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  • Can we agree on our terms or just use them for abuse?
  • Think of words like currency, both suffer from inflation
  • Inflation intensifies wealth inequality

The War of Words With Harold James
November 23, 2021

“Those periods of immense cultural production or monetary production don’t last forever, they run out. And we talked before about the world of virtual currencies, distributed ledger technology. They are alternative monetary instruments, and I think there will be alternative concepts as well. But my sense is that the dollar is not going to be as central for the next 50 years as it was for the past 50 years, and I think we’ll have to also find new terms to describe that world.” — Harold James

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany. 

Well, this is an eagerly awaited interview. You’ve been trying to get Harold James on since this spring, knowing that he’s got another book out, but it didn’t work out until now. And I think, timing, I look at timing and I think sometimes timing is supposed to be what it is. We’ve had past interviews with Harold James. I know you love reading his books. We have as an office read a number of his books. The latest book The War of Words is just an addition to many volumes that he’s written over the last couple of decades.

David: 2009 and 2010 were my first introductions to Harold James’ writing. Actually, some work that he had done much earlier The End Of Globalization: Lessons From The Great Depression and The Creation and Destruction of Value and that was an office read. We are kind of strange that way—

Kevin: Fascinating.

David: —order a case of books and have a great discussion over pizza and wine, it’s kind of what we define as fun.

Kevin: Talking about definition, when you do read the same books, and you and I— I feel very blessed that you and I have read a lot of the same books. We’ve met a lot of the same people. I’ve gotten to listen to these interviews through the years. What it does, the quality of our conversation Dave, we don’t have to define terms nearly as often as we would if we were talking to somebody we didn’t know. Those Monday nights with Talisker go so deep sometimes, and I think about it and it’s like, well, part of that has to do with 14 years of experience of listening to people like Harold James on the McAlvany Weekly Commentary.

David: Yeah. And I’ve referenced that before where, similarly, my wife and I share a vernacular, having read similar books in college.

Kevin: That’s what you said last week.

David: And for you and I over the last 15 years, it’s a shared conversation that’s gone on, and books and resources that we’ve exposed ourselves to, but that shared language allows for a different kind of conversation, it allows for a different kind of debate, and that I think is at the heart of what James is looking for in The War of Words. Let’s recalibrate and make sure that we appreciate the value of these concepts and these words.

Kevin: Well, and the question is, are we trying to agree on terms or are we trying to use them for abuse? And Harold James brings that up. He says, are you using the term, whatever it is, capitalist, socialist, whatever, as a term to try to understand what the other side says or what the other person you’re talking to says? Or are you really just finding a way of— let’s just call it name calling?

David: It can become a slogan, it can become a weapon, and Harold James would say, “No, it’s better to appreciate the history of the word, what it has meant, what it means now, and how it may continue to develop”

Kevin: Well, Dave, you can go to the Bible and listen to Proverbs, and the power of the tongue is so important. That’s in Proverbs, it’s in James, it’s in other areas of the Bible. But you can go back to old Chinese writing and look at the same. When there is a truth, the truth can be universal.

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David: Lao Tzu is attributed with saying, “Watch your thoughts, they become your words. Watch your words, they become your actions. Watch your actions, they become your habits. Watch your habits, they become your character. Watch your character, it becomes your destiny.” I would move, in my opinion, I’d move words to the first position. They’re the content of our thoughts. They’re the building blocks and raw materials for our arguments. They’re the stuff that we construct with and build our stories out of. 

Today, our conversation with Harold James is to look at his book The War of Words: A Glossary of Globalization. For those who’ve been listening to our Weekly Commentary through the years, you’ll know we’ve spoken with him before, The Creation And Destruction Value, The End of Globalization, Lessons from the Great Depression. These are points of reference and small bits of the contributions that Harold James has made through the years because he’s been publishing and publishing and publishing since the mid ’80s. Not quite a book of year, but almost. 

And so today we look at words. There’s a reference to an old Hasidic saying, quoted by Kafka, which is, “God created man in order to tell stories.” The narrative is one version of our attempt at making sense of the world, and again we find words are the structure that we hang meaning on. So The War of Words is an attempt to look at particular words and the meanings of words that gained the popular usage in the 19th century, but have become in many instances terms of abuse. And in a contentious era of politics we’ve got power plays, often employing rhetoric in very meaningful, significant, and dare we say abusive ways. But the use of a single word, as professor James points out, can either be a badge of honor or an epithet. And meaning is today assumed but not necessarily clear. Professor James, I can see that words are near and dear to your heart as a student of political economy, you’ve curated a list for a reason, why these words?

Harold James: Well, it’s great being with you and thank you so much, what a pleasure to speak again. Yes, indeed, these are words that are all associated with how we think about our connections with the world, how we think about globalization. There could be obviously many, many other words and when I grew up there was a very influential book by Raymond Williams called Keywords. And that tried to deal with a very broad political vocabulary, but I just wanted to focus on these words connected with globalization, because they seemed to me to be really at the heart of one of the central divisions in the United States here, but also in many, many other countries. 

