Archive for the ‘Thoughts’ Category

Gold Trends Analysis

Tuesday, December 24th, 2013

Gold Medium Term and Resistance Line
Long Term Trend ~ Neutral since 4/12/13 @ 1501 ~ Moving averages 1560 – 1561
Medium Term Trend ~ Bearish since 4/5/13 @ 1575 ~ Moving averages 1321 – 1370

From a medium term perspective, as long as price is below the UPPER RED LINE near and below the moving averages, the overall medium term trend is still down. We need a close above the moving averages in order to neutralize the downtrend and take it out of bearish mode. The moving averages have now come down to 1321-1370 as we enter this week.

The potential for the year end to be another low cycle has not been eliminated.   We’ve got to get above the averages and the red line in order to become more favorable towards the medium term.  Last week we lost the 1220-1222 area and came within 8 dollars of our target (1180) if broken.

If you look at the end of 2008 you see that the green channel line was broken right at the crash low.

If the lines do break the June lows on the downside the next support is the dotted line near 1100 and then the 1000-1040 area where the white line crosses.   The key for gold is for price to get back above 1370 on a weekly basis for the medium term trend to get out of this bearish mode.  Support is getting thin as we’re at the weekly trend lines.  The June lows can still be taken out if those lines give way but there is a weekly support at 1172 on a Friday close basis that would be the next point to watch for support before the line near 1000 on the chart comes into play.

Gold Trends Analysis

Gold Trends Analysis

Ext :

Gold on fire!

Wednesday, August 7th, 2013

On Sunday, it was incorrectly reported that the JP Morgan Gold vault in Broad Street, London, had caught fire. It is true to state that the Olympic Champion in Pyromania would probably fail to burn down a Gold vault.

Gold vaults are constructed not to burn. They are made of reinforced concrete and other non-combustible materials. And then what is inside a Gold vault? Er… Gold – which is not combustible. So perhaps somebody had left a fag-end burning in an ashtray which set the alarms off. Or they were holding a test of the system.

The best vaults are either inside a mountain, or ground-supported and built on material that does not burn, using material that does not burn. All high-end vaults have fire extinguishers too, although maybe superfluous except in the case of errant smokers. Generally once any bits of paper in a vault have burned, there is little else combustible for a fire to take hold. owns state of the art private vaults in the Geneva Freeport which has exemplary ratings. And we’re not allowed to smoke when we are inside!

However, let’s look at the Gold market and it would be fair to say that there is a bit of a fire going there. Most of the recent technical indicators suggested Gold would resume the bull market position and start to climb. This happened right on cue with a $40/ounce rise but we also suggest this is only the beginning. A more rapid rise is forecast for the Autumn and we should see new highs.

If hyperinflation is thrown into the mix, then extraordinary rises are forecast and preservation of wealth is an urgent action for the savvy investor. Silver will perform as well although remember the price is much more volatile than Gold and not for the faint-hearted. Remember also that Gold is money and Silver is an investment and industrial metal. For the end game, Gold will probably be safer than Silver but we are looking longterm here.

So Gold is sitting pretty. With Japan, Europe, UK, USA, maybe China, all printing money as fast as it will come off the press, Gold will be on fire! And that fire would not be extinguished with a quick blast of the Halon.


Wednesday, January 30th, 2013

An occasional series of curiosities of Gold, its history and ideas about it.

There are two types of gold shares, producers and developers. The former produce gold, the latter do not, but there is essentially no difference between them. What determines their value? The value of gold shares is obviously higher in deflationary times, so at the moment they are at a discount. Their value also depends on the fixed price for gold paid by the U.S.A., the world’s largest purchaser of this commodity. Since no other country can buy gold in large quantities the U.S.A. enjoys a buyer’s market and naturally keeps down the price. But more important to the value of the shares than either of these cosmic revelations, is the fact that almost every gold-producing combine invests much of its capital in other combines and vice versa. This means that the estimated value of the shares of a company depend largely on the values of the shares it holds in other companies, and again vice versa. Thus almost everyone in the S. African gold industry has a vested interest in each other, and once or twice a year all gold shares go up, not because there is any more gold – very often there is no gold at all – but because the moment one share goes up, all the other shares automatically become of a higher market value. In case at this point you feel like Alice in Wonderland, I should hasten to assure you that in fact you are. Moreover, if you are a lucky investor, you will discover one morning that your gold company has not found any gold at all but lots of antimony or coal or something. When you have got over the shock of finding that your money which was consciously and deliberately invested in gold is now invested in antimony, you will have the satisfaction of seeing your share outdistancing every other gold share in the market. All this adds zest to life by introducing the tombola into Threadneedle Street: it is like paying sixpence to enter the Middlesbrough Art Gallery and finding yourself in the Uffizi. Finally, every now and then a scandal breaks, a director is sent to jail, and the gold shares of an important company crash dramatically. This is your great chance; remember there is a limit to the peculatory potential of one man even with a large family. Buy the shares quick and wait – nine time out of ten they will soon start to rise again the moment the judicial managers are appointed.

From Sweet Corn: The Undergraduate’s Guide to the Modern World, edited by Victor Sandelson, Granta, Cambridge 1952


Tuesday, November 27th, 2012

By Mark Rogers

Stating what ought to be the obvious

As long as governments are producing money out of thin air, what is called quantitative easing, the financial crisis has not ended. It can only be “eased” for the present working generation insofar as we can continue to withdraw money from our bank accounts – perhaps I should say currency notes, because they are not really money. But by wiping billions off pension funds, and ensuring ever mounting debt, retired people will be impoverished and our children will struggle to pay off the debts incurred today.

Once the world’s money was taken off the gold standard, the coins and notes in circulation became, effectively, a form of credit. So borrowing is taking out credit on credit.

As long as most houses are bought with a mortgage the housing bubble has not ended. We have discussed here, here and here, why the modern mortgage is not a mortgage – it is indeed the most spectacular form of the above type of borrowing.

So that is two important assumptions about how our economy works that are false: money is not money and mortgages are not mortgages. No wonder we lurch from crisis to crisis, from promise of recovery to disappointment of that promise. If politicians and bankers are conjuring with illusions, what price the promises?

Money isn’t money

An obvious riposte to this assertion is that if we agree that something is money, then surely it is… This assumes that the only thing needed to underpin monetary value is trust. But that trust is so easy to abuse: quantitative easing is the result of that abuse. Besides it is generally thought that politicians are not trustworthy, so a contradiction lies at the heart of our assumptions about how modern politics works. I frequently ask people whether they trust politicians, and the answer is invariably, no. Why, then, do we allow politicians to run our healthcare and the education of our children, let alone dictate the money supply?

We cannot simply say that anything we choose to be money is money: it has to have a value. Given that money is: a store of value, a unit of exchange, and a commodity in itself, while value in the market place is nothing more than an agreement, money must, in spite of the first and third aspects and because of all three, be more than an agreement. Which is why a return to the gold standard is essential.

Any more bubbles?

One that grows larger and larger and larger, driven by national and local government policy, is: education. The mania for driving teenagers into tertiary education may be seen as the inevitable consequence of, amongst other things, Harold Wilson’s decision to lower the age of majority to 18. This was done to capture the vote of ignorance for the illusory promises of socialism. However, it now causes a problem for the unemployment statistics, so to disguise the fact, more and more youngsters are persuaded to go to university. A means to this end is grade inflation at every level of education: the easier it is to pass exams, the easier it is to qualify for university entrance.

This, though, has the further consequence that many, many graduates cannot find work at their supposed degree level. In turn, this leads to the expansion of local and national bureaucracies as make-work is invented to take up these over-qualified graduates. Job markets become distorted by “degrees” in hair-dressing and the like, which used to be taught on the job. Apprentice masters have been replaced by academics.

A novel solution to this problem of the education bubble has been suggested to me. That school-leavers from the age of 16 should be incentivised to work, even start their own businesses, by being kept out of the tax system until they are 26. This would include not having to pay business rates. That is, 10 years to qualify in the real commercial world, and learning through trial and error how businesses function and prosper. It would also help to destroy the benefits system.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST


Tuesday, November 6th, 2012

By Mark Rogers

Does History Matter?

Consider gold. If the first nugget had been discovered only yesterday, we would not know what it was; weeks, months, perhaps even years of analysis; it’s place in the Periodic Table to be decided; its worth to be discovered, perhaps taking decades; what is it good for – currency? jewellery? craftsmanship?

We simply would have no idea until perhaps many years had gone by what this newly discovered metal might be for and what its value could be. Other precious materials – diamonds, perhaps – already have a known value, perhaps a “diamond standard” has been tried…. It might even be that gold, only just discovered now, would be difficult to place in the hierarchy of already established precious materials.

Fortunately, we have six thousand years’ worth of history that enable us to judge gold properly; through that history we can see how and at what times it has been valued. Its capacity to be in turn a precious material valued for its beauty and malleability by craftsmen down the ages; a currency unit; a standard with which to back currencies, the remarkable qualities that make it the ideal storage of value, all this we know from our ability to study its history. We can examine its impact on societies at different epochs; the desire for it that has driven men and nations to desperate measures; the careful regard in which it was once held resulting in the gold standard.

Gold’s place in human affairs is well measured by these millennia of history.

History is People

On Friday, September 28th, 2012, the author of a series of undeservedly popular books, The Horrible Histories (History with the Nasty Bits Left In, History with the Boring Bits Left Out), published an article the vacuity of which takes the breath away. History is about people, not 1066 and all that, by Terry Deary, may be found here.

He takes a knowing and devoutly populist line (we’ll discover why later): “First, it’s worth posing this question: what is the point of history tests? If education is about preparing for ‘life’, then knowing that Magna Carta was signed at Runnymede doesn’t really pay the gas bill, does it?” He goes on to assert that practical matters, cooking, driving, parenting, don’t really depend on one’s being historically literate.

