Jacob Soll is a professor of philosophy, history and accounting. His latest book is Free Market: The History of an Idea. Jake has works on the history of accounting, The Reckoning: Financial Accountability and the Rise and Fall of Nations (2014); the influence of Machiavelli, "The Prince" (2005) and Louis XIV’s First minster, Jean-Baptiste Cobert, The Information Master (2009). Jake works on accounting standards and financial transparency as well as the history of ideas.

We discuss if better accounting can save the world by looking at externalities, natural capital and human capital better.

We chat about the central role of Cicero and stoic thought in the history of free market thinkers, and how Cicero was in this respect more influential than Aristotle.

Aristotle's the philosopher with a capital P so he's kind of everywhere and everything, but he did not understand economics. It's almost sort of funny to read him on economics. You really have to understand the context he's coming from being Alexander the Great's tutor in Greece, hundreds of years BC. Aristotle believed in an idea of exactly reciprocal exchange, but what he writes about it is very odd. He writes about the idea that if you have an exchange, then you have to make sure that the thing you exchange for is the exact same measure. He compares shoes to houses. Now that tells you something about the Greek economy or his lack of understanding about the Greek economy. What Aristotle does bring that is key to Cicero is his Nicomachean Ethics and the idea that you have to have an ethical framework for society and for the common good.

So both of them are looking for concepts of the common good, but Cicero is the one who really-- and this is almost a thousand years later. I mean, hundreds and hundreds of years later; societies and changes. Cicero is really the one that comes up with the concept that a market of exchange is based on an ethical exchange that's disinterested and based on a search for the common good. His first analogy for market exchange is philosophical discussion which I think is fascinating. I don't think I made enough of that in the book. That for him, the first thing that one has to do is exchange ideas and that has to be done in good faith in a quest for the truth. When Cicero goes on to talk about what will make a sustaining market, he says its love and friendship because only he believes can truly equal friends who respect and love each other, have good philosophical exchange based on good faith and exchange things together disinterestedly.

And if one just exchanges disinterestedly-- and this is highly idealistic and not perhaps realistic, then you have a sustaining system that will just keep working on its own based on the ethics of good farming and more or less exchanging agricultural goods. So they're related in this quest for the 'Supreme Good' as they call it. But Cicero is much more specific. By the way, his Supreme Good was actually civic service, service to the state. So that's very interesting that he believes that you have to have disinterested exchange amongst like-minded friends who love each other, i.e. members of the senatorial class, which was a very idealistic characterization of Rome at the time. Then the final goal is to serve the state well for the common good. That's his idea of exchange and his idea of how exchange will continue in a self-perpetuating market system.

Jake talks about how Christian thinkers, and Franciscan monks thought about free markets and also Alexander Hamilton and Machievelli.

We discuss the role of institutions in shaping thought. Jake argues for the importance of patenting ideas and if UK’s patent office gave the country an edge when the industrial revolution started.

We debate if “idea” or “dream” would be a better word to encompass the historic thinking on free markets.

We discuss the role of culture, to what extent protectionism and some tariffs helped economies develop historically. 

We play underrated/overrated on: GDP as a measure, carbon tax, standardized sustainability measures, and UBI, universal basic income.

We end on Jake’s current projects and life advice. Study more serious humanities books!

Don't read easy to read books. I think they are the most destructive thing on our culture; these CEO books. “Pull up your boots and tie your shoes in the morning. Don't let the government give you eggs.” I read some of these books and I'm like, "How is this helping anybody?" Go back and read the kind of books we were reading when we were actually building big states and building things that have proved sustainable. If you don't know what they are, just go back and read great literature and great novels. What is that? Well, you can make a decision. It can come from any country. It can come from any religion, but there are great books. Over centuries I see traditional books that we've decided over time are extremely useful to us. Go back and read those. For me, it's the 19th century novel. It has become Roman and Greek philosophy. It's also become the early works of the fathers of the church which never ceased to fascinate me. The writings of William of Ockham… Those are fascinating books. Read serious books. I really think it's time to put down the Harry Potter and get challenged.

Amazon link to book here UK site, and to the US site here. Jake’s site is here.

Transcript below, video above or on YouTube (captions available). Podcast available wherever you get podcasts or below.

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Transcript : Jacob (Jake) Soll in conversation with Ben Yeoh on Free Markets, History, Adam Smith, Hamilton, and Cicero (only lightly edited expect typos etc.)

Ben

Hello, and welcome to Ben Yeoh chats. If you're curious about the world, this show is for you. Where did the idea of the free market come from? On this episode, I speak to Jacob Soll. Jake has written a book on the history of the free market idea, tracing its philosophical roots back to Cicero via Adam Smith, Machiavelli and Christian thinkers. We discuss what the free market means and to what extent has the state always been involved in shaping markets? Hope you enjoy the show. Please like and subscribe as it helps others find the podcast. Thank you. Be well.