And that’s the distinction between people who think in terms of a global vision and then people who want to be rooted in a particular identity. And it was a book by a British journalist a few years ago, David Goodhart, that distinguished between somewheres and anywheres. And I think part of the story of the last decade or so has been exactly that political struggle. And what I wanted to try to do was to find some way in which people from both of these camps could talk to each other. And it seemed to me that part of the problem was that they were using words on both sides in a way that was ill defined and inappropriate. 

And I think, in the same way, as you know—this is obviously a topic that’s very dear to you—we can have inflation in money, but we can also have inflation in words. And I think exactly that these terms to do with globalization have had a verbal inflation. And as with money, when you get high levels of inflation, you lose the capacity to make rational decisions. You can’t make the choices anymore because you’re getting the wrong signals, and it seemed to me that that was exactly what had happened with our use of the words that I talk about in the book. Neoliberalism or these big concepts, socialism, capitalism, hegemony, globalism, globalization itself. These are really right at the center of our contemporary discussions.

David: Well, you describe the process of defining terms as one of intellectual de-cluttering, enabling productive debate, and really aimed at more effective problem solving. In a highly polarized political environment, do you think this is an effective means of bringing in more light than heat into our public dialogue?

Harold James: That’s obviously the hope. In some ways this book is based on a kind of classical view that we have to debate policies and debate ideas, that there’s a marketplace of ideas. And the marketplace of ideas is somewhere where concepts are tested, where policy solutions are tested, but unless you work with a real vocabulary in that marketplace, in other words, if you don’t have real prices in that marketplace, you get really bad solutions. 

And it did seem to me that there were these periods historically, and I come at this as a historian, when there was a lot of invention of new concepts. In the early 19th century, in the aftermath of the French Revolution, or in the early 20th century when the world was really getting globalized. And one of the problems is that we still operate with those terms, even though our economic system, our political system, our social system has changed enormously since then. And we’ve got just very new kinds of problems and we’re not really getting the right word to describe those. 

So, yes, part of this is to think about those old terms, socialism, capitalism, they’re really, really used mostly as terms of abuse. It seems to me that very few people like to define themselves as a capitalist. I know there’s a Forbes jet that you sometimes see in airports with “Capitalist Tool” on it. Apart from Forbes, people don’t like to think of themselves as capitalists. And socialist has become a term of abuse from the political right for kind of moderate reformist ideas, as well as completely crazy ideas.

David: One of my first jobs out of college was at an economic think tank in Chile. And the project that I was working on was looking at the theory of moral sentiments, Adam Smith’s book, and trying to look at the arcane vocabulary used and somehow bring it into what was the 20th century, now we could say the 21st century. But making sure that everything was appreciated for the meaning implicit to it and not lost in old language. Almost like someone will pick up Shakespeare and say, “I just didn’t understand it,” because the meter is not normal to the way we speak today, and so that translation work is very important for understanding. 

And to your point about debate. You say, in fact, “debate becomes a testing ground in which approval raises the price or value of ideas and makes them more attractive and compelling, while confusion or contradiction lowers their acceptance and worth.” So making sure that we have the tools for debate, that’s a part of the definitional process. So let’s look at capitalism. Actually, just before we move to capitalism, there were markets in entrepreneurship and decentralized decision making about how to use excess savings. So like so many of the words you chose to explore, the word capitalism is a framework for thinking about an idea. Explore that in itself, the idea of frameworks and of language development, with cultural progress being attached to that or having a net effect from that.

Harold James: Well, that’s right, I think the words that give a crucial framework, and it’s one that I think is very confusing to many people because there’s a debate among economists, among historians, among economic historians, about when capitalism began. And it seems to me to be often really a fundamentally crazy debate, that people think that capitalism began at a around of about the time that the word capitalism started to be used. But I think, in this case, it’s exactly like globalization, that this was something that was happening where the term to describe it comes much, much later. 

So it’s very clear to me, for instance, that there were decentralized markets and prices and prices as a mechanism and lending and credit in antiquity on both ends of the Eurasian land mass, really very, very considerable markets. If you read, for instance, the Chinese dialogue of Salt and Iron, it’s four or five centuries before the common era, but one of the voices that’s expressed there is exactly a kind of proto Adam Smith, and is arguing that decisions need to be decentralized. And then that set of arguments is in contrast to another view that is set up, that everything needs to be centralized. That debate was going on in China, it was going on in the time of Aristotle, it was going on in the Roman Empire. 

So this was a long process, and I think basically some people even think that some kinds of other species exhibit some form of capitalistic behavior, that they save up things and they store and they trade for future goods. Capitalism, it seems to be really, really central to everything we do in human history. But in the early 19th century, it gets a particular edge. And it’s to do in the early 19th century use with capitalists who are distinguished from entrepreneurs. And so capitalists are the people who do the lending, and entrepreneurs are often trying to define themselves as being against capitalism, because they want to have the control and they want to have the ideas, and they want to develop things. But capitalism, I think, always from the beginning, had this rather unpleasant edge of somebody who has a mass of something that they’ve somehow gained, and the implication is often by expropriation. The whole story of Karl Marx comes here, it’s not just confined to Marx, it’s a very, very common view in the middle of the 19th century. And so we’ve got this transformative phenomenon that is associated with something that is given from the beginning quite a negative edge.

