised from selling shares to build ...
Indonesia is the world’s biggest archipelago. Its thousands upon thousands of islands were ruled in the early seventeenth century by hundreds of kingdoms, principalities, sultanates and tribes. When VOC merchants first arrived in Indonesia in 1603, their aims were strictly commercial. However, in order to secure their ...
Island after island fell to VOC mercenaries and a large part of Indonesia became a VOC colony. VOC ruled Indonesia for close to 200 years. Only in 1800 did the Dutch state assume control of Indonesia, making it a Dutch national colony for the following 150 years. Today some people warn that twenty-first-century corpora...
While VOC operated in the Indian Ocean, the Dutch West Indies Company, or WIC, plied the Atlantic. In order to control trade on the important Hudson River, WIC built a settlement called New Amsterdam on an island at the river’s mouth. The colony was threatened by Indians and repeatedly attacked by the British, who even...
As the seventeenth century wound to an end, complacency and costly continental wars caused the Dutch to lose not only New York, but also their place as Europe’s financial and imperial engine. The vacancy was hotly contested by France and Britain. At first France seemed to be in a far stronger position. It was bigger th...
In 1717 the Mississippi Company, chartered in France, set out to colonise the lower Mississippi valley, establishing the city of New Orleans in the process. To finance its ambitious plans, the company, which had good connections at the court of King Louis XV, sold shares on the Paris stock exchange. John Law, the compa...
A few days later, the panic began. Some speculators realised that the share prices were totally unrealistic and unsustainable. They figured that they had better sell while stock prices were at their peak. As the supply of shares available rose, their price declined. When other investors saw the price going down, they a...
The Mississippi Bubble was one of history’s most spectacular financial crashes. The royal French financial system never recuperated fully from the blow. The way in which the Mississippi Company used its political clout to manipulate share prices and fuel the buying frenzy caused the public to lose faith in the French b...
While the French overseas empire was crumbling, the British Empire was expanding rapidly. Like the Dutch Empire before it, the British Empire was established and run largely by private joint-stock companies based in the London stock exchange. The first English settlements in North America were established in the early ...
The Indian subcontinent too was conquered not by the British state, but by the mercenary army of the British East India Company. This company outperformed even the VOC. From its headquarters in Leadenhall Street, London, it ruled a mighty Indian empire for about a century, maintaining a huge military force of up to 350...
In the Name of Capital
The nationalisation of Indonesia by the Dutch crown (1800) and of India by the British crown (1858) hardly ended the embrace of capitalism and empire. On the contrary, the connection only grew stronger during the nineteenth century. Joint-stock companies no longer needed to establish and govern private colonies – their...
The most notorious example of how governments did the bidding of big money was the First Opium War, fought between Britain and China (1840–42). In the first half of the nineteenth century, the British East India Company and sundry British business people made fortunes by exporting drugs, particularly opium, to China. M...
In 1840 Britain duly declared war on China in the name of ‘free trade’. It was a walkover. The overconfident Chinese were no match for Britain’s new wonder weapons – steamboats, heavy artillery, rockets and rapid-fire rifles. Under the subsequent peace treaty, China agreed not to constrain the activities of British dru...
These were hardly the only wars fought in the interests of investors. In fact, war itself could become a commodity, just like opium. In 1821 the Greeks rebelled against the Ottoman Empire. The uprising aroused great sympathy in liberal and romantic circles in Britain – Lord Byron, the poet, even went to Greece to fight...
The bear hug between capital and politics has had far-reaching implications for the credit market. The amount of credit in an economy is determined not only by purely economic factors such as the discovery of a new oil field or the invention of a new machine, but also by political events such as regime changes or more ...
This is why today a country’s credit rating is far more important to its economic well-being than are its natural resources. Credit ratings indicate the probability that a country will pay its debts. In addition to purely economic data, they take into account political, social and even cultural factors. An oil-rich cou...
The Cult of the Free Market
Capital and politics influence each other to such an extent that their relations are hotly debated by economists, politicians and the general public alike. Ardent capitalists tend to argue that capital should be free to influence politics, but politics should not be allowed to influence capital. They argue that when go...
In this view, the wisest economic policy is to keep politics out of the economy, reduce taxation and government regulation to a minimum, and allow market forces free rein to take their course. Private investors, unencumbered by political considerations, will invest their money where they can get the most profit, so the...
But in its extreme form, belief in the free market is as naïve as belief in Santa Claus. There simply is no such thing as a market free of all political bias. The most important economic resource is trust in the future, and this resource is constantly threatened by thieves and charlatans. Markets by themselves offer no...
The Capitalist Hell
There is an even more fundamental reason why it’s dangerous to give markets a completely free rein. Adam Smith taught that the shoemaker would use his surplus to employ more assistants. This implies that egoistic greed is beneficial for all, since profits are utilised to expand production and hire more employees.
Yet what happens if the greedy shoemaker increases his profits by paying employees less and increasing their work hours? The standard answer is that the free market would protect the employees. If our shoemaker pays too little and demands too much, the best employees would naturally abandon him and go to work for his c...
This sounds bulletproof in theory, but in practice the bullets get through all too easily. In a completely free market, unsupervised by kings and priests, avaricious capitalists can establish monopolies or collude against their workforces. If there is a single corporation controlling all shoe factories in a country, or...
Even worse, greedy bosses might curtail the workers’ freedom of movement through debt peonage or slavery. At the end of the Middle Ages, slavery was almost unknown in Christian Europe. During the early modern period, the rise of European capitalism went hand in hand with the rise of the Atlantic slave trade. Unrestrain...