Hey everyone. I'm super excited to be speaking to Jacob Soll. Jake is a professor of philosophy, history and accounting. His latest book is "Free Market: The History of an Idea." He has works on the history of accounting, the influence of Machiavelli, and Louis XIV First Minister Jean-Baptiste Colbert. Jake, welcome.

Jake (01:03):

Thanks Ben. It's great to be here

Ben (01:05):

Before we get to free markets or supposedly free markets, I thought I'd start with your accounting piece because in some ways I see free market history as an extension of that previous work. My question here is could better accounting save the world today? By that I kind of mean thinking about creating more and better human welfares-- perhaps it did in the past. I was wondering if our lack of accounting, for instance on carbon, human capital, intangible; some of these other things we kind of struggle towards, if we could somehow solve for some of these things, maybe we could do things better and perhaps that's what your history of accounting said. It’s that once we've got a handle on measuring and managing some of these things, it seemed to be a core component of actually then generating wealth in the direction that we want it to. Is that fair and what do you think about accounting?

Jake (02:01):

You got it. This book is an extension of that and it's an extension of my belief. I don't believe so much in business cycles. I believe in management cycles. I believe that we manage ourselves pretty badly. Anyone who's in the field of accounting knows that the laws on balance sheets are pretty weak. In fact, I'm writing a new book on the history of balance sheets called “Net Worth,” but that's a few years out. Everyone knows that the rules on auditing are weak and in Britain we're constantly seeing problems with this. With poor auditing leading to terrible scandals and the collapse of major businesses. The standards we have are low. I always point out that the American department of defense which has a budget of well over $700 billion a year barely uses cash accounting, if you can imagine that. That's one measure of bad management.

You mentioned intangibles and other things. We don't account for damage to nature, which is literally madness. I live in Los Angeles and we are in the midst of the climate crisis. We now have to recycle water under our sinks. We can't have lawns or even plants. So water comes relatively cheaply, but it doesn't seem to have anything to do with its scarcity and we don't account for it in the way we ought to. Beyond carbon, do we account for the damage that we do, for example. So if we are tanners and we're making leather, do we account for the loss to the fisher folk down the river whose river we've destroyed using even medieval chemicals for tanning purposes?

These are hard questions. It's very hard to get things onto balance sheets, but there's no question. It is my belief that accrual accounting, double entry accounting is absolutely an essential management tool and whenever we do see crisis, we usually see a massive accounting failure behind it. Economists really don't like to talk about that, but I believe that management is key. How does this connect to the new book? Well, it means that I don't think markets regulate themselves. I think humans have to do a massive job of managing markets. And for that, I see one of the most essential tools we use and I believe this is a beautiful one because it's impartial. Doesn't matter if you're on the left, it doesn't matter if you're on the right. There are points one can make about how we can account for efficiency, how we value things. That we have to talk about. And how we account, for example, for taxes. What we think they're worth or not worth or what their value or negative impact actually really is.

I do think that we have to manage ourselves better and the market has to be managed. In 2008, we saw a massive accounting failure. We did not see a cyclical failure. So economists who say it was some giant nearly inexplicable phenomenon of the market, haven't really looked carefully. And to finish up when you do, you actually can lay blame. You can see who has managed badly and dishonestly. I think that many writers in economic history and economics don't want to do that. It's a little too painful. I don't know if that answers your question.

Ben (05:51):

Yeah, it does. In some ways it kind of suggests that in some parts, sound accounting comes almost before sound financial management. I guess sound management of these systems in an ideal world would come first. But if you can't account for it, it becomes really tough on systems, on nature and that. So in some ways, having an advanced measurement system audited that people believe in, that people have agreed on the value system as well would kind of come first. That's interesting because when I flow that into turning to your ideas on free markets, looking at the sweep of history that you seem to have done, is that actually those ideas about how people want to socially direct markets seem to have always been intertwined and in fact, came out first. 

If I read it correctly, you also lay out strong names for the influence of Cicero's writings and the Stoic and laying the foundation for the first set of modern free market thinkers like Adam Smith. But perhaps going back, I also noted some of Aristotle's work influencing Cicero and some of these other thinkers. I was just interested in although it's primarily Cicero, there does seem to be a little bit of Aristotle. Does that mean Aristotle and virtues and that is also somewhat underappreciated for going into Cicero or do you think Cicero was really the foundational area for this?