David: Well, we saw this in the last few years with the Occupy Wall Street movement, where there’s a response to capitalism, and it’s a cultural critique of some version of capitalism. It’s an expression of capitalism, and it’s associated with, lo and behold, Wall Street. Now, Adam Smith was not crazy about the idea of publicly traded companies, but this now is what we see as an expression of capitalism. 

It seems that we have to ask the question, and this is what you’ve done. It’s almost a— I love the Oxford English dictionary for this reason. It gives you context for what the meaning of the word is and has been. So where have we been? Where are we now and where are we going? Language can be, in that sense, fluid, and it’s important that we recognize the fluidity. So here we have a critique of capitalism in the modern day, which is really only one small sliver of understanding of what capitalism is. And Adam Smith would’ve said, “I don’t even like that.” Again, perverse incentives associated with publicly traded companies.

Harold James: Yes.

David: Now we have credit creation. Credit creation is a critical part of growth in the 21st century, yet you look at something like the banks. Banks were not always creators of credit. The point is, things change through time. They develop, they evolve. Does language hold us back by limiting our thoughts to a particular conceptual framework, or does it serve as a foundation for additional building?

Harold James: I think it really holds us back when we just use it in terms of slogans. So indeed the Occupy Wall Street story is, I think, a good example of that. There’s no effort really to thinking about what the problems are, what the underlying issues are, what the long term future is, how it can be solved, how we solve problems on the whole best when everybody is thinking about it and everybody is participating in it and making choices. One of the things that markets do is precisely that they offer choices to people. We can buy this rather than that, so we make a particular choice. And all of that gets lost in this sloganeering. But yes, I think the story of credit creation is one of the big elements of recent history, but it’s not very well dealt with by either the slogan of capitalism or the slogan of socialism.

David: So I love that there’s an appreciation for etymology, and yes, you can devalue thought if you’re not paying attention to how your words are being used, or you can emphasize and underscore their value. And I think that’s the project that you’re part of in The War of Words: A Glossary of Globalization, it’s making sure that we appreciate what we’re working with. 

So back to capitalism, you have a great taxonomy of capitalism which stretched back into periods where the word didn’t even exist, but it sheds light on the development of market dynamics now that we roughly associate with the term. Can you walk us through that progression? It’s mercantile commercial capitalism, it’s industrial capitalism, it’s finance capitalism, managerial capitalism, hyper finance capitalism. And then you set the stage for—we’re here, but it’s also into the future—information capitalism. Give us a broad sweep.

Harold James: Yes. Starting from where we are now, I think that’s right. I think we’re not really in a world that’s best described anymore by finance capitalism, by this phrase that was really devised in the early 20th century and then had a new actuality because of the very, very rapid development of finance and of debt in the last years of the 20th century and up to the Global Financial Crisis. But we’re in this rather curious world where in one of the difficulties I think that we have now is that many things that we take for granted don’t have an obvious price attached to them, that we’re very inclined, indeed, if we don’t think about it, to treat them as being free. When we use Google, when we use the internet, when we try to access news in that way, we’re not obviously paying a price for it. But we are paying a price, we’re giving away some of the information about us, what we might want to consume, and in that sense we’re existing in the market where the pricing is not at all transparent. So that’s where I wanted to end up with. 

But I think indeed as you say it’s a constantly transforming exercise, that it’s focused in commercial activity for a long time. In the period of the classical industrial revolution it becomes about big concentrations of wealth in factories and physical production. In the 20th century, that physical production is more and more dominated by managers, and some people think of a convergence between our kind of capitalism and what was going on in the Soviet Union, and that they had big combines as well. And some people thought, well, that’s not dissimilar, so there was a convergence discussion. I think that didn’t take into account sufficiently what the importance of the price mechanism was. And so when we think about today, what I really want to do is to try to get people to think about what the pricing is of things that we think are not priced, what most of us think are not really priced.

David: The change that you list in that taxonomy from the 13th century to the present, where now there’s an obscurity in pricing, it would take an engaged person, as that change is occurring, to look at the changes, to engage critique, and not necessarily reject a concept outright for its imperfections. I think Marx comes in and he offers a critique of capitalism, and he wasn’t the first to do it, and he hasn’t been the last to do it. Nietzsche offers a critique to Christianity. There’s a variety of cultural critics who have come in at different points, and if you’ve engaged thoughtfully with their ideas, perhaps there’s been an improvement. 

And we start with this idea, perhaps, and we haven’t gotten it quite right yet. Maybe we’re getting closer, but the engagement factor has to be there. And you can’t assume that what was mercantile commercial capitalism is what is today. It’s just not. And a part of that change that occurs is in the refinement of ideas. A part of it is technology too. You talk about dematerialization being a wave of the future, and this being an expression of more the modern iteration of capitalism. We’ve had the transatlantic cable, we’ve had the steamship, now we have the internet, and as we’ve moved to the information age, have we left behind the old for a new version of capitalism, or, again, are we just talking about this continual progress? Talk to us about dematerialization.