Wrong, Mr Deary. If an education is more, in fact, than a mere preparation for life, then broadening one’s range of knowledge is a good in itself. If mental alertness and intellectual discipline, being able to think things through, are necessary talents for and valuable consequences of the human condition, then there are many “purely” intellectual aspects of life that help fill that life out, and indeed, having a deal of historical knowledge can throw light on contemporary affairs, in a way which the ignorance that Mr Deary appears to be recommending cannot. So yes, in a roundabout way, using one’s mind in the pursuit of apparently “useless” knowledge may make one a more complete parent, a more careful driver, even a master cook if one takes the history of food and its preparation into account.

The Flippant Community, of which Mr Deary is naturally one, despises “dead” languages: but consider, as software developers devised ever more complex processing algorithms there was a sudden realisation in the 1990s that mathematics wasn’t enough. The cry went out from Silicon Valley for – Latinists: the “fuzzy logic” that mathematical computing had approached required not more mathematics but the linguistic flexibility of that most logical of languages. Do you use a computer Mr Deary? Then you are using a modern technology that delved into the ancient past to solve some of the most important problems that its development had thrown up.

What Mr Deary wants from whatever he conceives of as history is “stories about people”. And he gives an example of a person who died 100 years ago whom he considers a hero (I do not actually dispute that judgment, it’s the ideological use that he makes of his hero that is being considered here): go to the link above and read about Harry Watts, someone who felt no hesitation in rescuing people from drowning in conditions hazardous to himself.

Deary is almost papal in his disdain for what we, hoi polloi, need to know: let us be left in ignorance and merely emulate the lives of his chosen secular saints. “What would Harry Watts have done? History provides role models and prompts the great question, ‘Who am I?’” This is history as psychoanalysis, as therapy – which is not history.

If, as the example he gives and the reasons for it, suggest that in remembering the humblest we are acknowledging that the great chain of being depends on every one of its links, then that is all too the good: but it is not in fact what he is doing. He has his own hierarchy of values, as demonstrated by his discussion of Harry Watts.

But how does Deary know about Watts at all? To know him, and recognise what he did, we need to know his context, which is of course, from today’s vantage point, historical. Is Pope Terry offering himself as a latter-day Samuel Smiles, with, at least as far his example goes, his heroes belonging to Smiles’s epoch and earlier rather than his own (we are already in fairly deep historiographical waters here, and they just get deeper)? In order to understand the Smilesian Watts and to be able fruitfully to compare him to today’s paucity of Wattses (which in itself is making an assumption that is on a short-term historical view false), we need the entire arsenal of historical method and research in order to unearth him: how do we know that Deary hasn’t just invented him – we would need considerably more than Deary’s mere assertion to be objectively certain that Watts existed. We need that arsenal to compare him and explain why this matters.

Historical Inexactitude is Horrible

Now in the course of his article, Deary takes a good long sneer at an “indignant Welsh professor” who protested: “One student thought Martin Luther was an American civil rights leader!” Deary’s parenthetical comment: “(He was, but we’ll let that one pass.)”

No we won’t Mr History-is-People. Martin Luther was an Augustinian monk, dates November 10, 1483 – February 18, 1546, who was one of the great reformers of the Church, whose influence in the creation of Protestantism is one of the influences that shaped the following centuries down to our own.

The civil rights leader that the ignorant student was groping for was Martin Luther King, Jr., dates January 15, 1929-April 4, 1968. To quote the Nobel Prize website: “Martin Luther King, Jr., was born Michael Luther King, Jr., but later had his name changed to Martin. His grandfather began the family’s long tenure as pastors of the Ebenezer Baptist Church in Atlanta, serving from 1914 to 1931; his father has served from then until the present, and from 1960 until his death Martin Luther acted as co-pastor.”

The Boring Bits Left In

Historians, even those who lived in the past, are also “people”, so why not take them seriously? If it wasn’t for the techniques of sifting, objectifying, understanding the amorphous records of the past that have come down to us and which historians have laboured to authenticate and qualify perhaps Terrible Terry would never have found Harry Watts.

And those techniques inevitably require patience, which is the quality of being able to tolerate boredom in pursuit of a valuable end. History requires the “boring bits” if only to help fill out the authentic nature of the persons and events under discussion, and the methods of history were honed by, to name just a few of the greatest, Gibbon, Ranke, Mommsen, Macaulay.

However, Deary is not an historian, as he explained to The Guardian on Saturday 14 July 2012: “I don’t want to write history … I’m not a historian, and I wouldn’t want to be. I want to change the world. Attack the elite. Overturn the hierarchy. Look at my stories and you’ll notice that the villains are always, always, those in power. The heroes are the little people. I hate the establishment. Always have, always will.”

Terry Deary’s notion of history is, therefore, patently Marxist, the point being not to understand the world but to change it. His notion also brazenly complements the web of impatience that the internet has thrown over human knowledge.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS 

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST


Monday, October 8th, 2012

By Mark Rogers

Keynes and the Keynesians suffer from many delusions, but perhaps the most important is the belief that excess printing of money (quantitative easing), the injection of extra money into an economy, is the same thing as traditional savings.

Before puncturing this delusion, it should be noted that Keynes was an enemy of traditional savings, of saving at all! Keynes is not only deluded but also muddled, perhaps intentionally in order to throw his reader off guard – this sort of posturing is prevalent in his writings.

Hunter Lewis in his magnificent Where Keynes Went Wrong and Why World Governments Keep Creating Inflation, Bubbles and Busts (Axios Press, available here or here), comments on this proposition that increasing the money supply by printing money is a form of saving:

“Money created by the government is not savings; it destroys savings. … The word savings describes money that has been earned, and having been earned, is not spent but rather is set aside for emergency or investment use.”

He goes on to point out that over time the extra money pumped into the economy will result in either overt or opaque inflation which “will ultimately erode the purchasing power of traditional savings and ruin the saver, especially the small saver.”

Keynes is not only wrong to say that printing money is in fact another version of savings; it is astonishing that he thought he could say this, illogical and downright mendacious as it is, a mere trifling with words. The mendacity is compounded by the fact that encouraging the printing of excess money actually destroys the real wealth of those who have saved.

It was perhaps the perception of the immorality of the Keynesian “solutions” to economic crises that prompted this sarcastic denunciation by Malcolm Bryan, president of the Federal Reserve Bank of Atlanta, 1957:

 If a policy of active or permissive inflation is to be a fact … we should have the decency to say to the money saver, “Hold still, Little Fish! All we intend to do is to gut you.”

Hunter Lewis’s book is inspired by and indebted to Henry Hazlitt, the brilliant American economist who minutely dissected Keynes’s General Theory in The Failure of the “New Economics”, and author of the inspirational Economics in One Lesson. Rather than follow Hazlitt in unravelling every last absurdity of Keynes (that job having already been done so thoroughly by Hazlitt there is, of course, little point in repeating the exercise: Hazlitt is inimitable), Lewis chooses a few big themes, all of them directly relevant to our present crisis, and pins Keynes down on them, thus demonstrating both how the crisis we are in came about, and why governments and economists are so signally failing to do anything about it.

The book is at first sight somewhat eccentrically laid out, with propositions and comments in bold, and paragraphs of analysis interspersed with a line containing a single word or phrase quoted from Keynes to drive home the point that he really did say what he did (if you go to the second availability link given above you will be able to open the book and see the page layout). However, once I had really got into the excellent text, it suddenly dawned on me that not only is this format helpful in clarifying the points at issue – and many of them are of the highest absurdity: Keynes was not a clear or logical thinker, perhaps not a thinker at all – but that this format also represents what the author wants to do to Keynes: chop him up into little pieces!

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS 

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST


Sunday, August 12th, 2012

The Gold Mine Effect by Rasmus Ankersen, published by Icon Books, London, July 2012

Reviewed by Mark Rogers

Rasmus Ankersen, the “High Performance Anthropologist”, is an enthusiast, driven by a “fierce curiosity”. Eliminated from a career as a footballer by a knee injury at the age of 19, he became a football coach.

Early in this career, while Mr Ankersen was coaching at a Danish football academy, he and his fellow coaches failed to spot potential in a young Danish footballer: they thought his talent insignificant, only taking him on because they needed to make up numbers. This player, Simon Kjaer, went on to a stellar career.

Mr Ankersen’s frustration over this failure “ultimately led to [him] selling everything [he] owned and setting off to travel the world for six months.” The result is this book: he selected six of the most astonishing Gold Mines in sports, to meet the coaches, to train with the athletes, to evaluate at first hand the training regimes, and discover the “secret” of high performance.

His first conclusion is that: “The secret is not a secret.”

It is important to recognise that while his book is about what motivates high achievers in sport, the lessons learned are applicable to other areas of achievement. While such discussions are kept to a minimum, once the reader has grasped the point it becomes easier to work out these applications, one of the most important being to education, which will be dealt with in due course.

The Gold Mines

The title of the book is only half metaphorical: the athletes and sportsmen and women he studies win inordinate numbers of Gold Medals at World Championships and the Olympics. Why?

Why is 70% of Kenya’s Gold Medals in world long distance championships won by athletes from the Kalenjin tribe, which numbers three million and constitutes just 10% of Kenya’s population?

Why has Russia in a mere few years become the source of 25 per cent of the players on the world women’s top 40 ranking list?

Why does a diesel burnt track, with a disintegrating gym and no facilities worth speaking of, in Kingston, Jamaica produce most of the world’s best sprinters?

And where do the great Brazilian footballers come from? “In the 2010/11 Champions League, the world’s finest club tournament, 79 Brazilians had time on the pitch, compared to only 25 Britons, 26 Germans and 49 Spaniards – and not a single Brazilian team takes part in the competition!”

The other two Gold Mines are South Korea, from whence come 35% of the world’s best female golfers, and Bekoji, an Ethiopian village, which turns out the world’s best middle distance runners.


Mr Ankersen’s researches in the field and in the literature prove the facile nature of many of the more magical explanations for these successes. Usain Bolt’s father claims his son’s achievements are rooted in the properties of the yellow yam that was Bolt’s favourite food as a child. The more ubiquitous genetic explanations get a sound drubbing: there are no African “running” genes, no South Korean “lady golfer” genes, no Brazilian “footballing” genes: in the case of the latter two, this ought to be obvious as golf was not invented in Korea nor football in Brazil.