Jake (07:18):

Aristotle's the philosopher with a capital P so he's kind of everywhere and everything, but he did not understand economics. It's almost sort of funny to read him on economics. You really have to understand the context he's coming from being Alexander the Great's tutor in Greece, hundreds of years BC. Aristotle believed in an idea of exactly reciprocal exchange, but what he writes about it is very odd. He writes about the idea that if you have an exchange, then you have to make sure that the thing you exchange for is the exact same measure. He compares shoes to houses. Now that tells you something about the Greek economy or his lack of understanding about the Greek economy. What Aristotle does bring that is key to Cicero is his Nicomachean Ethics and the idea that you have to have an ethical framework for society and for the common good.

So both of them are looking for concepts of the common good, but Cicero is the one who really-- and this is almost a thousand years later. I mean, hundreds and hundreds of years later; societies and changes. Cicero is really the one that comes up with the concept that a market of exchange is based on an ethical exchange that's disinterested and based on a search for the common good. His first analogy for market exchange is philosophical discussion which I think is fascinating. I don't think I made enough of that in the book. That for him, the first thing that one has to do is exchange ideas and that has to be done in good faith in a quest for the truth. When Cicero goes on to talk about what will make a sustaining market, he says its love and friendship because only he believes can truly equal friends who respect and love each other, have good philosophical exchange based on good faith and exchange things together disinterestedly.

And if one just exchanges disinterestedly-- and this is highly idealistic and not perhaps realistic, then you have a sustaining system that will just keep working on its own based on the ethics of good farming and more or less exchanging agricultural goods. So they're related in this quest for the 'Supreme Good' as they call it. But Cicero is much more specific. By the way, his Supreme Good was actually civic service, service to the state. So that's very interesting that he believes that you have to have disinterested exchange amongst like-minded friends who love each other, i.e. members of the senatorial class, which was a very idealistic characterization of Rome at the time. Then the final goal is to serve the state well for the common good. That's his idea of exchange and his idea of how exchange will continue in a self-perpetuating market system.

Ben (10:35):

Yeah. I got that from reading your book. I hadn't understood his deep interest in that moral law; the moral natural law element in his view before then going into agriculture because natural law, that being a source of wealth. Then I can see how you trace it amazingly to Grotius and how they're thinking about the Dutch East India Company and the forming of the stock companies. Thinking about using those and that any individual using some reason can figure out what these laws are. So a straight line to those first thinkers from Cicero straight to Grotius and those other thinkers. How did you draw that? Did you just read it and go, "Wow, this sounds so much like Cicero and thinking about it and draw the line about?" I guess it was a tiny bit self-serving because in some ways it's like getting sponsored by a corporate today. The corporate wants you to have some framework for what it's doing and it seemed like Dutch East India was doing that. But it seemed to me that actually you could see those ideas coalesce there.

Jake (11:40):

Well, the way I wrote the book was I've just been deeply dissatisfied by how people read Smith and by the characterization of Colbert, who are the two main protagonists and antagonists in economic history. I feel like people don't read Smith closely enough. Also, Smith is hard. It's not only the wealth of nations, it's not only a 1200 page book. He edited it many times. It was built on the foundation of the theory of moral sentiments. It's based around his other writings, which few people read his writing on Bazaar, his writing on jurisprudence, all of which really you have to read. His interest in Locke. But the thing about Smith is that he's a Ciceronian. He is a professor of moral philosophy. And what does that mean in Edinburgh in the mid-18th century?

Well, it meant the same thing to his mentor Hume. It meant that you were following Cicero and his reading of the skeptics and of the Epicureans and you were more or less following his very aristocratic agrarian vision of moral service to the state, which we just talked about. So I thought, “Hmm.” There are a couple decent books on Smith and the classics and Smith and Circles of Sympathy. So i.e. Smith's relationship to Cicero. But one of the things that intellectual historians do-- and I was trained in political history at Cambridge. What we learned at Cambridge was you looked for essentially genealogies of discourse. So when someone says something, they're usually citing someone and you go back as far as you can in all these different lineage of citations. It's not necessarily always easy in context to something we can argue about.

What happened with Smith is Smith was such a Ciceronian that while reading Smith I would see passages that were literally taken from De Officiis: On Duties and on Ends. From all his works I could just see that Smith was bathed in Cicero constantly. So I decided to just go backwards and start looking at economic thinkers and Cicero, and I kept going backwards and backwards. I kept finding him. Wherever I looked, I found him and I couldn't believe it. I was like, "Wow, this is crazy.” There's a whole Ciceronian strain in economic thought. In great part because of this discussion he has about exchange and about morals, and it took me back to him. All the way through the Middle Ages, Cicero is one of the only classical thinkers who doesn't disappear in the early Middle Ages and his thought parallels often in conflict. But in really strong parallel, parallel's Christian thought in the Western tradition. You can't really separate Cicero from Christian thought or from the Western tradition or from free market thought for that matter.