Harold James: Well, dematerialization, indeed, I think is at the heart of the information economy. And it’s actually really in some ways at the heart of the developments that concern us most. If you think, for instance, of the perennial issues in politics over the last decades of income inequality, wealth inequality, when you bore down into this a bit more, it turns out that most of this is about three particular areas. It’s about health, it’s about education, it’s about housing. Health and education are not really very well measured in terms of material outputs. Obviously, you need equipment in hospitals, and we’re in the pandemic where you need the protective equipment, and you need pharmaceuticals and so on, but a lot of this can be done in a dematerialized way. And I think we were seeing this before the pandemic, but we’re going to see more of it as a result of the changes that have happened. 

I think the same with housing. One of the really dramatic things over the last year and a half since the outbreak of the pandemic has been the crazy development of real estate markets, and people are changing their locations and thinking about different places to live in because they can operate—for many, many things in life, they can operate remotely. And that to me is something that is relatively— permanent change is going to be a long-term change. 

It makes us conceive of the way in which the world fits together, as well, in a different way. In that sense, we’ve had since the beginning of 2020 a kind of dramatic acceleration of some of the changes that were already taking place—the ability to do medical diagnosis at a distance. All these things are really transformative, and they transform the character of the market interactions that we have.

David: Reconceiving how things fit together. This is about structures, and reminds me of your first comment about David Goodhart, the somewheres and anywheres. A number of years ago, we talked to Nazli Choucri from MIT about transnational issues relating to the internet. Who controls the internet, who allows the flows of information, who sits on the kill switches? And this piece of dematerialization, the increase of migration, telemedicine and online education, which you just mentioned. These are things that we have a whole new world in terms of public policy engagement. And it seems, in some sense, that the markets are leading and public policy still has to catch up. We’re talking about cryptocurrencies which have no borders. And our concept for currencies up to this point have been gold for thousands of years and then fiat for a more recent period. And now we have something that may not even have a national identity. How do we wrap our minds around the vast implications of dematerialization?

Harold James: Yes. I think that actually hits on one of the key issues of thinking about capitalism, because when you started to think about the critique and Karl Marx, one of the things that Marx makes as a point very powerfully is that capitalism is an international phenomenon. It’s a global phenomenon. It crosses borders and people look for goods in other places, and they’re continually testing national boundaries. But at the same time, and do you know I think that’s not sufficiently recognized in this kind of critique, is that capitalism depends on a legal order which is framed by existing countries. And it’s the ability to shape the rules that is going to really determine how it evolves. And as the system becomes more and more complex, the system of rules becomes also more and more complex, so it’s almost impossible to devise a commercial code right from the beginning. 

Now, when people are thinking of regulatory measures, they tend to take them in a prepackaged version in the world. As it is at the moment, there are already two versions of it that are around. There’s the US version and a European Union version, and China is trying to push an alternative, a third version of it. But if you’re in a small country, you can’t really do any of this, you take your product standards and so on from what the US does. And then that applies I think in terms of internet regulation as well, that we’re absolutely wrestling with exactly that issue of what can be said on the internet, what kind of controls there are, what kind of responsibilities of internet providers there should be for damages that are caused by information that comes on the internet.

David: And we talk about the legal order and the framework that exists. This is largely being determined by our technology companies, and the European Union has probably done the best in terms of creating rules of the road for data management and privacy regulation and protecting the individual in this era where data is essentially the oil of the new economy.

Harold James: That’s right.

David: But the fight is between, in this case, the “free markets” and government to figure out what are the rules of the road because, as you say, without a framework, you actually can’t have the markets that we’ve come to take for granted. You have to have a legal structure, and that legal structure, I don’t know should be determined by a Google or an Amazon or what have you.

Harold James: Yes. I agree with you. I’m sure it shouldn’t be determined by Google or Amazon, what they do, and financial. This is one of the areas where it’s really important to, as it were, go back to basics, and to raise exactly that issue that you raised. What’s the trade-off that people want to have between their protection of their privacy and the availability of solutions that may help them. And I think it’s also clear that there are different points in that trade-off that you might have in different societies. And so Europe is at one extreme in terms of protecting privacy, but that may mean that it’s also poorer responding to, for instance, very quickly developing public health crises. Whereas if you monitor everybody constantly, you can respond very effectively. And I think, at the moment, the world is absolutely hypnotized by looking at how China responds to COVID in terms of a massive use of social data and a massive imposition of controls. And then you would ask exactly the question in response to that, is that the kind of trade off that we want, or what guarantees do we want that we have more personal autonomy and we protect our private sphere? Giving up on some of the privacy does indeed hold a path to getting effective solutions to some issues.

David: Is this the point of public conversation and debate—

Harold James: Correct.

David: —you have to look at the trade offs and see what you’re willing to sacrifice. It’s not a perfect world. 