The conceptual results of this adventure into the Gold Mines are highly illuminating: merely listing the concepts will give the reader a ready idea of how they apply on and off the sports field.

(1)   The secret is not a secret.

(2)   What you see is not what you get.

(3)   Start early or die soon.

(4)   We’re all quitters.

(5)   Success is about mindset, not facilities.

(6)   The successful coaches are more like godfathers.

(7)   Not pushing your kids is irresponsible.

(8)   Who wants it most.

The Most Interesting Concept…

 … is number (2). The mistake that many coaches make is a cause/consequence fallacy: the potential for future performance is deduced from current performance. Stephen Francis, the Jamaican sprinting coach, is adamant that this doesn’t work: he wants the story behind the performance. Current performance may only demonstrate that the runner is already operating at the limit of his abilities. Good coaching, constant training in an atmosphere of encouragement, contribute to current performance but are not a sufficient guide to potential achievement. Mr Francis is notorious for taking on athletes that everyone else gave up on – turning them into Gold devouring winners!

Asafa Powell, for example, had been turned down by every club he approached before he arrived at Mr Francis’s burnt out track of grass. The Maximizing Velocity and Power Track and Field Club was founded when Mr Francis (who is not an athlete but a statistician) sold practically everything to set it up: in the early days, in order to ensure that his athletes had enough to eat, he couldn’t afford running shoes – so they trained barefoot!

What Mr Francis saw in Asafa Powell was a person “who at the age of seventeen ran the 100m in 10.8 seconds. He’d been to a poor high school with a bad coach and hadn’t trained much at all. The training he had done consisted of him going over to G.C. Foster College in Kingston, looking at the way they trained, then going home and doing the same thing. ‘This told me that Asafa probably had considerable underexploited potential,’ Francis explains.”

Applied Insight

It is immediately apparent how this principle is widely applicable: it ought to set up an elementary early warning system for recruitment and promotion in any sphere of business. “As Capital One’s CEO, Richard Fairbank, put it … ‘At most companies, people spend 2 per cent of their time recruiting and 75 per cent managing their recruiting mistakes.’”

It is equally applicable to schools, which are historically notorious for misjudging or overlooking ability, though this wouldn’t apply to a musical academy in Berlin with a reputation for turning out pupils who go on to join the best orchestras or become supreme solo performers. This figures in the book because it was the venue of an experiment the results of which “would challenge the most fundamental conceptions of what leads to elite performances.” These results are also a vindication of the concept that the “secret is not a secret”. The crucial factor is: practice. This sounds obvious, but while for decades some mysterious innate talent, some welling of the subconscious or other arcane process as plumbed by psychoanalysis or other fashionable therapy-based analysis was thought to be the key, the obvious was ignored.

The violinists were divided into three groups for the experiment: the virtuoso best, the second best, not star material but still very good to the point of having a performance career, and the third who would probably only ever be teachers. What distinguished the three groups? Simply the amount of time they practised. That, however, still did not explain the difference between the very good and the very best. Further probing revealed that the very best not only practised harder than anyone else while at the academy, but had practised over the years before coming to the academy and had started much earlier.

Not Pushing Your Kids Is Irresponsible

Number seven in the list of concepts, this is the most controversial. Education, education, education… but for whom, how, where and what? For some twenty years the British state’s Qualification and Curriculum Authority has insisted that the primary purpose of education is the cultivation of self-esteem. Children must not be exposed to anything that could cause some children to succeed while others fall behind.

This also means that children must not be pushed: this is the whole meaning of “child centred education”, that children will be naturally drawn out over time, that talent and achievement however mundane are somehow “innate” and are therefore not allowed to appear early for fear of it withering on the bough (something that never worried Mozart or his parents) – this is the poisonous doctrine at the heart of the failure of state education. Formal rule-based learning is abolished under this doctrine on the fallacious reasoning that rules are straight-jackets rather than springboards. The claim is that those who are exposed to learning rules are then confined by them and learn only to hate what they have learned. But think: do those who have learned and practised the rules of cricket give up in disgust once they have mastered them?

The vicious fallacy behind this thinking is exposed throughout this book, and particularly in relation to the success of the Gold winners in tennis from Russia and in golf from South Korea, for these successes are founded on a group of people largely despised by the British education system: parents. These parents not only push their children, but give up everything to stand behind their children, following their training, keeping log books of practice at home – in short, getting involved. Indeed, so important was the parental input that Mr Ankersen discovered, he goes on to say that to be casual about their children’s success, to be indifferent to what it really takes to master anything, is the true parental sin. And the other crucial insight, the one that was also found at the Berlin academy, was that these children started very young, as young as five or six.  

The attitudes he discovered in Russia and South Korea are contrasted with tennis in Britain. So concerned that the Wimbledon Championships have failed to produce a winning Briton for so many decades, the government and the Lawn Tennis Association throw £60 million a year at the sport. State of the art training facilities with every luxury and comfort exist – to which bored parents bring their children and then sit waiting outside the practice courts, reading paperback fiction and willing the session to be over so that they can get to the hairdresser.

Facilities or Motivation?

Brazil’s footballers owe their success to one single factor: the endless dribbling and scoring that they engage in year in, year out on the street corners of the favellas from a very young age. High on the hills above and beyond the favellas sit the family homes that successful footballers have built to rescue their families from the slums, acting as an inspiration to the next generation of footballers. The godfather of Brazilian football, Eurico Miranda, asserts that “95% of them have been created on the street corners … This is the kind of head start that you can’t catch up with. The biggest mistake they make in Europe is being too well organised. Brazilian footballers are not the product of organised talent development. … Our academies … just have to make sure not to ruin the raw material they take in. The work has already been done for them.”

Stephen Francis, the coach of the Jamaican sprinters, declares that he will never change his training ground. For one thing, it eliminates, sometimes at the very beginning, those athletes who look for glory but aren’t prepared to work for it and expect to train with all the mod cons and comforts. The Kenyan runners live semi-monastic lives up in their mountains, running, eating, sleeping and running again.

The book is full of surprising and convincing insights, and the most important theme running through it is the problem of “innate” talent. A small but interesting experiment conducted at Hong Kong University puts this into perspective.

Organised by Carol Dweck, a psychologist at Stanford University, students were given several challenging tasks; once completed, half the students were praised for the effort put into them, and the other half were praised for their intelligence. As a result, subsequent tests produced interesting results. Those praised for intelligence became passive and reluctant to perform the most challenging assignments; those who had been praised for effort simply kept on improving.

Even more instructive was what happened next: the children were asked to write letters to those at another school describing “their perceptions and experiences of the tests they had undergone. … Forty per cent of the students who were praised for their intelligence had lied about their results in the tests. They claimed that their test results were better than they actually were.”

Subsequently, these children were offered a chance to improve their language abilities. All classes at the University of Hong Kong are conducted in English, so it was assumed that the children would jump at the opportunity. “It transpired, however, that the majority of the students who had been praised for their intelligence preferred to stay at home and abandon the course.” This is a fascinating insight into the sort of problems that may be caused by the “innate talent” assumption: it “shows what happens when people end up in an environment that exclusively celebrates their natural talent and not, say, their commitment and application. They begin to define themselves by that talent-description, and when times get tough and that self-image is threatened, they have difficulty with the consequences, to the point that they would rather lie than be exposed as untalented.”

There is no doubt that the High Performance Anthropologist knows how to get results – and goes about it in a highly original and thought-provoking manner: the book is pure Gold!

Readers curious as to why a gold investment website should be running articles of this nature should refer to this statement:  GOLDCOIN,ORG: MIXING POLITICS AND NUMISMATICS?

G4S: Public Bad Versus Private Good? It’s Not So simple.

Tuesday, August 7th, 2012

By Mark Rogers

Following the revelations that the organisation of security by G4S at the Olympic games in London this summer was a “humiliating shambles” (Nick Buckles, G4S Chief Executive), there was a flurry of assertions by the commentariat that this disproved the “Thatcherite” dictum, Public Bad, Private Good.

There should be no doubt that this principle ought to have been proved beyond controversy by the crises at the end of the Seventies that brought Thatcher to power: for one thing, the combination of nationalised industries and trade union power and potency, enabling industrial action across the entirety of what was then the state sector, surely leaves little room to doubt that the balance of state power and private power ought in most things to lean towards the private sector – which is more diverse, more competitive and more accountable.

Having said this, however, Public Bad, Private Good is nothing more than a convenient shorthand for what is in fact a much more complex matter than it might at first seem. For what is at issue here is the appropriateness of public versus private ownership and action. Even more interesting is the way in which state and private sector functions intertwine, and the question of whether they should or not.

Take what is at issue in the G4S business: there was a time when law enforcement was private in the sense that the Queen’s Peace was mediated by individual subjects. One of the origins of the police was in what were basically private detectives at the end of the eighteenth century and the beginning of the nineteenth. They could be consulted and hired for expenses and a share of the value of the recovered property to investigate theft, for example; once an arrangement had been entered into both the client and the detective had to take that arrangement before a magistrate for approval and to render it lawful. Note that both the detective and the magistrate were lay people. Far from the operations of the law being something left to an elite police force, the public had a right and a duty to enforce the Queen’s Peace whether at home or in the highways and byways: law was definitely in the hands of the people, and, something that is often forgotten today, Englishmen had the right, indeed they were expected to bear arms. Long before professional standing armies and professional police forces came into being, the citizenry formed militias when called upon to do so, and defended their homes and families with force if necessary.

Much of the problem of crime and violence over recent decades has arisen from the profound changes wrought to the idea and practice of policing since the Wilson government’s reforms in the mid- to late-sixties.

Economies of Scale

There is an important fallacy operating in the usual assumptions about economies of scale; it is of the cause and consequence type. Economies of scale dictate the size of the organisation and not the other way around as is usually assumed.

