Mad Doings in Trade

Anatole Kaletsky

  • The World’s Money: International Banking from Bretton Woods to the Brink of Insolvency by Michael Moffitt
    Joseph, 284 pp, £9.95, February 1984, ISBN 0 7181 2414 6
  • International Debt and the Stability of the World Economy by William Cline
    MIT, 134 pp, £5.10, September 1983, ISBN 0 262 53048 1
  • Managing Global Debt by Richard Dale and Richard Mattione
    Brookings, 50 pp, October 1983, ISBN 0 8157 1717 2

Money has a younger sister, a very useful and officious servant in trade, which in the absence of her senior relation, is very assistant to her; frequently supplies her place for a time, answers all the ends of trade perfectly, and to all intents and purposes as well as money herself; only with one proviso ... if she be never so little disappointed, she grows sullen, sick and ill-natured, and will be gone for a great while together: her name in our language is called CREDIT ...

’Tis strange to think how absolute this lady is; how despotically she governs all her actions: if you court her, you lose her, or must buy her at unreasonable rates; and if you don’t discharge her to a tittle of your agreement, she is gone, and perhaps may never come again as long as you live ... Credit is too wary, too coy a lady to stay with any people upon mean conditions; if you will entertain this virgin, you must act upon the nice principles of honour and without any respect to parties – if this is not observed, credit will not come; no, though the Queen should call; though the Parliament should call, or though the whole Nation should call.

When Daniel Defoe, the world’s first great financial journalist, wrote these words in 1706, only a decade had passed since the establishment of modern credit-based capitalism, with the foundation of the Bank of England and the creation of the National Debt. He could scarcely have suspected how resonant his phrases would sound nearly three centuries later.

In the past eighteen months, many of the less developed countries of the world have been hit by a man-made disaster worse than any hurricane, drought or earthquake: they have been abandoned by coy and despotic Credit. Millions of shanty-dwellers from Mexico City to Djakarta who had caught their first tantalising glimpses of prosperity a few years ago, when Credit flirted with their nations, have been thrown back into unemployment and starvation; in Argentina, Nigeria and Poland, governments have fallen after being seduced by Credit; and even where the politicians who built their hopes on Credit have managed to hang on, as in Chile, Brazil and the Philippines, social structures are crumbling now that ‘Credit will not come.’

Much ink has already been spilt over the Third World Debt Crisis, which was officially inaugurated on 23 August 1982, when the Mexican Government admitted that it had run out of money to pay its debts of over eighty billion dollars – and which is still very much with us, as evidenced by last month’s sudden panic about the solvency of several leading American banks. But nobody has yet improved on Defoe’s description, 280 years ago, of the root causes of such credit-induced disasters:

No nation can show such mad doings in trade as we do. Debtors abuse creditors, and creditors starve and murder their debtors; Englishmen, who in all other cases are men of generosity, tenderness and more than common compassions, are to their debtors mere lunatics, madmen and tyrants.

Is it a mystery that nations should grow rich by war? That England can lose so many ships by pirating, and yet increase? Why do East India Company’s stock rise, when ships are taken? Mine adventures raise annuities, when funds fall; lose their vein of ore in the mine, and yet find it in the shares; let no man wonder at these paradoxes, since such strange things are practised every day among us.

If any Man requires an answer to such things as these, they may find it in this ejaculation – Great is the Power of Imagination!

Trade is a mystery, which will never be completely discovered or understood; it suffers convulsion fits, hysterical disorders, and most unaccountable emotions – sometimes it is acted by the evil spirt of general vogue; tomorrow it suffers violence from the storms and vapours of human fancy, operated by exotic projects, and then all runs counter, the motions are eccentric, unnatural and unaccountable – a sort of lunacy in trade attends all its circumstances, and no man can give a rational account of it.

It may not seem very enlightening simply to say that the Third World debt crisis is the latest manifestation of this lunacy in trade: but this approach gets closer than any other to the real meaning and historical significance of the extraordinary events which very nearly precipitated the collapse of the whole international banking system last year. For the human suffering in the slums of Sao Paolo or Santiago, as the Third World governments squeeze their people ever harder to extract the resources they need in order to honour their debts, is only a tragic contingency of this appalling crisis. It is unfortunately nothing new for creditors to ‘starve and murder their debtors’ in the Third World.

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