So back to this issue of pricing things that, maybe, don’t have a price, or have not been priced to this point. I don’t know if you thought you’d live to see something like non-fungible tokens, where a series of ones and zeros that show up as a picture of a rock might be $1.3 million, or I don’t know if you even imagined being in a world where negative interest rates were the new and normal structuring of the debt markets. We’re pricing things— Dematerialization. Are we talking about interest rates, because they certainly have gone away as if they’ve been dematerialized, or are we talking about value in our digital pet rocks? It seems that we’re confused when it comes to pricing, and I wonder if this doesn’t come back to maybe the currents that we have. 

Keynes and Hayek discussed market mechanisms, it seems like both remain important. Keynes seemed to be far more relevant in the ’30s than perhaps the ’70s, Hayek more relevant in the ’70s than in the ’30s. And so, today, I wonder, do we have de-globalization like the ’30s, elements of the 1970s inflationism? Where do we set aside the philosophical differences between these two camps, if you will, if we use those as examples of two competing spheres of thought? How do you blend their insights and become less tribal? And at the same time, how do we make sense of digital rocks and interest rates sub-zero in terms of their current state?

Harold James: In some ways you can find precedence for almost anything in history, and the story of speculating in weird new forms. I think every historian’s favorite for that is really the story of the Netherlands in the 1630s with the absolutely wild inflation of the future markets for tulips, and for weird combinations of colors in the blossom of the tulip that are produced by a kind of virus and can’t be easily replicated. It’s in essence a version of your non-fungible token economy. 

I think at periods of stress, you have had exactly this kind of absurd development of pricing in fringe areas. I don’t think it’s likely that the non-fungible token world is going to take over everything, but the story of the interest rates is indeed, I think, also actually not unprecedented in the sense that although negative nominal rates are really pretty unique, we’ve had long periods in the past where inflation has produced negative real interest rates and leads to some of the effects that you see today as well. So I think when you are thinking of things that don’t allow very good decision making, a very low interest rate environment is exactly one of those.

David: I have one more question on capitalism. Obviously, we have a lot more ground to cover. You highlight Alfred Krupp. In fact, you wrote a whole book on that business. But you highlight Alfred Krupp in this book and focus on commercial profit over speculation, that being something that was very important to him. And then at the end of the chapter, you point out that hyper finance capitalism and information capitalism are veering us towards trading. We have more instances today of speculating on immaterial goods over producing and selling material goods. And I just wonder if that’s not an indication of where we’re at in a credit cycle, and where we’re at in sort of the strange end. I don’t think capitalism devolving, but maybe this is an unhealthy place to be, where speculation takes on more attraction than like Alfred Krupp put focus to commercial profit.

Harold James: Yep. It’s a nice example. One of the reasons that I like to use it is that this was a very unusual figure who had a business that lost money every year for over 20 years, so from the 1820s to the 1840s it was just burning money. And that was one of the reasons that he didn’t like the capitalists because the capitalists wouldn’t lend to him. So he had to really exist by borrowing from his family, his relations. What was being done, though, was something that was really creative, but the creativity was only visible in terms of a longer-term outcome. And I think we have instances of that when we look around. When people look back to what happened in 2020 and 2021, I think they’re going to be struck by the rapidity with which solutions were devised. Solutions, the vaccine now, antiviral medications, with just an astonishing speed, and a large part of that is the result of venture capital. So some part of it is also government agencies provide funding for that and they provide funding to scale it up. But a lot of this is done by venture capital, and so this is also an area where you can have a Krupp-like activity of making losses or apparent losses for a long period of time, when you think that you are really developing something that’s important for the future. That would actually be my defense of the kind of capitalism that we have at the moment, that it’s allowed this very, very effective response to a problem that I think would’ve been completely insoluble in earlier ages.

David: So let’s transition to socialism and, I think very appropriate for our day and age, social democracy. The early conversation, if you go back to the 1840s and the discussion over who controls the means of production, that was an important question for the planned economy and in those earlier conversations about socialism. We have the contrast, perhaps today has less to do with production, but who controls the means of redistribution? And we’re seeing that now played out in fiscal policy initiatives, we’ve largely transitioned or are transitioning away from monetary policy intervention now to fiscal policy interventions. Can you speak to this issue of redistribution through taxation, and the living iteration of social democracy?

Harold James: In some senses—and that’s why I wanted to put that as two consecutive chapters in the book—this is exactly the mirror image of the story of capitalism, in that the original proponents think of it as an international phenomenon. That’s very, very famous in Marx and Engels in The Communist Manifesto, that they end up with, “Workers of the world unite, you’ve nothing to lose but your chains.” So having an international reaction to an international phenomenon of capitalism, but actually socialism is only realizable in a national context. And whether it’s the planned version where you seize all the instruments of control or whether it’s the redistribution, it’s almost unthinkable to do that across national boundaries. And we’re seeing some kind of attempt to have more international coordination of taxation and standardization in order to shut down tax loopholes and low tax economies that are basically not doing anything productive, but allowing themselves to be just used as a mailbox or a formal place of registration of a company. And so if you look at the European Union, a lot of the apparent work was being done in Ireland or the Netherlands or Luxemburg, but actually there wasn’t much physical production going on there, it was just that this was where companies were registered. And there were ways of dealing with that. I think the European Union can deal with it. But I think the inability to do international taxation does really put limits on the amount that you can really raise the taxes on because otherwise you are going to get very, very peculiar dislocations. If you think that you will have a high-tax economy, what you’ll do is just shut down yourself.

