| Editorial |
| Money and oil are old friends and we meet them both in this issue of the Journal, although not together. Money, always fickle, we meet in the company of her other old friend, government, while oil we find gloomily contemplating the possible extinction of its dinosaurs. |
| The issuance of currency has always been a mark of sovereignty, but many a sovereign has been undone by a need for money and has been led into debasement or debt, often with dire consequences for the economy. It is Nick Bosanquet's thesis that the root cause of monetary crisis has generally been in these fiscal emergencies, and that, per contra, a necessary condition of monetary stability is fiscal responsibility. In support he examines the history of English fiscal crises and their attendant monetary disturbances, and he does not shrink from extending the lessons to our present difficulties. However, he does find a silver lining: the financial innovations made in response to each emergency did evolve through a mixture of market practice and legislation into a robust and effective monetary system, which until now had avoided the threat of systemic failure. Bosanquet allows that these patterns may now be fraying, he believes because of the growing role of the state in the last half century. Thus fiscal crisis in the past was generally the result of war which, though dreadful enough, was episodic; now the public finances are constantly at full stretch and may be pitched into crisis by the economic impact of monetary disturbances. And the risk of external monetary disturbance has been greatly increased by the globalisation of financial markets. His prescription is to restore to the Bank of England its historic responsibilities for systemic stability, to promote competition in banking "so that no organisation is too big to fail", and, above all to maintain fiscal discipline. |
| Oil is an industry built by firms too big to fail; we used to talk of the 'seven sisters' but in truth much of its history can be written as the work of just three organisations: the Standard Oil Trust and its descendants, Shell Transport and Trading and British Petroleum Company, and they still loom large in its operations. In his article Andrew Black raises the spectre of their failure - or rather, of their fading away. He notes the lack-lustre performance of their shares over the past ten years despite the rise in oil prices, and the fall in their share of world oil and gas production and reserves. Black points to growing 'resource nationalism' as a key constraint which is excluding them from developing new reserves as their existing resources are depleted, while their past attempts to move into new sources of energy have not been very successful. Even in their markets they are under pressure from large retailers and from state companies. Are they heading towards the sunset? Black reserves judgment. He observes their success in developing reserves in difficult environments and their mastery of the logistics of oil and gas. A recovering world economy may have need of such skills while low-carbon solutions to its needs for heat and power are developed. |
| Whether or not the world economy is recovering after last year's financial collapse, and what that might mean for policy, was the theme of the Society's very successful Annual Conference which is reported in Speakers' Corner. Those attending the Conference were, when asked, roughly equally divided on the question, and the speakers were generally cautious, with Willem Buiter for one darkly hinting that we were not yet at the end of the financial crisis, while Robert Chote foresaw "two parliaments of pain" as the UK repaired the ravages of the crisis on its public finances. And, just to be sure we do not too lightly assume we now have the measure of the riskiness of financial markets, we also report on Avinesh Persaud's talk in September, when he argued that risk is not so much a property of particular financial instruments as a consequence of the way markets behave, and so not easily to be captured in the models that validated the boom but which failed to signal the busk. |
| Our Book Reviews, too, are thick with discussions of the world of finance, its instruments, its dangers, its politics and its moralities. The remark that caught my attention was by Paul Mills, reviewing a book by Stephen Green of HSBC: "he omits any reference to the role of the 'limited liability company' that is both the wellspring of corporate expansion and impersonal capital markets, and the cause of management excess and corporate aggrandisement." 'Too big to fail' is the dark side of the spur to enterprise from externalising the costs of failure. |
Jim Hirst
Editor |
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