The End of Finance, As We Know It

Disintermediate and Die

Over the past twenty years or so we’ve seen a remarkable change in the way a lot of business is conducted.  Publishing, an industry which had run on business models largely invented in the Middle Ages, has been completely revolutionized (see: Book Value).  Other industries have had their economics completely upturned by the interconnectivity of the internet, cheap, distributed processing power and the power of peer review.

Yet this hasn’t impacted the financial industry in anything like the way it might have.  Sure, the introduction of low commission internet share dealing has undermined many old school brokerages, but that’s replaced one set of problems with another.  Now, though, the race is on to disintermediate the middle men: the financial industry is on the cusp of a revolution, and most of the intended victims haven’t got a clue that they’re already an endangered species.

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Socialism on Wall Street

Occupy Wall Street

As the Occupy Wall Street campaign gathers momentum the drumbeat of populist argument has swelled in an attempt to make capital by labelling what appears to be largely a democratic grassroots protest as both “un-American” and “socialist”. Of the former there’s no real rebuttal possible or necessary: that John Bogle was labelled un-American for inventing the humble index tracker tells you all you really need to know about the intellectual underpinning of what is essentially an unsubstantiatable slur.

Socialism, though, is a harder issue to shake off. Whether this matters or not is an question of personal conviction; but it does rather seem that the people making the accusation don’t actually know what they’re talking about. Nor, probably, do the protesters themselves.  Let's face it, they probably don't care: but they really ought to, because Karl Marx could teach both sides a lesson or two; although probably not in the way he originally intended.

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3D Printing Is Not Exogenous

Disruption on Demand

The advent of 3D printing, a technology that will allow you to print your own office furniture – in your office – threatens to overturn the whole basis of the global economy. When you can make anything, anywhere, anytime then the advantage of a pool of low cost labour, no matter how well trained, is vastly reduced. Indeed, capital, knowledge and basic commodities become the only constraints on world markets: the death of distance is nearly complete.

Such disruptive advances in technology occur from time to time and have the power to change pretty much everything. Yet the study of finance regards these events as exogenous: external to the economy and therefore outside of its purview. This is like arguing that medicine shouldn’t take biological research into account in developing treatments: all we need is a better leech. It's just not true: echnology and economics are linked at the hip, whatever the theories tell us.

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Time for Shiva and Schumpeter

Destroy Who You'd Make Good

There comes a time in every desperate recapitalisation of the creaking financial system when governments need to bite the bullet and then use it to put broken-down institutions out of their misery. Capitalism is, at its heart, a recapitulation of the basic Hindu principle of regeneration. Until there’s destruction there can be no creation.

In their desperation to shore up the world’s banks politicians can lose sight of this basic principle. It’s one thing to protect deposit holders – although allowing them to make reckless gambles without the promise of commensurate pain opens up a world of moral hazard – it’s entirely another to offer shareholders and managers a free hand with bottomless pits of taxpayer’s cash. Vishnu the Preserver’s had his day, it’s time to let Shiva the Destroyer out of his cage.

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