David: Well, I’m stepping out on a limb here, but having written, what is it, a 600-page book on the creation of the European Monetary Union? You have a monetary union, but you don’t have a fiscal union. So the issue of redistribution does become poignant and difficult, and you can see countries grow uncomfortable, whether it’s the Germans uncomfortable with projects that may be initiated in Italy or Spain, or— Again, I’m out of my element here, but it seems this is where the rubber meets the road. In a social democracy, you have to have the power to tax, and you don’t have that power within the EU system.

Harold James: Right. And I think that is one of the fundamental weaknesses, and in a sense it’s being addressed at the moment, because there’s, for the first time in responding to the pandemic, there’s common borrowing. And if you’ve got common borrowing, you logically need a way of paying for it, and that is still uncertain. It’s not been done as straightforwardly as it was done in the United States and back in 1790 with Alexander Hamilton, where there was a fiscalization, a common fiscal project and then a revenue from the external tariff to pay for it. The Europeans haven’t got to that. But I think if you contemplate what any of the big global goods are, they need mechanisms to pay for them, and somehow that payment needs to be distributed with some degree of equity between the different countries. People are going to struggle with this one for a long, long time I think.

David: Well, I think this is a great transition into democracy in the sense that you have the nation state, the idea of the nation state, tied to democracy. The challenge that we were just talking about is one of individual countries within a union. And talk to us about this transition from empires to nation states, and the tie between the nation state and democracy.

Harold James: Democracy, I think, has to involve some sense of participation and some sense of having a common project. And so it’s easiest, I think, to imagine democracy in a relatively small scale setting. For a long time, when people thought about democracy, they went to classical Greece and they thought of Athens and you could have a meeting in the public square, and all the citizens would be present. Swiss cantons can do that. It gets difficult when you get into a larger political context. And I think where democracy works relatively well, it works well in a sense where there’s a strong sense of locality as well as of what we have in common. 

And so federalism is very important for the story of the United States, that we want to see democracy working, not just at a federal level, but we want to see it at a state level, we want to see cities that work. And that I think was where there was always a tension, and particularly through the 20th century. And it produces in the middle of the 20th century a crisis both of democracy and of the market economy, because the market economy seemed to be going all over the world, but democracy looked as if it was local. And asserting democracy looked as if it was trying to clamp down on the elements of mobility in the economic system. I think there is a kind of counter argument to that, which is this idea of strengthening local democracy, and where local democracy doesn’t work, it’s difficult to see how big scale democracy will work. So if you’re thinking of how to make the United States feel more democratic, the place to start I think is with local politics.

David: Yeah. I forget the word that you used in that chapter, whether it was proceduralism, it was basically the strength of democracy in an American expression, was that there’s a way of getting things done in contrast with just throwing the word around where Recep Erdogan has said, “Oh, look at our democracy in Turkey.” Well, it’s not exactly the same thing. There’s lots of people who can throw it around and it becomes a slogan as opposed to an actual process, and the process is what’s important.

Harold James: Yes. And that’s absolutely right. The rules of the system are absolutely central. And going back to this original metaphor, if you have political argument as the idea of a marketplace of ideas, but a marketplace needs to be policed and it needs to have rules associated with it, and rules about what’s unfair behavior or what’s illegitimate behavior. And exactly that I think applies to democracy because if democracy is just taken simply as the rule of a majority over a minority, it can lead to very, very— have horrid consequences in terms of the persecution of a minority. So putting procedural processes in and locking them in, in essence, that really was what the debate of the late 18th century in this country was about, was exactly setting the framework so that the processes shouldn’t be eroded from within.

David: Is it fair to say that that was a part of the conversation in the 1930s as liberalism, classical liberalism, and maybe it was recast as neoliberalism, was being given some attention?

Harold James: Right. Classical liberalism and what was then called neoliberalism, the attempt to rediscover classical liberalism in the middle of the 20th century, is indeed exactly about rules and processes, and about protecting individuals and groups who might be the subject of oppression by a majority. That protection depends on the rules of the game. And when majorities think that they can simply alter the rules at will, that’s dangerous, at first for the people who are in the minority, but then everybody also has to think they potentially might be in that situation, they shouldn’t want to be in that situation. And so, I think, even for people who think at the moment that the rules are uncomfortable or working against them, they should be happy that there is a framework of rules within which they operate. It protects them in the long run as well.

David: Hegemony is a big word. It’s a big concept. Walk us through the hegemony of an international relations scholar by contrast to cultural hegemony, or perhaps, if we want to define by extension, the US dollar, a version of hegemony—at least we use hegemonic language to talk about the dollar. So from those perspectives.

