If the questions were “Why” and “How” the American Economy was failing to offer a reasonable opportunity for earning a better life than one’s parents for most of America’s “middle-class” of common citizens, and failing to do so for at least one generation or more – Socrates and Plato would agree on the need for “transparent” and reliably truthful Accounting records to ensure the data about money was truthful and reliable. No one can rationally reason without reliable data.
Whenever politically necessary, Plato would seek the advice of the most prestigious Experts and Authorities in the profession of Accounting and in the Accounting Departments of the most prestigious Universities of Business Administration (the Business Sophists) – Harvard, Wharton, Stanford, etc.
Out of curiosity, Socrates would simply learn rudimentary Accounting on his own to understand the world of finance and then look for inconsistencies or “loose ends” in the money records of both public and private institutions over time. [Accounting is not that difficult – it is just boring. After the branch of Philosophy called Epistemology (the science of knowledge), it is the most boring real and important subject I know of. The preponderance of politicized speculative (bullshit) fields in today’s “Higher Education” is always boring to all but the faithful “true believers” in the philosophically-rooted “Ideals” that inform and motivate the topic. It is always difficult to memorize any information when one is uninterested in retaining the “knowledge.” Idealists and other fanatics memorize “talking points” they mistake for real knowledge.]
Double-entry accounting was invented by a Lombard banker (or a “consultant” to a Lombard banker) in Northern Italy during the early Italian Renaissance.
There are two basic Accounting statements – the static picture of the entire enterprise often called the Balance Sheet – and the dynamic picture of the entire enterprise over a fiscal period (usually annually or quarterly) referred to formally as the Statement of Income and Expense. The rudimentary structure of both is rational and simple.
The Balance Sheet is supposed to accurately value Assets on the left side and accurately identify on the right side all the Capital that pays for everything. The Equity Capital is the surplus which belongs to the owners. And above it is the Liability Capital that has been borrowed from the outside world. The whole point of the exercise is to accurately value the Assets and Liabilities and the Equity.
Sometime in the last quarter century some large and strange Liabilities kind of drifted off the Capital side of the Balance Sheet, all within the heavily regulated world of banking and business and finance and ever-growing government budgets and non-profit organization Endowments (such as prestige universities) as practiced by the Social Oligarchy of the entire world, and, of course, as recognized by the Social Oligarchy of the Lawyer industry (i.e. cartel of judges and lawyers) and, I suspect, as taught in the prestigious Business Administration Professional Schools of places like Harvard and University of Pennsylvania and Stanford, etc.
[Macro-Economists are the other corrupted profession in the corrupted world of banking and business and finance and ever-growing government budgets. Economists have had about half a century to fob off macro-economic speculation as if it were genuine “scientific knowledge” through the philosophically-rooted faithful beliefs of our very well educated ruling Social Oligarchy who ultimately determine the Social Protocols in public and civic life. I think the Economists’ prestige and power really took off in the late 1960s when “progressive scientific” thought invented the Nobel Prize for “Economic Science,” thereby confusing the real sciences of Physics, Chemistry and “Physiology and Medicine” with glorified pseudo-logical mathematically complex guesses. I have a lot more to say about Macro-Economics, but not today.]
I can recall reading the Enron story for years before the “blow-up” taught me about the innovated existence of “off-balance sheet liabilities.” Are these sophisticated people crazy? Is Davos a large mental facility for the criminally insane (and not just for the phony “protestors”)? Why is there a Balance Sheet at all? Duh!
In the middle 1990s, I started reading the annual report of the Chase Manhattan Bank after it merged with Chemical Bank (previously merged with Manufacturers Hanover). This was years before Chase Manhattan merged with J.P. Morgan. Each year, off in some distant “footnote” I would find a table of “derivatives” they had sold to “clients” providing both “foreign currency swaps” and “interest rate swaps.” The so-called “notional amounts” ran into numbers if not more “valuable” than the entire solar system, then certainly more valuable than the world’s aggregate GNP. The Liabilities were potentially outside a rationally regulated system. (And I never fully understood how a Commercial Bank sold them at all.)