Take cartels: what they are pooling is their inefficiencies, hence the attempt to rig prices. So far from size automatically producing economies of scale, size can often dictate ways of circumventing or overcoming them. When this is done in coordination with government, whether at the behest of the government or the businessmen, it is called corporatism.

So reverting to the G4S fiasco several things immediately become apparent. The world’s largest private security company was invited by the government to make a bid for the Games simply because it was so big: its bid was accepted forthwith – there was no competitive tendering. Second, the government is hopelessly bad at drawing up and enforcing these sorts of contracts – witness the Private Finance Initiative Public-Private Partnership scandals of the Blair-Brown years. Third, notwithstanding several controversies over lapses of security at military and nuclear facilities, there was simply no way of knowing whether, merely because it was big, G4S was capable of providing security on the sort of scale required for an event as large as the Olympics; the process involved in competitive tendering would have given a much clearer idea of the bidders’ likely competences. Fourth, being a business but one that had been granted a short-term monopolistic contract, there was simply no incentive for G4S to earn its money. Why, for example, were the various types of security operation not split up and contracted to smaller firms, with the option of removing the contract from a defaulting firm and giving it to one of the others – with the likelihood that, given the threat of competition, firms would be unlikely to default.

And of course given the security concerns around a large symbolic event taking place in one of the world’s great and free capital cities it is extraordinary that the army was not considered the more rational option, or even simply drafting in more police from county constabularies – which is what happens when riots take place.

And yet, none of the above considerations would have applied if it had been the case that G4S had proved efficient!

Government waste and business thrift

This readily leads to the heart of the dilemma of weighing the appropriateness or otherwise of government action versus private action motivated by profit seeking.

The great Jane Jacobs (whose seminal work The Death and Life of Great American Cities has already been referred to here) published in 1992 Systems of Survival: A Dialogue on the Moral Foundations of Commerce and Politics. In a seemingly simple context, she sets up a Platonic dialogue between a small group of people, consisting of a retired publisher, a lawyer, a writer of crime novels, an environmentalist campaigner and a biologist, who try to discover the answer to what starts out as a simple observation, namely why large bureaucratic governments are so good at creating waste.

The fundamental moral foundations are established very early on in the book, which is the discovery that there are two self-contained moral systems at work in human life, and what is more that these systems are internally consistent and, crucially, are the opposite, in absolute terms, to each other.

The book develops from these systems and in an increasingly complex yet never obfuscating way (the book is delightfully written with plenty of room for humour – the dialogue form is completely right and convincing for the way in which Jacobs develops her insights) uncovers the appropriate forms, times and places for establishing what is the provenance of government and what is the sphere of commercial mores. One crucial insight that emerges is that things go wrong in both directions – when governments attempt commercial functions just as much as when commerce attempts gubernatorial functions. That is, there is very little room for overlap between the two syndromes; the syndromes are elaborated and the potential or otherwise for overlap between them is subtly explored with remarkable conclusions.

The book covers an immense amount of ground in several intellectual disciplines and one thing that must be stated categorically is that this is not a one-book-answer to the types of problem under discussion. In examining the contradictions of state power, the innovations of commerce (methods more generally as much as any specific technology) and the creative tension that must exist between them to propel and secure civilization, what Jacobs has done is to create a vital template which, placed over any aspect of political, social and economic activity, can cast illumination over the most intractable problems. And what are the syndromes?

Moral Syndrome A: Shun force; Come to voluntary agreements; Be honest; Collaborate easily with strangers and aliens; Compete; Respect contracts; Use initiative and enterprise; Be open to inventiveness and novelty; Be efficient; Promote comfort and convenience; Dissent for the sake of the task; Invest for productive purposes; Be industrious; Be thrifty; Be optimistic.

Moral Syndrome B: Shun trading; Exert prowess; Be obedient and disciplined; Adhere to tradition; Respect hierarchy; Be loyal; Take vengeance; Deceive for the sake of the task; Make rich use of leisure; Be ostentatious; Dispense largesse; Be exclusive; Show fortitude; Be fatalistic; Treasure honour.

The first is the Commercial Syndrome and the second the Guardian syndrome (the name is explicitly adopted from Plato). But to discover more, readers must find a copy – it is a truly enlightening book!

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS 

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST


Sunday, July 29th, 2012

By Charles Sannat, Resident Economist at Au Coffre

The second in a summer series of articles on the great economists, the first of which on Thomas Malthus may be found here.

His life

David Ricardo (1772-1823) was a 19th century English economist and also a stockbroker and Member of Parliament. He is regarded as one of the most influential economists of the classical school alongside Adam Smith and Thomas Malthus.

David Ricardo was born on the 18th of April 1772 in London, England and died on the 11th of September 1823 at Gatcombe Park.

David Ricardo was the third of seventeen children born to a middle-class family of Jewish bankers (of Portuguese origin), having emigrated to England from the Netherlands just before his birth. At the age of fourteen, David Ricardo joined his father at the London Stock Exchange, where he began to learn about finance.

Ricardo rejected the orthodox Judaism of his family and ran away at the age of 21 with a Quaker, Priscilla Anne Wilkinson, whom he had just married. His mother, as punishment, never spoke to him again. At that time, Ricardo also became a Unitarian. The rift with his family forced him to be self-sufficient by becoming a stockbroker.

His first works, on monetary problems during the Napoleonic wars, appeared in the form of three articles published in The Morning Chronicle between 1809 and 1810.

One year later he published The High Price of Bullion, a Proof of the Depreciation of Bank Notes (1811), where he developed a quantitative thesis which stated that the excessive issuing of bank notes contributed to the depreciation of the English currency during the Napoleonic wars. This book influenced the drafting of the “Bullion Report” by the commission of the same name of the House of Commons.

The debates generated by the publication of his monetary works led Ricardo to develop his knowledge of economics, which had begun in 1799, during a particularly tedious holiday in the English spa-town of Bath, when he focused his attention on economics by reading An Enquiry into the Nature and Causes of the Wealth of Nations (1776) by Adam Smith.

His career as a stockbroker made him sufficiently wealthy to retire in 1814, at the age of 42. He moved to Gatcombe Park and divided his time between politics and economics.

Having entered the British Parliament in 1819, after having purchased a seat representing Portarlington, an Irish rotten borough, he sat until 1823, the year of his death. As an MP, Ricardo defended free trade and the repeal of the Corn Laws voted in 1815.

Ricardo was self-taught in economic theory. He corresponded profusely with Jeremy Bentham, Thomas Malthus and Jean-Baptiste Say, on topics such as the role of landowners in society. He also frequented London’s intellectual circles, and became a member of Malthus’s Political Economy Club and the King of Clubs. In 1815, Ricardo published his Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815).

In 1817, his masterpiece On the Principles of Political Economy and Taxation (1817) was published and which he continued to revise throughout the remainder of his life. The second edition was published in 1819 and the third in 1821.

In 1820 David Ricardo wrote to Malthus a few years before his death: “Political economy is according to you a study on the nature and causes of wealth. I believe that to the contrary it must be defined: a study of distribution… Day by day, I am increasingly convinced that the first study is vain and disappointing and that the second constitutes the  proper subject of the science”

He died of an ear infection in 1823 at Gatcombe Park at the age of 51, a year after having completed a long journey around Europe. Upon his death, his wealth was estimated at £725,000, a significant sum for the time.

Theory of comparative advantage

David Ricardo demonstrated that all nations, even the least competitive, find in certain theoretical conditions (perfect competition, without political pressure), an interest in entering the world of international trade by specializing in production where they have the greatest relative advantage or the relative disadvantage with the least negative consequences.

In chapter VII of On the Principles of Political Economy and Taxation, Ricardo develops the example of the wine and cloth trade between England and Portugal.  In a given number of hours of labour, Portugal produced 20 metres of cloth and 300 litres of wine while England produced 10 metres of cloth and 100 litres of wine. England was thus at a disadvantage in the two sectors of production.

Ricardo demonstrated, however, that England had an interest in specializing in the production of cloth, where it had a relative advantage, because for 10 metres of cloth, it would obtain 150 litres of Portuguese wine (versus 100 at home). Conversely, Portugal would have to specialize in the production of wine since the trading with England of 300 litres of Portuguese wine would allow it to obtain 30 metres of English cloth instead of 20 metres of Portuguese cloth.

England had a comparative advantage in the production of cloth whereas Portugal had an absolute advantage.

Ricardo’s analysis thus demonstrated that specialization based on comparative advantages allows a simultaneous increase in the production of wine and cloth. In his model, there is always a combination of prices so that free trade is advantageous to every nation, including the least productive: it is a positive-sum game.

To reach this conclusion David Ricardo makes four assumptions: the value of labour is equal to price multiplied by the quantity of labour; competition must be perfect; there must be permanence in the factors of production at international level (only goods circulate) and lastly productivity must be constant. In reality, these theoretical conditions are never fulfilled, and the practical application of the theory of comparative advantage poses more problems than it resolves.

Indeed a nation which specializes in one sector of production becomes dependant, for other sectors of production, on international markets. In addition to political pressures which it may then undergo, it is also more vulnerable to international speculators.

An example of consequence: the specialization of a poor nation within an export-led culture results in a drop in the domestic availability of basic foodstuffs. A rise in local prices of these basic foodstuffs ensues as well as the risk of famine.

The theorist behind the Gold Standard

In the Bullion Report submitted to the House of Commons in 1810, Ricardo condemns the excessive issuing of banknotes, which in his view is the cause of inflation. He recommends that the issuing of currency be limited by the amount of gold in reserves, in order to guarantee its value.

The theory of ground rent

Wealth is distributed between three components which are wages, profits and rent. For Ricardo, population growth inevitably leads to a rise in the cost of subsistence (due to the diminishing returns of land) and ground rent (following the increased need for arable land). The consequence of this inflation, which workers already living in poverty must bear, is to make a rise in wages necessary so as to ensure their survival. Thus population growth must  cause a crash in profits due to rent and consequently the end of investment in manufacturing, which Ricardo calls “the stagnant state” of the economy, a state which can be reversed through technological progress. Ricardo thus adopts the point of view of Thomas Malthus and criticises the social welfare that is granted to the destitute which creates poverty in the long-term by encouraging undesirable births.