Harold James: That’s right and this book in a way plays with that kind of concept all the time, because there are particular countries that produce a lot of ideas. And a lot of the political vocabulary in the early 19th century was France. In the 19th century, Britain was the monetary center of the world. I think in the late 20th century, the US is both the main producer of ideas and obviously also the central monetary standard. So those periods of immense cultural production or monetary production don’t last forever. They run out. There are new developments that focus changes, shifts elsewhere. And we talked before about the world of virtual currencies, distributed ledger technology. They are alternative monetary instruments, and I think there will be alternative concepts as well, but I’m kind of grasping what can those concepts be. My sense is that the dollar is not going to be as central for the next 50 years as it was for the past 50 years, and I think we’ll have to also find new terms to describe that world.

David: So maintaining hegemonic position, we’ve seen that done, have they called that gunboat diplomacy? If you have the military might, perhaps that’s one version of it. If you stay in the middle of the financial universe and have the deepest capital pools, maybe that’s another version of it. How important are just, again, this idea of maintaining hegemony, and how important are legitimizing stories to the exercise of hegemony.

Harold James: You have to explain what you’re doing, and in that sense the US story in the 20th century is a very dramatic one and a very striking one, that the United States really rescued the world in the 1940s, in the Second World War in fighting Nazi Germany and fighting the Emperor of Japan. And a lot of the subsequent period is built on that foundation, and that’s important. But in the 21st century, rescuing the world is going to come in a different shape and it needs a new kind of action as well.

David: This may be very silly, but I think of two eras of James Bond movies, the era of James Bond movies where it was very easy to tell the good people from the bad people, the good guys from the bad guys, and everything was caricatures of good and evil. And you migrate away post-Cold War to needing emotional complexity, and all of a sudden the bond character is not a one-dimensional womanizer who likes his cocktails just so, but in fact struggles internally. And the story is no longer about saving the external world, it’s about figuring out the internal world. 

I wonder if that’s a part of the issue we have is, it’s not as easy to tell the story anymore. You have to explain what you’re doing and be clear about that, and I’m not sure that we’re able to right now. Perhaps we will again, but it seems like we’re in that confusion, sort of a subjective confusion today. So last question on hegemony, and this is dealing with corporate power. What is the interplay between corporate power and state power as an extension of hegemony? Perhaps we have instances of that in the US, and certainly I’m reminded of the One Belt, One Road projects for the Chinese where debt and dependency traps are there, and it’s their version of maybe regional, if not global, hegemony. What’s that interplay between corporate power and state power?

Harold James: Yes. I think that’s right and there are many aspects of what China is doing on a sheet that looked very traditional and look like some kind of 19th century imperialism. And I think it’s more than regional, it’s about Africa, it’s about South America, as well as it’s being about central Asia and the immediate vicinity of the people’s Republic. So it is a global version of a different kind of globalization. And there’s a package, I think, that goes with it about the use of social information and media. And you see, I think, very clearly in contemporary China exactly the struggle between the government and the big corporations. And over the last year, there’s been a massive pushback against the independent power of the mega rich, the equivalence of our tech giants. And that looks actually very, very old fashioned to me. That’s the kind of 19th century story of what the European empires did. And China is reinventing that in the world of information capitalism rather than in the world of industrial capitalism or finance capitalism.

David: So a few more concepts that would be worth getting your opinion on. Technocracy is a big one and debt is a big one. All of the words you’ve chosen are big ones, but particularly, when it comes to debt, manias usually lead to some form of default. We saw that in Latin America, we’ve seen it in most instances where lending gets out of control. Do negative rates indicate manic behavior, or do we need to adopt a more, let’s call it Wicksellian perspective? We’re dealing with a new normal these days.

Harold James: A large part of the story of negative rates is that the world is just getting prosperous, and it’s saving more. And as savings build up all over the world, they pile into different kinds of investments and they drive down rates. And then, as the interest rate falls, it becomes more attractive to look for alternatives that are riskier, and that’s the moment at which, historically, you reach for the sky and you fall flat on your face. And it’s an almost classic story of overreaching, but the extent of the buildup of debt is so enormous and the kind of debt crisis that we’re likely to see in the future are very, very substantial as well. So I think you are in a world where the low interest rates environment and the excess saving has led you into a trap, where it’s very difficult to exit from that without real losses taking place.

David: Money being a form of language. I think you suggest that earlier in the book, and debt—or credit, we should say—is almost the same thing as money these days. What do interest rates tell you? Again, if money is language, what do rates tell you? What do you lose when the debt markets are silenced? I agree with you in terms of the savings glut as a certain part of the story, but then how do we look at PEP, the intervention program in Europe, and the mortgage backed securities and Treasury’s quantitative— well, the monetization of debt here in the United States, $120 billion a month. What do you lose when the debt markets are silenced?