Those derivatives never made sense to me. It is not as if sudden massive changes to relative interest rates never occur! Nor can a rational mind rule out monumental and instantaneous currency devaluations all over the place. In 1998 the Long Term Capital Management (LTCM) “blow-up” had a lot to do with this kind of capital market “unusual behavior.”
If the bullshit post-modern fields of Economics and Accounting could be retrofitted to history, the 1789 French Revolution would never have happened.
[And if the craziest “derivative” of them all (multiple) Credit Default Swaps (on the same individual “security”) could be retrofitted too, the 17th century bursting of the world’s first massive “financial bubble” would never have fully burst. With Central Banker back-up, real losses would not be realized until “kicking the can down the road” finally came to an end. (I don’t think it ever ends until some significant change to the Social Oligarchy changes first. That usually happens with a change in the philosophically-rooted faithful beliefs that inform and motivate people.)]
The French Revolution stuff is kind of interesting. When the French monarchy chose to intervene in the American War of Independence, the army and navy they sent cost real money. (In The Memoirs of Socrates, Socrates’ stonemason father, Sophroniscus, is frequently quoted as saying “Money talks and bullshit walks.”) [The rivalry between the French and English monarchies was several centuries old. Furthermore, France had lost a world war (India, North America, etc.) not that long before (1756-1753). Revenge (an amalgamation of Vanity and Envy, often with a hidden contribution from Cowardice too) explains most of the irrational choices that countries make.]
The monarchy collateralized a large loan with the potential loss of extremely valuable crown jewels. To raise cash, a Parliament had to be called to legally authorize taxation. (Those were the Social Protocols.) No Parliament had been called for generations. Under today’s Social Protocols, borrowing money from financial institutions ultimately backed by Central Bankers who have made a religion out of preventing the Capital Markets from “seizing up” is not recognized as irrationally denying the old-fashioned economic reality of what consequentially were always called Financial Panics. Some of the bigger ones might have lasted a year before “clearing the markets” enabled a normal world to return.
Our contemporary Best and Brightest among the Experts and Authorities of Economics and Accounting in the institutions of Business and Finance and Government and Law and, of course, prestige Higher Education have so many political and financial “Tools” to make a better world with their evermore innovative tinkering.
At the very least, King Louis XVI should have learned from the century-old Bank of England how to “print” money. But if all the post-modern “financial tools” were around a century before the French Revolution, think of the possibilities to ameliorate the bursting of the Dutch Tulip Bulb Bubble.
More than 300 years ago, the most frugal businessmen in the world so bid up the price of tulip bulbs that at the height of the insanity the most luxurious mansion in Amsterdam was worth less than the most coveted individual tulip bulb. When the bubble burst, lots of people, quickly, took massive losses in the panic period and then life returned to normal.
[The allocation of Capital returned to a significantly more rational set of human free will choices. By the way, that is the reason Capitalism can be made to work with integrity in the culture and politicization of capital allocation (i.e., Socialism) can never work over time. The inferiority of the political allocation of everybody’s collective capital prevailing over the more rational allocation of everybody’s own capital is not that hard a choice for a rational mind to see. Socrates had a very rational mind. Plato had a different “vision” of Human Nature.]
Note: I use the word “vision” a lot. I got it from the 13th book on my list of 27 Sources of Information at the bottom of the About the Book page on this website. I read A Conflict of Vision by Thomas Sowell in 1989 for the first time. It makes an interesting complement to two other books about Human Nature and practical epistemology on that list – The True Believer by Eric Hoffer (#8) and Lying: Moral Choice in Public and Private Life by Sissela Bok (#9). They are each a lot less reading than The Memoirs of Socrates: The Last Rational Man.
