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200th Anniversary of the Death of Napoleon Bonaparte

I have just learned that today – May 5th, 2021 – is the 200th anniversary of the death of Napoleon Bonaparte, for a while Emperor of France, in exile on the island of St. Helena.

It is said that history is written by the winners.  This is especially true about Napoleon.  He is well known and contributed much to modern France and Europe, but he left life as a prisoner.

But once he did, as Shakespeare said about Julius Caesar, “Bestride the narrow world like a Colossus.”

Once, I had occasion to read some of his writings.  I also, at the University Club of St. Paul, on a dusty bookshelf, stumbled upon several volumes of his biography written by Adolphe Thiers.  Thiers included many of Napoleon’s official communiques and memoranda.  His mastery of bureaucratic administration was impressive; his mind was attuned to both grand ideas and the minutia of getting things done with expeditious decisiveness.

To me, Napoleon took the scientific rationalism of the French Enlightenment and gave it sovereignty over a centralized bureaucracy, as professionalized by the Bourbon monarchy, to create a process for socially engineering society to conform its thoughts and beliefs with some normative “general will,” as had been recommended by the moral philosopher, Jean Jacques Rousseau.

This model of the state led by a master mind creating society has been the goal of socialists of all sorts ever since.

In Latin America, Spanish monarchical colonial governments were replaced by Napoleonic states by revolutionaries such as Simon Bolivar.  Since then, the political conflicts in all the countries once under Spanish rule have been rivalries between conservative elites who resist a powerful state and liberals or leftists who want to subordinate local and patriarchal hierarchies to regulation by the state on behalf of the common good.  We can see the Napoleonic state at work today in Venezuela, Bolivia and Cuba.

To some extent, the Napoleonic state is found in all the social welfare states in the European Union.

Napoleon left a precedent of relevance to the Caux Round Table.  He invented the modern field army – with a commander in chief with staff sections reporting to him; three corps; three divisions to a corps; three regiments to a division; three battalions to a regiment; three companies to a battalion; three platoons to a company; and three squads to a platoon – all in one command and control hierarchy, from the commander on top, to all the soldiers at the bottom.

This formation of combat power and the strategies and tactics to enable it to win battles was taught to young American officers at West Point and used by the federal government in its Union armies mobilized and deployed to crush the Confederacy.  After the Civil War (1861-1865), many of these officers, trained in the Napoleonic way of running a large organization, brought the decision-making structure to the new railroad and other corporations then being created as the managers of these new forms of private enterprise.

Thus, Napoleon’s command and control hierarchy was brought to capitalism and has become the global norm for corporations – CEO centric and focused on “winning.”

His role in human history, therefore, should not be forgotten.

Nor have his aphorisms lost their relevance:

“Music is the voice that tells us that the human race is greater than it knows.”

“The best cure for the body is a quiet mind.”

“Men are more easily governed through their vices than through their virtues.”

“Nothing is more difficult, and therefore more precious, than to be able to decide.”

“Ability is nothing without opportunity.  I had rather my generals be lucky than able.”

“Victory belongs to the most persevering.”

“I can no longer obey; I have tasted command and I cannot give it up.”

“The battlefield is a scene of constant chaos.  The winner will be the one who controls that chaos, both his own and the enemies.”

“Imagination rules the world.”

“Great ambition is the passion of a great character.  Those endowed with it may perform very good or very bad acts.  All depends on the principles which direct them.”

“You become strong by defying defeat and by turning loss and failure into success.”

“There are only two forces that unite men – fear and interest.”

“If you want a thing done well, do it yourself.”

“Take time to deliberate, but when the time for action has arrived, stop thinking and go.”

“Never interrupt your enemy when he is making a mistake.”

“Until you spread your wings, you’ll have no idea how far you can fly.”

“A leader is a dealer in hope.”

“Riches do not consist in the possession of treasures, but in the use made of them.”