Harold James: It’s I think not really a question of losing something now, but it’s setting you up for very, very limited room for maneuver in the future at some point when you may really need to borrow for some new enterprise and you find that the markets are in turmoil. So in some ways you will never really see what the dangers are until they’ve been fully exposed by a major shock or a crisis. People used to like this analogy of people swimming without any bathing trunks on, and you don’t notice that they don’t have any bathing trunks until the tide goes out. It’s a bit of a stretch metaphor, but the sense is, I think, that until you’ve got a big crisis, you don’t see the costs of your previous behavior. What we’re losing is something about future options.

David: Well said. Technocracy is, through the experts ruling the world— Many months ago, we spoke with Paul Tucker, and he wrote an excellent book on unelected power. He highlights the importance of technocrats, but also points to the limits that they should keep in mind. A part of this has to do with defining and maintaining legitimacy and maintaining trust. This week we have a classic case in point of where that may be called into question. Mohamed El-Erian describes the Fed’s inflation call as the worst in decades. So the economic experts are being judged harshly in the present moment, whether that’s fair or not fair time will tell, but what are the consequences of a loss of confidence in the experts? And here we’re talking about if technocracy fails, is there a knock-on effect for democracy?

Harold James: Yes, I think that’s right. I think experts are under pressure everywhere, and it’s a question of expertise about the pandemic, expertise about climate policy, but also expertise about monetary policy. And that quote that you had from Mohamed El-Erian is I think right. There are many, many similarities I think that you can pick up if you think about the history of this kind of business of technocracy. 

The 1970s look as if they’re the obvious model in the sense that that was a world in which there was a lot of discussion about price rises. But there was initially a consensus that the price rises were temporary, that they weren’t deeply embedded, that there weren’t fundamental expectations of long term inflation, and indeed that some degree of stimulus was actually appropriate because it would allow you to raise productivity and to deal with the shortages that were producing the price rises. And you can see that there’s a kind of logical argument why that might be plausible, that was widely held in the early 1970s. And it does seem to be exactly what is gripping many people today, that is that the price rises are just temporary. If we boost production, we can overcome the shortages and the prices will fall back. But I think you’re not thinking about what it does to overall demand, what the effects of big monetary growth in these circumstances are. And we look as if we’re not going into hyperinflation, but we’re going into a period when inflation will be higher again, and traditionally that’s a way of writing off debt, as well.

David: And I think just as we move towards a wrap in our conversation, The War of Words: A Glossary of Globalization is intended to improve the quality of conversation and the debate that we have about critical concepts. Now, in a period of inflation it’s also typically a timeframe where people are under pressure. One of the points that Al-Arian made in his Financial Times article was that it is the poor that pay the highest price. And so there will be likely more fiscal policy initiatives to try to solve that problem. But the reality is, politics is likely to remain contentious in a period of time where people are feeling upset and feeling like they’re running out of money before they’re running out of days in the month. 

And so it’s important that we really do engage more thoughtfully and be clear about what our words mean and what the ideas at stake are. So I just want to thank you for joining us to talk about these, and I’d love to sit and talk about populism and globalism and globalization and neoliberalism and crisis. We’ve just begun. But I’m also curious, as we end, I’m curious about what you’re curious about, because in the past it’s been Deutsche Bank, and it’s been of the German economy and it’s been the Reichsbank, and it’s been family capitalism and cycles of globalization and lessons from the past in terms of the Great Depression. What are you curious about now? What’s your next project? Any inklings as to where your natural talents as a research hound will take you next?

Harold James: I do think that this issue that you were talking about right at the end, of the circumstances in which inflation resurges and what inflation does to society. How, in an already polarized world, inflation can make you even more polarized because inflation very, very quickly brings up the ideas of some people winning as a result of inflation, but some people losing as a result of inflation. So inflation, some people think of it at the beginning as a way of papering over or putting money over distributional conflicts, but in end inflation intensifies distributional conflicts. And I think, as a consequence, we really need to think about the circumstances in which inflations arise and how the problem of inflation can be dealt with at a relatively early stage.

David: All right, well, I’ll need a pre-release copy. I’ll be looking forward to that conversation—

Harold James: Wonderful.

David: —as fast as you can write, I’ll try to read. 

Harold James, I’m grateful for the efforts that you put in. I have not read all of your books, but I’ve read at least half a dozen of them. And my library has grown significantly because of what you’ve done through your bibliographies and the intense hours of research and reading—in so many ways distilling the world into a simpler and approachable essence, and I’m grateful for that. You’ve got academic skills and they’re benefiting many. Thank you for adding to the conversation today.

Harold James: Well, thank you so much, it’s been really wonderful talking with you.

Kevin: You’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany and our guest today, Harold James. You can find his book The War of Words: A Glossary of Globalization at You can read the first chapter for free if you go to the Yale website (click on “View Inside” below the cover icon). So enjoy the book and you can call us here at McAlvany. If you have any other questions 800-525-9556.

This has been the McAlvany Weekly Commentary. The views express should not be considered to be a solicitation or a recommendation for your investment portfolio. You should consult a professional financial advisor to assess your suitability for risk and investment. Join us again next week for a new addition of the McAlvany Weekly Commentary.

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