Ricardian equivalence

“Ricardian equivalence” or “Ricardian neutrality” is an economic theory also known as the “Ricardo-Barro effect” or “Ricardo-Barro theorem of equivalence”, first stated by Ricardo and later adopted by Robert Barro in 1974.

According to this theorem, there exists, under certain conditions, an equivalence between the increase in national debt today and the increase in taxes imposed at a later date for the repayment of this debt and its interest. If those involved in economic  activity behave in a rational way, a stimulus policy  (distribution of revenue financed by the national debt) will not push them to consume, but rather to save (increase in interest rates), in preparation for future tax rises. The validity of “Ricardian equivalence” has long been – and still is –debated. The theorem was stated only within very precise circumstances, limited by numerous assumptions.

A study by the DGTPE (Direction générale du Trésor, of the French Ministry of Economy and Finance) suggests that households, in the eurozone and in France, could follow a Ricardian pattern: “a 1 point rise in GDP of the structural public deficit would be compensated by a 3/4 point increase in GDP of private savings, which would be consistent with a mainly Ricardian pattern for households in the eurozone.” (The authors of this study note that it is not advisable “to interpret this type of correlation too hastily as a causality.”)

In his blog, Christian Bialès speaks of a dispute over the assumptions of Ricardian equivalence given that its development should also lead to disputing the principle itself: indeed, an increase in the national debt does not induce in any way a future increase in taxes. Governments can choose to reduce public expenditure, to borrow or increase taxes or even a combination of the three.


Thursday, July 26th, 2012

By Mark Rogers

We’ve had the diddlers and the dodgers, Jimmy Carr – and now the BBC, tradesmen (again) and school children.

Over the last few days it has been widely reported that the BBC encourages its higher earners to set up personal service companies into which their earnings can be paid: the result is savings of millions of pounds in the employer’s National Insurance contributions. The BBC furthermore claims that the Inland Revenue knows; the Inland Revenue says that it does not advise employers on how they remunerate their employees. Reading between the lines, this suggests that the Inland Revenue is trying to avoid being criticised for going along with the BBC’s policy.

This is beyond parody.

The BBC, paid for by the licence fee and the public purse is trying to save public money through lowering its employer contributions to national insurance by encouraging its staff to be paid through service companies.

This is condemned by the government and MPs as immoral, and the government and MPs say it should stop.

The BBC would then be compelled to seek more public money in order to fund its employer contributions.

But that’s alright – because the Chancellor can simply put up taxes to collect sufficient funds to hand to the BBC so that the BBC can afford its employer contributions.

Should those who work for the state pay taxes at all?

Let me re-punctuate that sentence: should those who work for the state “pay” taxes at all? One is tempted to put the word “work”, for the most part, in inverted commas as well, but that is another issue!

There are three important and interconnected reasons why the answer to that question is: No.

First, by being paid net of tax, those who work for the state would be reminded of who they are and what their functions and obligations are with regard to the general public. It would also put paid to that irritating, and smirk-filled, habit that state employees have, when one raises with them the cost and value to the general public of state interference, “I pay taxes too”. They won’t have it that as their wages are paid out of the public purse so, ipso facto, that is where the taxes which are deducted come from as well and that to that extent “they” do not pay “their” taxes.

Second, cost. The process by which wages are paid by the state to state employees and then taxes deducted, whether through PAYE or tax returns by those who are notionally “freelance” because they are paid their state salaries through personal service companies, is, equally ipso facto, a circular one, involving yet more state employees at HMRC to collect these taxes. By paying state employees net of tax, an immediate gain in savings would be made on all aspects of that collection – paper- and computer-work, furniture and offices, etc.: remember the state employs some seven million people. And as the majority of them will in fact be on PAYE, this extra work is done every month.

This second reason leads inexorably into the third and most important. When a worker in the private sector is taxed, when new jobs are created which are taxed, when extra work is done which is taxed and so on, the Treasury makes a net gain, i.e. this is income that it did not possess before.

The same is manifestly not true of the taxes resulting from the state taxing its own employees.

Consider: the state takes that new income which is generated by the private sector and uses it to pay state employees, in the process deducting the relevant taxes. But what it thus takes, it is taking back. No new revenue is generated by this circular process. And insofar as there are, as noted above, costs involved in this process, there is even a net loss.

Therefore, state employees should be paid net of tax.

The state sector could be looked upon as one vast Keynesian multiplier, continuously generating budget deficits, while providing absolutely no evidence of the alleged multiplier “effect”, the boosting of aggregate demand and production. This must be seen as yet another of those causes of our present economic woes that long pre-date the overt plunge into crisis.

Cash in hand immoral

Not for the first time has an MP and Minister revealed that he doesn’t know what he is talking about. The Treasury Minister in charge of tax, Mr David Gauke, has claimed that it is immoral to pay for casual labouring jobs in cash. Most of the people who do such jobs would not be earning enough to register for VAT, and therefore the discount is built into their prices as they are not required by law to charge VAT. Whether or not they pay tax is also a moot point as they may not even earn enough to exceed the low personal threshold.

Mr Gauke has further announced that tax advisers who advise wealthy businesses and the likes of Jimmy Carr should be named and shamed. This is in the context of Her Majesty’s Revenue and Customs seeking new powers to force such advisers – the “cowboy tax advisers” in Mr Gauke’s words – to reveal their clients.

And in a very worrying move, as reported in The Daily Telegraph today, 26 July 2012, HMRC is targeting school children: “HM Revenue and Customs has set up teaching modules to guide children through the hazards of Pay as You Earn and National Insurance contributions. Some of the modules … teach children as young as 11 about paying their fair share of tax.”

Whether or not this is tantamount to encouraging children to snoop, a question appears in the teaching material phrased thus: “Can they [the pupils] think of any example they may have heard of in their local area?”

Now, the Revenue has denied that it is collecting information from teachers: but consider, as noted in one of my earlier articles about the “diddlers”, the Revenue has a whistleblower line which all are encouraged to use should information about “diddlers” come to their knowledge. And the implication is that those who, though not themselves engaged in such transactions, do not avail themselves of the whistleblower line are themselves “immoral”. So, this “teaching” module is in fact an information trawl – albeit a hands-off one.

As noted in my earlier articles, only a government very sure that it was providing value for money could indulge in such Maoist exhortations about morality.

Cowboy accountants

There is, however, something even more interesting about Mr Gauke’s remarks, which were reported in The Times, Monday, 23 July, 2012. One advantage of his moral posturing is that it has stirred up considerable controversy, with many editorialists and letter writers pointing to the unnecessary complexity and incoherence of the tax code, as well as its unfairness towards those on low wages – this is all to the good.

But one point has been overlooked: in lambasting the tax advisers who conduct avoidance schemes, Mr Gauke revealed that there are about twenty such firms, that the government’s own scheme to compel such advisers to reveal products (rather than clients) doesn’t work, and that these “shadowy” firms are often elusive, changing names “to avoid detection”. They are contrasted, interestingly, with “the well-established, reputable advisory firms”; how the advice of the latter, presumably still on how to avoid taxes, differs from the shadowy firms is not elaborated – perhaps the cowboys are simply much, much better at it.

Lone Rangers

This is by no means to be flippant: perhaps these “cowboy” outfits are Lone Rangers, operating as pioneers at the frontline between the profligate welfare state and all those who want a more just and accountable taxation system.

Consider: there is no legislation on what constitutes paying “a fair share”: how are eleven year olds, bamboozled as they may be by the complexities of their HMRC “teaching” modules, going to quantify such a ludicrous notion? The graver point arising from this, though, is that HMRC is making things up as it goes along: no-one is obliged to pay their “fair share” as no-one can possibly know what that phrase means – it is not a law, and as exhortation is so much puff, but disturbingly now being aimed at children who may be susceptible to coercive blandishment.

Now, this freelancing as to the nature of the law by HMRC is to be expected, given that all departments of state more or less operate on delegated legislation, that is, parliament cedes the power to oversee the department’s rule-making and exercise of powers to the department itself, that parliament has, that is, abrogated its powers of holding the executive to account, a fundamental violation of the English constitution. Morality, Mr Gauke, M.P.?

One of the problems of modern parliamentary practice is that, even before M.P.s have granted the delegated powers, they do not read legislation either properly or at all before it becomes an Act. In the case under discussion, the enormous incoherence of the tax code is the result.

The civil servants at HMRC responsible for putting the legislation into practice also do not read it properly, or do not understand it – this is evident not only from the mistakes they make, such as over-taxing vast numbers of people while under-taxing others, but also from the fact that they themselves are not aware of the possibilities of avoidance until such cases come to their notice.

But then, neither M.P.s nor civil servants are incentivised to read and understand legislation in full: they all have their expense accounts and their retirements on gold-plated pensions to rely upon, and the result is monumental sloppiness, as well a massive dereliction of duty towards the ordinary voters and taxpayers.

There are however people who are massively incentivised to study the tax code in depth, who indeed are the only people in the country who actually understand how it works. And they are those very “cowboys” that are being condemned by HMRC.

How can this be? Well, very simply, they are incentivised by the thought of the fees that they can charge their clients for reducing tax bills and by the desire to give their clients the best possible service: this acts as a mighty spur to know every last clause in the tax code and know, moreover, exactly how to use their resulting knowledge.

No doubt, they would be reluctant to assist our legislature in simplifying the tax code for fear it would put them out of a job, but as there are, apparently, few of them, and given their manifest ability they ought not to experience too much difficulty in finding work in the thriving economy that would result from the reduction of the burden of government that would follow the reduction in the burden of taxation.