“The fool has one great advantage over a man of sense; he is always satisfied with himself.”

Joe Biden: The 6 Trillion Dollar Man – Cui Bono?

In his address to the American people earlier this week, President Joe Biden added to his spending proposals.  He wants the U.S. government to spend some $6 trillion it doesn’t have to take better care of us folks.

Under modern monetary theory, not having ready money in hand to spend on us is not a problem for President Biden.  He can just order it up from the Treasury and the Federal Reserve System and dump the money into the economy, seemingly free of charge.

Some call this “helicopter money,” just dumped down on the washed and unwashed alike.

Biden and the modern monetary theorists are not alone in promoting such public largess. Liquidity transfusions into real economies is the template for a new system of nationalized capitalism.  It’s all the rage in Europe, Japan and China, to name just a few open-pocket governments.

Perhaps we should ask that ancient practical question: Cui bono? – “Who benefits?”

Now, I want to go beneath the surface in thinking about this question.  Of course, those who get the cash benefit – renters, those needing health care, students, others with subsidized living expenses, workers on infrastructure projects, federal, state and local bureaucrats and in some intangible way, society – will benefit from increased public goods flowing from provision of such private goods.  We have no way of measuring, as an offset, any public “bads” that might also come with these gifts of money.

But once the money is spent by its recipients, where does it go?  Mostly, it seems to flow ultimately into financial markets.  Middle and lower income people will spend it on consumption.  That will send money to those they buy from.  Ultimately, the money floats up to the wealthy.  They don’t consume so much, so they put their money in assets, mostly financial assets.

The flow of liquidity into financial assets raises asset prices, day in and day out.  Cui bono?  Obviously, the owners of financial assets.  These are mostly the top 1% and 10% of society.

So, the result of helicopter money is to make the rich richer in the short and long runs and the not-so-rich a little better off in the short-run.

Consider the growth in global liquidity:

Consider the result of liquidity creation on the purchasing power of the U.S. dollar:

Consider the stasis of average American incomes for the last 50 years:

Consider the shift in income towards the wealthy:

Consider the growth in the Dow Jones and the S&P 500:

Now, here are some news stories on what happens when financial assets appreciate:

Venture funds bask in blockbuster profits.  Sutter Hill made a $190 million investment in Snowflake Inc.  Last month, it distributed $12 billion in profit from that investment.  Sequoia Capital invested $235 million in Airbnb, which is now worth $14 billion.

With companies using SPACs or special purpose acquisition companies to issue stock to the public, The Economist reported that about half of recent SPACS are losing money.  Nevertheless, the 50 firms studied collectively report some $1 billion of gross operating profits. They forecast their profits to rise to $15 billion by 2023.  Five new electric vehicle companies, which were ushered into public markets in 2020, expect to go from no revenue to $10 billion in revenue in five years.  And people invest in these projections.  The cost of money is so low, why not, especially if you are a billionaire?  What else are you going to do with it, buy another mansion?

Four executives who ran GameStop in the most recent stock market bubble are leaving the company with stock worth $290 million at market price.

Market prices for all assets are on a tear-up!  And who buys assets to push prices up even more? Those who already own assets.

On April 27th, Microsoft won from buyers of its shares a market capitalization of $1.97 trillion. Good for those who owned those shares, but what about you and me?

As I asked above: Cui bono?

Did the Covid-19 Pandemic Trigger America’s Cultural Crisis?

As all Americans know, our country is not in a good place. The world knows this too. What may have happened here is both unique to the U.S. and a repeat of previous social and cultural “distempers” at other times and in other places.

It feels as if we are in the midst of something more religious than secular, more emotional than rational; something like a seeking of salvation, proving our goodness to a higher power.

The intersection anywhere of principles with culture, politics and the economy is very much the center of concern for the Caux Round Table.

There is a very American tradition of religious awakenings. One preceded our seeking independence from Great Britain. Another came before our Civil War.

