By James H. Nolt
Many students over the years have asked me what are the most useful books for learning my approach to political economy. The two books I am working on now will be the most comprehensive treatments of the topics discussed in this blog: Polarizing Political Economy, a reinvention of the conceptual basis for understanding economies, politics, public policy, and business power; and Finance, including Private Power and Strategy, which critically reviews textbook analysis of corporate finance by showing how much more is comprehensible when private power is taken seriously. Ideas of both of these books are anticipated throughout this blog series and in my current book, International Political Economy: The Business of War and Peace—a useful tool for students interested in international relations and economics.
As I learned most about my perspective on politics from Thomas Ferguson, I recommend any of his many books and articles on the influence of private money on various American elections. In particular, his book, The Golden Rule, serves as the best overview of his work. Ferguson’s analysis of American politics during the Great Depression and the New Deal form the foundation of his research. He classifies business interest blocs much the same way I do, emphasizing business nationalists versus internationalists and tight versus loose credit interests. These later two I most often refer to as bears and bulls.
Regarding the world economic crisis that began a decade ago, I recommend Yves Smith’s Econned. Her book explains the private interests and the specific hustles involved in the exercise of financial power nowadays in prose comprehensible to non-specialists. Also useful is her website. On the critical importance of the private expansion and contraction of credit for the value of assets, especially real estate, I recommend Adair Turner’s Between Debt and the Devil. It shows through history within the major financial powers the power of the credit cycle in terms similar to my own. Turner was the chief banking regulator in Britain during the 2008 crisis.
I have often emphasized the influence of finance on politics. I learned this from several sources, including Ferguson. One of his favored sources is an excellent book by Bray Hammond, Banks and Politics in America from the Revolution to the Civil War. It is essential to understand the relationship between banking and the two-party political system. It contradicts the vast majority of the scholarship on President Andrew Jackson, who is often described as “anti-bank” because of his public diatribes and his opposition to the Bank of the United States, created by Alexander Hamilton. Hammond makes clear that Jackson was not anti-bank per se. Like most real estate speculators, he was a bullish anti-bear. The Bank of the United States was dominated by bearish Philadelphia merchants and investors who regularly raided the inflation-prone easy-credit frontier banks chartered in states like Jackson’s Tennessee. These bullish banks were great for financing land speculation, but an anathema to Eastern bond-holders.
Another crucial source is Niall Ferguson’s two-volume study, The House of Rothschild. It effectively made extensive use of the private records of the world’s greatest banking family during the 19th century. It is especially powerful for understanding the Rothschilds’ bond business and why they dominated the mining, canal, railroad, and sovereign loan business of much of the world. It shows the family’s influence on the leading central banks of the time and on war and peace issues. Unfortunately, it neglects their impact on European bill markets, and thus the fluctuations of short-term credit. It never once even mentions financial derivatives, although they were widely used during the Rothschilds’ heyday. Surely they would have used derivative trades to magnify their gains from manipulating other financial markets. Ferguson does not explore this.
While on the 19th century, another essential book is Gold and Iron, by Fritz Stern, a great German historian. It is a joint biography of Otto von Bismarck, the chancellor who unified Germany in a series of wars, and his lesser-known banker, Gerson von Bleichroder, who financed the perennially indebted Bismarck both personally and as a sovereign lender in wartime. The book debunks the typical characterizations of Bismarck as a realist statesman above the petty concerns of political economy. Much of European history becomes clearer when financial interests are understood.
Continuing the story of European international politics, the essays of another German historian, Eckart Kehr, argue compellingly that the origins of the German antagonisms that led to World War I were deeply rooted in conflicting domestic business interests. Some his best essays are collected in Economic Interest, Militarism, and Foreign Policy. Kehr’s specific argument is supported in a more general way by one of the most influential books on international political economy ever written, Rudolf Hilferding’s Finance Capital. It has been hugely influential on the left for more than a century. It is essential for understanding the transformation of capitalism that occurred during the decades before World War I from thousands of small, mostly family-owned firms, to giant corporations and even larger combines, conglomerates, and cartels that dominated by the beginning of the 20th century. Modern economics still imagine “markets” as they ideally existed during the mid-19th century period of so-called “Manchester Liberalism.” At that time, leading industries comprised hundreds if not thousands of firms. Economics today is still fixated on an idealized version of that time, largely ignoring the emergence of concentrated private power that Hilferding details. Incidentally, Hilferding was twice finance minister of Germany before being murdered by the Nazis.
Another huge category of relevant literature is that on financial crises. There are so many valuable sources for these I hardly know where to begin, but one I found particularly useful for understanding the way bears and bulls contend during a crisis, and for detailing how various financial forces interact, including big banks, brokers, smaller bullish banks, and stock market speculators, is The Panic of 1907 by Robert Bruner and Sean Carr. The authors’ conclusions would be sharper, however, if they used a more systematic approach to political economy.
Finally, for those not repulsed by numbers and tables, an extremely valuable source is A History of Interest Rates by Sidney Homer and Richard Sylla. It covers every country for thousands of years, giving an overview of the history and importance of both long-term and short-term credit. There are many lessons in this data that counteract much of the stereotyped myth of economics textbooks. I will mention just two: Until the last century or so, the lowest interest rates were offered not to governments, but to private merchants and bankers, which is why governments, even absolute monarchs, had to cultivate financiers as creditors. Second, contrary to economic theory, short-term interest rates are often above long-term rates. Supposedly rates should be higher if I lend my money for a longer time period, but the economist’s idea of the “time value of money” is a poor explanation of the private power inherent in credit relationships.
While just a preliminary list, these books are valuable for those trying to understand how private business power is exercised.
James H. Nolt is a senior fellow at World Policy Institute and an adjunct associate professor at New York University.
[Photo Courtesy of Marcel Douwe Dekker]