Of one thing there should be no doubt in the reader’s mind: this onslaught on diddlers, dodgers, and cowboys is the result of incoherent legislation which allows HMRC to pursue its own agendas. That can only be stopped by a thorough Parliamentary overhaul of all the existing legislation on taxation. The ordinary subjects of HM’s government should not, however rich or poor they are, be subjected to state vendettas which only arise because parliamentarians do not do their job properly: no-one outside Parliament or Whitehall should be made to pay for the incompetence and negligence of M.P.s and civil servants.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS 

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST


Monday, July 16th, 2012

The Morality of Taxation

By Mark Rogers

A couple of years ago when I was working part-time on a very modest wage for a proof-reading company, we received a huge job with a tight deadline: it required a dedicated proof-reader rather than be shared out round the office and I volunteered. For about five weeks I was no longer part-time, but working very long hours, including at the weekend. This didn’t trouble me, because I had a made a rough calculation based on what I believed to be my tax position, and I reckoned I would have earned a tidy extra sum by the time I had finished.

Alas, there are no tax avoidance schemes for the low paid on PAYE

I had underestimated the effect of the National Insurance contributions as well as being out in my tax calculation. Net result: the taxman took the equivalent of three and a half weeks’ rent, and the difference between what I took home as a result and what I normally took home was negligible. For all that I gained from it, the extra work had simply not been worth doing; only the company and its client, and the state benefited from my hard work.

This surely suggests that there is something immoral about the way in which the tax system works in modern Britain.

Yet it appears that Jimmy Carr, the stand-up comedian, thinks that his tax avoiding behaviour was immoral. What, Mr Carr, is moral about a tax regime that so easily and casually penalises those on low wages?

Tax in the news

Ever since this year’s Budget tax has been regularly hitting the headlines, with U-turns on fuel duty and the absurd hot pasty tax, over which the Chancellor decided to compromise, thus inventing an absurd tariff to determine at what point a take-away pastry becomes “hot” for the purposes of taxation. Thus the imbecilities of micromanaging taxes.

And as stated in my last post on the Libor scandal, there does seem to be strong evidence that the scandal was allowed to roll because of Gordon Brown’s insatiable demand for taxes for social spending.

In June, The Times decided to “uncover” just what sort of earners at the top end were engaging in tax avoidance schemes. There had been the embarrassment of Ken Livingstone, during the race for the Mayoralty of London, over his creative accounting practices. This was a delicious farce, ending in the shamed Livingstone asserting that he couldn’t see why anyone earning his sort of money wouldn’t be taking advantage of tax avoidance schemes. Not for the first time has a left-wing ideologue been caught smirking over his capitalist wallet…

Jimmy Carr’s “terrible error”

What much of the brouhaha surrounding the revelations by The Times of “aggressive avoidance” (in the Chancellor’s words) shows is that there is simply no understanding of the widespread effects of the corrupting nature of complex tax policies.

Jimmy Carr tweeted his remorse and stated that “in future I will conduct my financial affairs much more responsibly”. But his position over his taxes is based on two false assumptions. They are: (1) that what a modern welfarist government does is necessary, and (2) that government does it well. Neither is true: we need to be very certain that the state is giving it subjects value for money (see here). The trouble with this proposition is that we cannot be certain that value is being given because the accounting exercise to arrive at total certainty would be too vast to accomplish. On the other hand, there is more than enough evidence to prove the opposite: that much of what the state does, it does incompetently and wastefully.

In the circumstances it seems to me that anyone is entitled to the maximum benefit from the work he or she does. The tax implications I will deal with in a moment, but there is another aspect of the Jimmy Carr case that is revealing.

It was suggested that the revenue should have been alert to the fact that he was working some 200 days a year, and that any reasonable computation given his successful career and his concomitant high profile should have suggested that his tax returns were not an accurate reflection of his true earnings (even though, it must be asserted, he was doing nothing illegal).

This reasoning is fallacious because it smoothes over another tax avoidance scheme, and the only one available to poor people, which is simply not to work. Once Mr Carr has worked out what his tax bill is going to be if he does conduct his affairs “responsibly”, will he respond by not working for so many days each year? And will he then continue to be branded an “avoider”?

It’s all a bit too much like the “hot” tax for pastries: how can any determination be made of what constitutes moral behaviour when it comes to taxation in the modern state?

The Laffer Curve bumps into Parkinson’s Law

There can hardly be anyone in the Treasury who does not understand the Laffer Curve, which demonstrates the optimum level at which tax avoidance (or indeed evasion) is simply not worth engaging in. The fact that a simplified tax system with fewer and lower taxes would produce more revenue is self-evident.

However, those same people would also know Parkinson’s Law which states that work expands to fill the time available to do it, and which in turn therefore promotes the expansion of bureaucracies. So, notwithstanding the fact that the Laffer Curve demonstrates that revenue would rise, it would also take far fewer people to collect it. In spite of the increased income, it would be invidious to pay people for doing nothing, although in a way, when the inspectors and collectors working in such a complex system get it wrong, as they frequently do, it could be said that they are being paid to do nothing.

Soaking the rich

One consequence of the welfare state is the re-ordering of priorities away from the traditional functions of the state – law and order and defence – something which has been occurring with a vengeance since the Coalition took power in the government’s senseless winding down of the armed forces. The result is that welfarist governments divert attention from these traditional, small state functions (see here for a broader analysis) into the appeasing of the lobbies and interest groups that batten like piranhas on the body politic.

This is accompanied by diversionary attacks on high earners as “selfish”, which only serves to stimulate envy, a moral consequence of the welfare state which was surely not intended but must be taken into account.

However, for those who want to soak the rich, may I make a proposal that is guaranteed to  answer the coalition’s obsession with ensuring that the rich “pay their share” – and that poorer people pay nothing at all!

Flat tax

There is only one mode of taxation that is guaranteed to ensure that the rich pay their “fair share” of taxes and that is a flat tax with a high personal threshold. This means that the rich have no incentive to employ creative accountants, and it also means that those at the lower end of the economic scale have every incentive to work because they are not taxed until they are earning an amount that leaves them properly remunerated after tax.

For a glimpse of what a simplified and fairer tax system consists in, take a look here at the Hong Kong Inland Revenue Board’s assessment for the tax year 2012-2013 – in which taxes are being reduced and allowances increased.

Getting the equation right

I’ve never laughed at a joke by Jimmy Carr, but his “serious statement” about his mortification had me in stitches. I’ll leave the last word to another entertainer, reported in The Daily Telegraph on June 22, 2012, by Fraser Nelson.

“When the singer Adele opened the tax bill for her first album, she had this to say: ‘I’m mortified to have to pay 50 per cent. Trains are always late, most state schools are [expletive deleted] and I’ve gotta give you, like, four million quid?’”

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS 

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST


Thursday, July 12th, 2012

By Mark Rogers

In my previous post on this scandal, I noted that the more information comes to light, the less coherent the story becomes. While this is true given the state of the evidence so far, there is no harm in imposing coherence upon what has come to light, providing one takes account of the history of the financial shenanigans and the economic legerdemain of the previous government.

And in a very robust editorial in its 7 July 2012 issue, that is precisely what The Spectator does. It goes for the top:

“Cheap debt was, in the Labour years, seen as a new horn of plenty – and by everyone. To banks, it meant being able to take massive bets and reap unimaginable rewards – easy to come by in a bull market. To Labour, it meant a jackpot of cash. Brown’s greed for tax was just as pernicious as the bankers’ greed for profits. Every bonus paid in the City was split 60/40 with HM Revenue & Customs: it was a joint venture with the banks. The Financial Services Authority failed to prevent banks running down their capital ratios, or putting themselves at risk by lending long and borrowing short. So long as the taxes flowed in to fund Brown’s social programmes, his government did not worry about reckless lending and market manipulation.”

This strikes me as an entirely plausible assessment of what was going on; notice that the argument made here does not suggest that the government and its taxmen were happy to take advantage of behaviour they came to know about (despite their current denials); it argues that this was a done deal from the very heights of government: the bankers, the regulators and the government “were all united in their commitment to cheap debt, all desperate to believe that the prosperity that it seemed to bring was real. The Bank of England thought it had found the secret to economic stability. Gordon Brown’s government hailed the ‘end to boom and bust’. Regulators talked about the triumph of the ‘light touch’, giving banks the freedom to innovate, while not taking undue risk. The conditions which set the scene for the Libor scandal were the same ones which inflated the bubble that burst four years ago.”

This is an accurate description of the folly of the Brown/Blair years. It was really Gordon Brown as Chancellor who was running the country, with his well-known obsession for micromanagement; if the British economy was like the Cheshire Cat during this period, then Blair was the grin that was all that was left behind. It also, in asserting that the driving force was Gordon Brown’s social spending, vindicates my own view (here and here) of what lies at the heart of the financial crisis.

And the oil that smoothed all these dangerous follies: the promise that the banks were “too big to fail”. In other words the government, by making this promise and legislating as it did, helped trigger the destruction of the old City ethos: bankers, just like everyone else in business and trade like making profits (including me); it is what trade is for. It is the how of the making, not profits per se. Throughout the Brown years it was painfully evident to me that the Chancellor was either ignorant of or indifferent to the general laws of economics – an end to boom and bust indeed! As I have remarked before on this site (in the first of the two articles linked to in the previous paragraph), bankruptcies are an economic necessity – and not only in accordance with Schumpeter’s ideas about Creative Destruction, but also more mundanely in terms of economic housekeeping.

Fortunately, this is in the process of being changed. The present Chancellor is working to put into place financial mechanisms that will identify failing banks and put them into administration so that they can go bust while minimising the fall-out and protecting depositors. The sort of thing the Bank of England used to do, and on the whole quite well. This too is perhaps to make a comeback: in June 2010 the Chancellor announced plans to wind up the FSA and restore financial regulation to the Bank of England (albeit creating two more bodies as well, but their powers seem likely to be modest and restrained, perhaps functioning more in an advisory capacity). Recent reports indicate that this is now happening.

The Spectator editorial may be found here, but you will need to subscribe (at £1 per week, a snip) to read the entire article.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS 

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST


Tuesday, July 10th, 2012

By Mark Rogers

The LIBOR scandal is marked by one very obvious quality: the more information that comes to light, the less coherent the story becomes. The latest example is the revelation at the Commons Treasury Committee’s questioning of the Deputy Governor of the Bank of England, on Monday 9 July, which is that it is not actually known whether attempting to “fix” or “manipulate” the rate is continuing. This may of course have something to do with the fact that many other banks are still being investigated with no conclusions so far.

