I have been keeping an eye on the French Presidential race, if only because it is high time perhaps that that great, sometimes infuriating country had the sort of leader who might unleash the entrepreneurial energies that do exist. (Entrepreneur being of course a French word). We like the witty French economics writer Bastiat at this blog and it would be lovely to think that some of his classical liberal spirit might return to that country.
Alas, Nicolas Sarkozy, the Gaullist candidate, has already signalled that he is as hostile to capitalism as any Sartre-reading socialist:
Nicolas Sarkozy will push for a European tax on “speculative movements” by financial groups, such as hedge funds, if he wins this year’s French presidential elections.
The centre-right candidate to replace Jacques Chirac said in comments published by Wednesday’s Les Echos, the Financial Times’s sister newspaper, that he aimed to “raise moral standards and improve security in financial capitalism”.
Hedge funds, which are investment pools usually registered in sunny Caribbean islands, have become a bugbear for protectionist-minded politicians, who fear the ability of these folk to quickly move in and out of a company’s stock, a currency or bond to make a profit. Hedge funds typically amplify the size of the market positions they take by what is called leverage – borrowing to you and me – and from time to time their bets go badly wrong, as happened during the Russian debt default crisis 9 years ago. On the whole, though, hedge funds make markets more liquid and efficient by increasing the number of buyers and sellers in a market and their arbitrage skills remove inefficiencies in how assets get priced. They also, on a more venal level, generate enormous revenues for financial centres like London and Wall Street. They often put pressure on underperforming company boards to raise their act, which is hardly a bad thing. Like private equity buyout funds, however, hedge funds sound mysterious and a bit dodgy; they prefer to operate in secret and their PR is often awful. For most people, a hedge fund manager is a guy with a slicked haircut shouting into a telephone.
The French business culture, despite a few improvements, is overwhelmingly dirigiste, and can ill afford to give the finger to some of the sharpest financial talents around. If Sarkozy wants to market himself as a sort of French proto-Thatcherite, this seems hardly the way to go about it. Bashing speculators is the oldest and one of the grubbiest tricks in the political book. It plays on public ignorance about economics, it plays on envy at great wealth, and panders to the out-dated idea that wealth is only real if you can hit it with a hammer or or dig it out of the ground. Sarkozy should do his underperforming republic a favour and read some Bastiat instead.
(Entrepreneur being of course a French word).
You know, of course, that the business about Bush and the French having no word for ‘entrepreneur’ is an urban myth…
sometimes infuriating country – like a thousand years of completely intransigent awkwardness.
Don’t get me wrong. I like France a lot. I have even on rare occasions liked selected French people but… Well they’ve made their lit
“…the out-dated idea that wealth is only real if you can hit it with a hammer or or dig it out of the ground.”
Wealth is happiness. That is the value of money.
Although the socialist candidate is behind in the polls, Mr Sarkozy clearly feels that he must say things to safeguard himself against the prospect of the lady making some “anti-speculator” move herself.
Unless (of course) he really believes this stuff – which would be very bad news. Let us hope he is just being a dishonest politician.
As for “down with speculation” this misguided idea (misguided because it holds that speculators create risk, rather than bear it – and that speculators do not really earn their money) goes back a long way.
Edmund Burke managed to get all the statutes against “engrossing and forestalling” (i.e. speculation in the wholesale trade) repealed. But courts were still trying to punish people for these things till the mid 19th century (there had to be a speical Act of Parliament to stop the courts doing this).
The claim was that there was a Common Law prohibition on such activities.
It really goes back to the ancient idea (it is found in some Greek city states, when they started going into decline, and to other civilizations) that there is a “just price” for certain things (perhaps for everything) and that this “just price” is not just the market price determined by buyers and sellers, but is some “fair” price.
In the Roman Empire such ideas gradually overcame the largely free market ideas of the Republic (in bread there were even signs of rot under the Republic).
In the Middle Ages there was a conflct. It is NOT true (as many books claim) that Roman Catholic scholastics all held that the “just price” was the customary or “fair” price – some did, but a great many thinkers did not hold that (they held that the just price was the free market price – see Murry Rothbard history of economics on this, the first volume).
Oddly enough France was the main place where “just price = customary or fair price” notion was strong.
Perhaps this is because Charles the Great (Charlemagne) came down on the “just price = customary price” side, whereas in Bavaria (ruled by the enemies of Charlemagne – before his successful invasion) the law held that the just price was the free market price.
So (although Charles the Great was a germanic Frank) this statist tradition in France has a long history, certainly longer than the “it goes back to Colbert” story one gets in some works. Such Kings as “Louis the Spider” did there best (with what level of admistrative machine that they had) to control as much as possible long before Louis XIV and Colbert (indeed even the oft praised Henry IV was the King who made guilds compulsory all over France).
Of course France also has a long pro liberty tradition. For example, as far back as the Edict of Quierzy in 877 it was accepted that fiefs of land were hereditory (this may sound like a minor matter, but it upholds defacto private property in land – and thus marks a vast gulf between the West and Islamic civilization).
Also such 18th century writers as Turgot upheld free prices and (at least in Turgot’s case) fully accepted that wealth was neither just the product of the soil or of labour, and accepted that it was not just piles of gold and silver either – i.e. that the trade was an honouable activity that created wealth (to be considered as satisfaction – not as materials).
Indeed in the 19th century (with the Say family, Basitat, and the French liberal school) French economics was the most advanced in the world. Far better than British economists (who tended to snear at the “simplistic” French economists).
Of course having lots of great economists did not mean that France was a free market place, but it was (at least up to the First World War) not a wildly statist place either.
Indeed as recently as 1981 the French government was (I seem to remember) was a smaller percentage fo the economy than the British government (inflation was also lower in France in the 1960’s and 1970’s).
Entrepreneur being of course a French word.
Which is true, but in French it usually means “contractor”.
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