In this commentary, I have attempted to fill in the blanks of an explanation of our current crisis as something similar, some seeking of both individual and mass redemption when confronting the coronavirus pandemic.

I would be particularly interested in learning your perspective on the widespread distemper among Americans.

Which Stakeholders Count?

A curious failure in football – European style – teaches a lesson on the importance of stakeholders. Several teams came up with a scheme to create a new league.

The proposed league was to include 12 clubs. But when the effort was launched, fan reaction was very negative. So, six of the clubs immediately pulled out and the initiative collapsed.

To help finance the organizing expenses of the new league, JPMorgan had pledged $4 billion in financing. The loan was secured with future television rights payments made to the founding clubs.

Last week, the bank apologized, saying its decision to provide such financing had been a “misjudgment.”

The proposed league, formed to rival the Union of European Football Associations, the governing body of European soccer, would provide automatic participation in the annual championship competitions for its 12 members.

Those whose patronage will provide cash flow to companies are very important stakeholders whose views on the quality of products and services very much count.

What Would Political Discourse Be Without Free Speech?

If discourse is to be a moral foundation for political decision-making, it should have open-architecture and be inclusive and diverse.

Free speech seems necessary to enable and make fluid the decentralized, open-architecture dynamics of democratic capitalism. With power widely dispersed in such systems, its mobilization on any scale for collective achievement requires communication, trust building and collaboration among different holders of power. Free speech maximizes the range of possible collaborations in such systems. Censorship and restriction of speech would suboptimize outcomes.

I want to share with you a recent commentary by Professor Jonathan Zimmerman, which appeared in the Wall Street Journal, on the importance of free speech and the current efforts in the U.S. to throttle diversity in community conversations.

Human Capital As a “Real” Balance Sheet Asset

For the Caux Round Table (CRT), the “holy grail” of how best to run private enterprises as moral capitalism is including intangible assets – social and human – into the value of the enterprise.  The purpose of the firm, then, expands from earning short-term profits to increasing firm asset appreciation and avoiding the loss of assets.

As the firm seeks to optimize the value of its assets – financial, social, human and in ways not yet fully understood – it acts in a socially responsible fashion.

A major hurdle to overcome is accounting conventions, which do not provide means and methods for pricing social and human capitals and for recognizing them as assets on a balance sheet.

In 2019, an investor advisory committee on human capital made a recommendation to the U.S. Securities and Exchange Commission (SEC) on the new importance of intangible capitals to the asset value of companies as follows:

-Today’s companies are increasingly dependent on their workforces as a source of value creation.  Indeed, for many of the most dynamic companies, human capital is their primary source of value.  As the U.S. transitions from being an economy based almost entirely on industrial production to one that is becoming increasingly based on technology and services, it becomes more and more relevant for our corporate disclosure system to evolve to include disclosure regarding intangible assets, such as intellectual property and human capital. Human capital is increasingly conceptualized as an investable asset.  Modernizing the commission’s framework for corporate reporting generally should reflect these facts, subject to the standard of materiality.

-More specifically, as depicted in figure 1, a 2015 study of the components of S&P market value data found that the implied intangible asset value of the S&P 500 grew to an average 84% by 2015 from the 1970s, when it was less than 20%.  The shift is ongoing and reflects a growth in the importance  of intangibles, such as human capital, of four percentage points over ten years.

In August 2020, the SEC ”modernized” its rule on the disclosure of human capital.  The new regulation requires disclosure of a firm’s human capital resources, including in such description of human capital resources, any human capital measures or objectives that management focuses on in managing the business to the extent such disclosures would be material to an understanding of the firm’s business taken as a whole.

The step towards recognizing the CRT’s focus on intangible assets taken by this decision of the SEC to require a description of a firm’s human capital resources is that it effectively denominates human capital as an “asset” worthy of recognition and appraisal in monetary units by a firm on its balance sheet.

The relevant section of the SEC’s public release giving notice of this new requirement can be found here.