I say “attempting” advisedly, for in the current issue (7-13 July) of The Economist, its leader on the affair states: “If attempts to manipulate LIBOR were successful—and the regulators think that Barclays did manage it, on occasion—then this would be the biggest securities fraud in history.” The emphasis is mine, because this appears to divide the matter in two: “attempts” – which may have come to nothing, and “success”, which was apparently only the case “on occasion”. What does this mean in the light of the fines that Barclay’s has paid on both sides of the Atlantic: was it fined for its few successes, or was it fined for the attempts as well? And if the regulators merely “think” that Barclays did so manage it, how big was the malfeasance? That is, on this reckoning, there may have been other, unacknowledged or untraceable, successes, or some of the successes may have been exaggerated: we just don’t know because the regulators appear not to know.

In other words, is this the biggest securities fraud in history?

You see how confusing this has become? It becomes more so…

A Banking Scandal

On Saturday 7 July 2012, a Times leader vigorously asserted that this was not a political scandal but a banking one. The occasion for the reflection was the spat in the House of Commons between the Chancellor George Osborne and Ed Balls, now the Shadow Chancellor, but Minister for the City at the time the LIBOR fixing was occurring – or was being attempted. The Chancellor suggested that Ed Balls as the relevant minister at the time would have questions to answer, something that the Labour Party would have been quick to take up had the relevant minister at the time been a Tory.

The present writer begs to differ: this is most certainly a political as well as a banking scandal, and the ramifications of the political side of it go to the heart of how we are governed, what is appropriate state intervention and what the limits of such intervention should be.

The Governor of the Bank of England and the FSA

Sir Mervyn King, although apparently furious when the fixing first came to his notice was unable to do anything about it – he had no powers. On the other hand, at least according to some accounts, it may have been the case that the Financial Services Authority signed off on the fixing, or may have appeared to do so. Perhaps it didn’t recognise it as “fixing”: in his evidence at the Treasury Select Committee, the Deputy Governor of the Bank of England, either confused himself, or wishing to confuse the committee (the matter is not clear), asserted that the Bank was in confusion as to whether what it was uncovering was incompetence, flaws in the system or dishonesty. It is also not clear whether the possibility that something dishonest was occurring was a perception at the time, or at some later time, or with hindsight now.

This confusion may explain why the FSA may have “signed off” (if it did): it simply didn’t understand what was going on, or didn’t know what it was doing. There is the further question as to when it changed its mind (if it did).

There is also the curious fact that the British Bankers’ Association which administers the LIBOR, the London Interbank Offered Rate, has not been put into anybody’s sightlines to discover its views and behaviour in the matter. (All I have found is a very bland statement on its website.) Should this happen, there may be some interesting questions raised as to at what point a rate which is manipulated everyday on the basis of fairly complicated submissions, becomes “manipulated”. Is this an inherently flawed system (if it is, can it be fixed or should it be abandoned)? Or is the problem that too much regulatory intervention has falsified regulators’ and practitioners’ perceptions of what is going on and should be going on. On either of these suppositions, it is only too clear to see how some traders, with or without the complicity of senior management, would hope to get away with manipulating their submissions.

Bob Diamond’s Resignation

The regulators do seem to have changed their minds about one significant matter. Some reports suggest that because Barclay’s had fully and freely cooperated with the investigation, had been the first to do so, and had in the past even tried to warn the authorities of the fixing it suspected going on at other banks (such warnings occurring some 32 times over a period of 14 months), and paid the fine promptly, the regulators were happy and did not require any rolling of senior Barclay’s heads.

Then all hell broke loose, both the Governor of the Bank of England and the head of the FSA thrust Mr Diamond into the limelight and demanded or appeared to demand his resignation. Having declined to resign, he then did.

Politics – or what?

Both the Bank of England and the FSA are state institutions. After having apparently done a deal in good faith, the leaders of these two institutions then changed their minds: is there the possibility that this was a move to cause a distraction, in the sudden realisation that incompetence or connivance by the regulators might come to light given the rolling nature of the affair: that possibility seems all the more credible after the unsatisfactory answers given by the Deputy Governor to the Treasury Select Committee.

The main reason why I maintain that this is at bottom a political crisis, even more than a banking one, is that it is a crisis of the regulatory system imposed by Gordon Brown. Mr Brown, as Chancellor, decided to politicise the regulation of the banks. The banking institutions of this country are regulated by THREE regulatory bodies, already enough of a recipe for disaster: they are the Bank of England, the Financial Services Authority and the Treasury.

Under the interventions, the Bank of England, while being given the new power to set interest rates, formerly the prerogative of the government of the day, had most of its traditional functions of supervision removed from it (hence Sir Mervyn’s frustration, as mentioned above).

The bulk of these functions was handed over to the FSA, a revamped version of the old Securities and Investments Board (created in 1985), which came into being in 1997, and whose powers were defined in the Financial Services and Markets Act 2000. The FSA operates with delegated authority (i.e. authority that did not need to be referred back to the government or parliament) to create its own powers and rules to impose on and intervene in the banking system. It spawns so much delegated rule-making that the FSA is one of the principle obstructions to proper oversight of banking, and to that extent may be considered an enemy of reform, in that as long as it continues to exist it will only see, as is the way of state intervention, more powers for itself as the “solution”.

And as for the Treasury, it has no expertise in these matters, banking regulation never being amongst its traditional functions.

So there you have it: the traditional, historically-experienced supervisory body stripped by the government of almost all its powers, the roping in of a department of state with no experience in these matters, and the invention of a new bureaucracy, which amongst other things attracted as regulators bankers at lower levels of management, who brought their own lack of expertise of banking overall and as understood at the experienced top end of management, and who equally had no experience of working in a governmental bureaucratic environment.

What is anybody in these circumstances expected to do, except make a mess?

The banking sector became overtly corporatist under the regulatory regimes created by Labour, which in turn created the climate for any number of scandals and crises. Matters were not improved with the nationalisation of most of the high street banks, “where”, in the words of Allister Heath, “profits have been privatised and losses nationalised.” Mr Heath is the blunt and vigorous editor of the free market (and free) newspaper, City A.M., and a sterling advocate of the return of capitalism to the banking system (here): his analysis is one of the shrewder expositions of what has gone wrong and how matters may yet be righted.

In the meantime, those who understand how compromised banks have become, and alarmed at the government’s enthusiasm for quantitative easing, will readily see how investing in gold as a safe haven makes sense, the only port in economic storms.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS 

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST


Wednesday, June 6th, 2012

By Mark Rogers

A Few Thoughts on the Democratic Consequences of a Constitutional Monarchy

In spite of the weather, the programme of events scheduled to celebrate the Queen’s reign of sixty years went ahead as millions of people turned out all over the country for occasions great and small.

The biggest was the river pageant in London. What is worthy of note is that the hundreds of boats were crewed by dedicated enthusiasts from all parts of the country, members of private trusts and museums and clubs established over many decades to preserve old boats. They are experts in what they do, knowing how to restore, care for and sail these boats. All over the country, there are the equivalents for trains, cars, steam engines, and all manner of engineering works. 

And all of these people knowingly work hard to keep their historical connections and interests alive and independent. In other words, there exists in this country not only the underclass of those who subsist on the benefits system and rely on the government for their needs, not only the excessive civil service, but also this parallel class of people from all sorts of backgrounds who, in a way, keep the ancient ethos of this country alive. It is they who turned out to salute the Queen on the river.

Another point of considerable importance in reflecting on the implications of the Jubilee weekend was that the events were paid for privately and were made possible through a massive infusion of voluntary effort. Only the security for the major events in London was paid for out of the public purse, which is as it should be.

What keeps the monarchy alive in Great Britain?

The immediate answer is the personality of the Queen herself which inspires affection. This affection may partly be induced by her longevity, and is also probably because of the way in which the public saw how the Queen quietly went about restoring the way in which the monarchy was seen after the disastrous period during which three of her children were divorced, accompanied by a media frenzy of “revelations” about the lifestyle of the Royals. She did so by manifestly not losing her head and by giving a few dignified speeches in which shortcomings were acknowledged.

But this is not, as it cannot be, all. The monarchy is sustained by a whole panoply of physical, historical arrangements: royal residences and their staff, and the armed forces, who owe their allegiance to the Queen as head of state, and in particular those elements specifically dedicated to the Royal Household.

And beyond these institutions, as the Queen Mother’s funeral, the Royal Wedding last year and this year’s Jubilee have demonstrated, there is the great mass of the British people, and beyond them the peoples of the Commonwealth.

“People Power” and the Monarch

Is it going too far to suggest that the body that is the strongest in underpinning the monarchy is the ordinary people of the realm? I do not think so: the great commentator and historian of the English Constitution, A.V. Dicey, temperamentally a conservative, had no hesitation in describing the power and validity of the constitution as ultimately deriving from the people: that the people are the ultimate source of sovereignty is what one would expect in a democracy, but it is indeed a lesson that has taken long in the learning. And Dicey wrote at a time when the reigning monarch was considerably more powerful than the present monarch.

In what does the power of the monarchy then consist? Is Walter Bagehot’s formulation correct? Bagehot famously divided the Constitution into its ceremonial and efficient parts, that is, the monarchy with all its lavish display and the workaday world of the politicians. This formula is probably a more accurate description of the present monarchy than it was during Victoria’s reign when Bagehot wrote. And of course the further one goes back into history, the less persuasive his formula becomes. This having been said, however, if one takes a Burkean view of these matters, the formula suddenly leaves much to be desired.

For what it leaves out is the historic dimension of the present, which is most vividly displayed in the ceremonies of monarchy – and which the British do so superbly! – which must be read as a symbol of what the monarchy embodies.