When the Europeans conquered America, they opened gold and silver mines and established sugar, tobacco and cotton plantations. These mines and plantations became the mainstay of American production and export. The sugar plantations were particularly important. In the Middle Ages, sugar was a rare luxury in Europe. It w...
However, growing cane and extracting its sugar was a labour-intensive business. Few people wanted to work long hours in malaria-infested sugar fields under a tropical sun. Contract labourers would have produced a commodity too expensive for mass consumption. Sensitive to market forces, and greedy for profits and econom...
From the sixteenth to the nineteenth centuries, about 10 million African slaves were imported to America. About 70 per cent of them worked on the sugar plantations. Labour conditions were abominable. Most slaves lived a short and miserable life, and millions more died during wars waged to capture slaves or during the l...
The slave trade was not controlled by any state or government. It was a purely economic enterprise, organised and financed by the free market according to the laws of supply and demand. Private slave-trading companies sold shares on the Amsterdam, London and Paris stock exchanges. Middle-class Europeans looking for a g...
This is the fly in the ointment of free-market capitalism. It cannot ensure that profits are gained in a fair way, or distributed in a fair manner. On the contrary, the craving to increase profits and production blinds people to anything that might stand in the way. When growth becomes a supreme good, unrestricted by a...
It is important to remember that the Atlantic slave trade was not a single aberration in an otherwise spotless record. The Great Bengal Famine, discussed in the previous chapter, was caused by a similar dynamic – the British East India Company cared more about its profits than about the lives of 10 million Bengalis. VO...
The nineteenth century brought no improvement in the ethics of capitalism. The Industrial Revolution that swept through Europe enriched the bankers and capital-owners, but condemned millions of workers to a life of abject poverty. In the European colonies things were even worse. In 1876, King Leopold II of Belgium set ...
Within a short time the humanitarian organisation became a business enterprise whose real aim was growth and profit. The schools and hospitals were forgotten, and the Congo basin was instead filled with mines and plantations, run by mostly Belgian officials who ruthlessly exploited the local population. The rubber indu...
Capitalism has two answers to this criticism. First, capitalism has created a world that nobody but a capitalist is capable of running. The only serious attempt to manage the world differently – Communism – was so much worse in almost every conceivable way that nobody has the stomach to try again. In 8500 BC one could ...
The second answer is that we just need more patience – paradise, the capitalists promise, is right around the corner. True, mistakes have been made, such as the Atlantic slave trade and the exploitation of the European working class. But we have learned our lesson, and if we just wait a little longer and allow the pie ...
There are, indeed, some positive signs. At least when we use purely material criteria – such as life expectancy, child mortality and calorie intake – the standard of living of the average human in 2014 is significantly higher than it was in 1914, despite the exponential growth in the number of humans.
Yet can the economic pie grow indefinitely? Every pie requires raw materials and energy. Prophets of doom warn that sooner or later Homo sapiens will exhaust the raw materials and energy of planet Earth. And what will happen then?
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13 September 2010
Nah-uh. Not that "Electrocute" song. Whatever its real title is.
I noticed that I get mild (how do you call them again?) electric shocks when the HP Mini 311 is charging - I touch the sides and I think it's the USB, VGA, HDMI ports that I get the mild shocks from. But I also get it when I brush my hand's upper side (whatever you call that side of your hand that is opposite your pal...
Is this normal or should I get worried (perhaps our power outlets are frying my Mini 311's innards?)?
Quactaur said...
Lemaurien I have had this happen on a couple of external hard drives. I don't get proper shocks, it just feels like my hand is buzzing / vibrating as I run my hand/finger over it. It hasn't done harm in a good few months use, but that's external; if it's on the ports themselves you might want to have someone look at it...
One simple trick to try is use a different PSU. While I'm okay with it on my HDs, I have used different power cords and have problem stop. Give it a try if you can spare on.
If as you suspect it's your actual power outlets (shouldn't be if they're selling the machines there) then just get a protected extension cord
LeMaurien19 said...
Thanks Quactaur. Will hunt for a new PSU then. It's my fault - I just assumed that the power brick would regulate current for the Mini 311. But I guess it doesn't.
I'm also concerned about that strip of metal covering the speakers. Maybe we should watch out for peeling paint?
machosehead said...
Wow, shocks don't sound good. I would suggest trying a different PSU too. Make sure the electrical receptacle you are using has a good earth ground as well. Do you notice this plugged-in at different locations? I noticed that the PSU for my mini is same as other HP PSUs from dead laptops people have given me. The model...
Wednesday, January 30, 2013
Net Worth Updated
Hey Financial Freaks!
I have updated my net worth today. I know my arithmetic has been quite up and down lately. It's because of recent changes in the amount I have received. Anyway, the page Net Worth should now be pretty acurate.
Here's a few changes I have made:
I have added the 6 K$ I have received last week.
I have put 4 K$ (instead of 2.5) for my motorcycle and car. See, I have been working on my bike for quite some time now and I reckon the value has gone up. As for the car, it's mostly my girlfriend but she say's its 33 % mine (hey! I paid some of the bills!). So this 4 K $ is very conservative.
The value of my pension plan is bound to fluctuate because of the market. But those are the latest numbers I was told.
As for the real estate part, the net worth number represent 50 % of my profit if we would sell today. Again, this is a conservative estimate.
So, all in all, I am worth 330 K $. Not bad for a thirty-something old guy. It could be better and it could be much worse.
What do you think? How do I rank up?
1. You are about exactly where I am at, age and value. I just put up a net worth page but haven't made a post about it yet.
2. Hey AAI! Yeah, we are pretty toe to toe. The race is on! :-) I especially like your Real Estate diversification. And I am sure would love your Cayenne too!

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