A Constitutional Monarchy

Historically considered, the monarchy has been slowly adapted and reformed to take its modern position as one of the branches of executive government. The others are the House of Lords, the House of Commons and the Judiciary, each with their separate competences and each sovereign in their own sphere. This is the origin of the checks and balances type of constitution, where each branch of the executive power acknowledges, at least in principle, a restraint on its powers in concert with the others.

If then the monarchy is seen as upholding this principle because of its historical acquiescence in these arrangements, it is but a short step to seeing how the monarch embodies the nation, at least in the sense of symbolising that history. Perhaps this can be most clearly seen in the deference paid to the symbols of Royalty in the courtrooms: when the Judge enters, the entire court rises and nods, not to him in his own person, but as the officiator at a tribunal presided over by the Royal crest on the wall behind his bench, and what is being acknowledged is the monarch as the upholder of the law because she herself is bound by the law and is not above it. This is the radical difference between the English Common Law and the civil law system of the Continent, derived from late Roman Republican Law, where to make law, it is considered necessary for the lawmakers to be above the law.

The great Lord Denning once declared of the Common Law: “Be you never so high, the law is above you.”

That the British monarch represents such a radical limitation of power is the foremost reason that the people respect the monarchy: it is an enduring historical symbol, alive in the present, of the system of laws and government that gave the British their liberties.

The ceremonial function of the Constitution is therefore to serve as a reminder of the centrality of that concept of government.

Is it then surprising that the people turn out in such great numbers to honour it, especially at a time when the other branches of government inspire considerably less loyalty, and even interest? In this year of Jubilee the idea has been seriously canvassed that those who fail to turn out to vote should be fined. Such is the desperation of the political class.

The gradual ceding of real powers by the monarchy, avidly campaigned for by politicians of various stripes ever since Lloyd George, has helped bring the other branches of the executive, especially the Commons, into increasing disrepute: the government of the day, sitting in Parliament as of right as elected MPs, able to control the House of Commons through its majority and its whips, and able to send its Cabinet members through the lobbies to vote on its own policies, disposes of more power than ever the Stuart kings did.

The Little Platoons

Edmund Burke knew that the health and constitutional vigour and reliability of our way of life was most manifest in what he called the little platoons of society: the family, private businesses, the private associations and clubs and trusts all of which formed the weft and warp of the national fabric. It was for this reason that he formulated his idea of the chain of being linking past, present and future. It was in disruptions to this chain and assaults on the little platoons that he feared lay the seeds of tyranny.

So the advent of all those voluntary associations on the Thames on Sunday afternoon was a heartening display by the little platoons; that it was to honour a well-loved Queen as well as the institution, suggests an historical bond between the sovereignty of the people and their sovereign which the political class would do well to heed.


Sunday, June 3rd, 2012

By Mark Rogers

This is not an oxymoron. It is unfortunate that we live in an age when it is perfectly possible to link these concepts in this way.

I have been writing for for six months now, and thought it might be an idea to try to summarise my outlook, or, as they say, where I “come from”.

I come from Hong Kong. And that simple statement has coloured my entire political outlook. Indeed, during my childhood and youth in the colony I suppose I scarcely had one beyond the knowledge that we were free, especially as we also knew what was just across the border.

I will go further and say that Hong Kong was the freest polity in the world during the twentieth century. We were certainly exceptionally free of politicians in the modern sense of the word. There was an elected Legislative Council, which was little more than a local government authority charged with managing the basic public amenities, and although there were occasional attempts to politicise it, they never got anywhere.

Hong Kong: no welfare state

And there was no poverty, though there were of course poor people: but poverty as it exists in places like India and South America simply didn’t exist in Hong Kong, indeed, beggars were exceptionally uncommon. The government may have contributed, for example, small grants to schools for one-off purposes – the provision of new text books, perhaps – but there was no welfare provision on the scale that we have become accustomed to in Europe – and which is all but destroying the latter.

Medical treatment was freely available to all who needed it, whether they could pay for it or not. All doctors were private, and the hospitals were chiefly operated by missionary or religious organisations. The latter provided very expensive private ward treatment for the wealthy, which in turn subsidised treatment for those who could contribute either a fraction or nothing of the cost. There were also imaginative schemes run out of hospitals, such as the despatch of teams of nurses into the low cost housing or squatter hut areas, to discover those who needed treatment, to administer it for as long as necessary and to try not to hospitalise patients (unless they needed surgery) on the grounds that people got better more quickly surrounded by friends and family.

Community Chest

Chinese families were strong, partly as a result of tradition, and partly reinforced by the greater solidarity brought about by family losses as a result of the persecutions of Mao’s China. These bonds in turn produced an exceptionally strong philanthropic disposition on the part of Hong Kong’s rich, which in the course of time resulted in the setting up of The Community Chest. This brilliantly conceived idea, originating in such business organisations as The Rotary Club and The Lions, was based on the Chinese sense of “face” and the need not to lose it. Practically, it was designed to collect on a regular basis routine charitable donations into one fund which then was able to distribute those funds according to the immediate needs of all the regular charities, thus ensuring that at any given time the most pressing needs of any given charity did not go underfunded.

The face came in thus: regular lists of the names of donors were published in the paper of record, The South China Morning Post, in descending order of generosity, but without publishing the amount. Hong Kong’s wealthy knew pretty well how much they were all currently worth, and could therefore calculate the likely donations of their business rivals from their position in the list – and could therefore work out how much more they ought to give to try to outdo their rivals!

The immense commercial success of Hong Kong

This depended fundamentally on two things: its harbour and, in its modern history, its Financial Secretary, Sir John Cowperthwaite. He certainly did not suffer interference gladly:

“Asked what is the key thing poor countries should do, Cowperthwaite once remarked: ‘They should abolish the Office of National Statistics.’ In Hong Kong, he refused to collect all but the most superficial statistics, believing that statistics were dangerous: they would lead the state to fiddle about remedying perceived ills, simultaneously hindering the ability of the market economy to work. This caused consternation in Whitehall: a delegation of civil servants were sent to Hong Kong to find out why employment statistics were not being collected; Cowperthwaite literally sent them home on the next plane back.” (From an obituary which can be found here; there is another, fuller one, here.)

The economic success of the colony was also, of course, underpinned by the English Common Law. And the legal system operated in an unusually “pure” form; unencumbered by having to cope with government intervention at every level of private and public life, the lawyers and judiciary were able to work on the basic principles of the common law, precedent and equity. This was complemented (especially in the rural areas of the mainland and outlying islands) by recourse to native law and custom where either the parties requested it, or the magistrate thought it more appropriate. There is a marvellous account of life as a Magistrate in the rural New Territories of mainland Hong Kong: Myself a Mandarin, by Austin Coates (Frederick Muller, London, 1968, subsequently reprinted, Heinemann Asia, Hong Kong 1980; Oxford University Press Hong Kong 1987; and Oxford Paperbacks 1988).

The Law and Order Anarchist

This background, filled out over the years by my reading and my experience at close quarters of the British welfare state (the family courts, where the state is especially intrusive), has given me a deep distrust of welfare as a political process. Indeed, in the light of my observations and recollections of Hong Kong, the Welfare State seems to me to be truly the oxymoron: in order for the political class to establish and administer welfare systems, they must have onerous tax regimes which end up destroying the financial base upon which the welfare systems depend. Better by far to leave people alone to look after themselves, as indeed they did, through friendly associations, credit unions and the like (all of which flourished in Hong Kong) before the welfare state took over.

So, the problem with the modern polity is that by increments, state intervention destroys wealth creation and so destroys the ability of governments to “look after” people and equally destroys the ability of people to take care of themselves, until, reaching the very nadir of intervention (Nazism and Communism), huge numbers of people are themselves destroyed.

Another lesson from Hong Kong is that the legal arrangements come first and must be based ultimately on respect for property and freedom of contract. If the state takes over the administration of private life – from business and manufacturing, to education and health, to sports and the arts, and all other private spheres – then the legal basis of society is eroded, and, amongst other things, governments themselves become harder to render accountable.

I am, therefore: an anarchist when it comes to the size of the state; a liberal – and how sad and revealing that that once robust concept now has to be qualified – a liberal in the nineteenth century Gladstonian sense, because I believe in freedom; and a conservative because I do not believe that freedom is an abstraction: it must be embodied in institutions, which of necessity are anchored in their histories, and the most important of these is the law: historically the Anglosphere’s Common Law is the most productive and protective of individuals and their livelihoods.

The Border between Freedom and Tyranny

This must have happened when I was eight or nine. It was the time of the Cultural Revolution. Those who could, fled to the border with Hong Kong; the government’s policy was that anyone who crossed the border was welcomed (as had been the policy at the time of the Great Leap Forward in the 1950s and the revolution itself in 1949). The border was composed of a closed off portion of Hong Kong’s territory which consisted largely of villages and their fish farms, and then the river which constituted the border itself. In this low lying district, there was a hillock on top of which was the Police Border Post.

My father had some influence and was able to wangle a visit to this Post one midnight, taking me with him. In that part of the New Territories there were hardly any lights: all was black, with a few stars and in the greater distance the high and remote mountains of southern China dim against the horizon.

The ordinary soldiers of the Red Army border patrol had been assisting refugees to escape across the river during the daytime; when word of this got back, Peking sent in the teenage Red Guards to stop it.

As we stood on the Border Post, we could see far to the east and the west along the length of the river, little flashes of light, flicking on and off, on and off, like fireflies. But they were not fireflies: they were flashes of torchlight – under the cover of darkness, the old soldiers of the border patrol were still assisting their fellow Cantonese to escape.

Those little golden glows, flicking ever so swiftly and surely on and off, guiding people to the freedoms of Hong Kong: work and prosperity and a sense of human dignity, the opposite of all the socialisms that have destroyed human purpose so often throughout the twentieth century – and still threaten. Hong Kong, the moral and political gold standard.



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"For a mountaineer, the important things are the effort, the posture and the muscles. The rope that holds him serves no purpose when everything works but it gives him a sense of security. In the same way, all gold does is ensure confidence; it's a safe haven."