Ben (14:49):

This link to early Christianity or early Christian thinkers seems to me relatively novel. I had to go back and I read Hirschmann's “The Passions and the Interests,” and he makes some conclusions I think around Adam Smith's idea of this being a kind of moral view, and free markets can be used to deal with our base of passions. But he doesn't do this connection I think to Cicero or the early Christianity thinkers with that lineage. I think that's really interesting and this idea of the church and wealth. Do you think that Christian thread just goes to Cicero and they were thinking about that in terms of how to keep their own wealth and make themselves with that moral strand, or what do you make of that link to Christian thought?

Jake (15:36):

Well, first there's no monolithic Christian thought. What I show in the book is how Christian thought evolves quite remarkably over time. Adam Smith is not clear to me at all that he was a Christian. He never discusses Christianity and he uses an openly deus language. His mentor Hume was an atheist. I do not believe he was an atheist at all. He talks about the great architect of nature which is a deus concept of God and he talks about this great architect of nature in a very Newtonian sense as creating a clockwork universe that works partially on its own. Of course, Smith thinks humans have to have this stoic role in society where they actually have to train to be moral to make the clock work; that's the invisible hand. But Christianity is really interested in markets. There's a reason for this.

The early Christians, especially the fathers of the church were on evangelical missions and they used an evangelical discourse of trade for conversion. Their argument was, "Look, the owning of all goods and having earthly pleasures is more or less sinful and not a good thing." These guys were aesthetic. The early church was aesthetic. It believed in poverty and it believed in total service to the church. If you make the exchange-- and this is the language they use. If you make the exchange that Christ gave His blood for the salvation of humanity, if you make the same exchange that Christ did and you give up your goods and your pleasure-- and that would mean being a virgin. In some cases they argue giving up having children. Of course, the great church father Origen takes it so seriously that he castrates himself.

This is how strong this thought was. If you give up all your money to the poor and to the church and you give up all pleasure, then you will get the treasure of heaven in return. So there's this remarkably mercantile exchange that's proposed for salvation. It has to come from freewill. You have to truly believe this in your heart when you make the exchange. But that's the language that's used. As we get into the later Middle Ages, it's really fascinating. That same idea comes to the fore and the Franciscan order starts thinking very seriously about the idea. That it's taken a valve of total poverty. What does poverty then mean? This is working off the work of the great Italian economist Giacomo Todeschini who did the research and first found this. There's some other figures such as Burr and others who found this remarkable huge framework of Franciscan economic thought where they start wondering, “What's value? What is my shirt worth? Does it equal poverty or am I committing a sin by wearing a coat? I own a book. Is the book purely for spiritual use or is it a possession?”

So what they start doing is they start thinking of everything they can add to value and they start coming up with literal market explanations. Quantity, the amount of risk taken, the amount of skill involved. They start adding that into value. Interestingly by the way, that doesn't go on to many balance sheets which I think is quite remarkable. The Franciscans, at the very moment double entry bookkeeping is being invented. They're coming up with what could have been a very sophisticated approach to balance sheets, and that doesn't happen. But they do start coming up with this idea of market created value and they do it in the most sophisticated way. That then sets a chain in looking for market functions. By the time we get to Smith, he is involved with this argument, but at that point he has dropped the Christian element for a sort of post-Christian deus moral framework. So it's relatively a comparable framework, but he's still looking for the role that morals will play in a market. So in that way he is definitely part of the older Christian tradition.

Ben (20:20):

Yeah. That idea of having a moral law or natural law or some sort of exchange underpinning where you get all of this value, which I thought was really fascinating. And the linear tracing all the way back to Cicero, but seeing how it hands down with generations of thinkers just sort of twisted or pivoted for the time, but still very clearly with those same roots. I had not appreciated either both Machiavelli and Alexander Hamilton and how their roots also came from that. Particularly Machiavelli, I hadn't really appreciated having read that and had a view on that. Not really going oh, that he'd had quite a career full from great sorts of himself and where he gets to his position from this as well. That was kind of eye-opening. Is that something that you also came to sort of saying, "Wow, look at all of these echoes” when you trace back the lineage or was that something else from the work you'd done earlier?

Jake (21:19):

Well, I started as a scholar of Machiavelli. Most roads of political and economic thought in the west are going to lead back to Machiavelli. He's huge. He's one of the great secular thinkers though he has many Augustinian echoes in his lack of confidence in humanity to do the right thing. But he really is very clear that Florence-- and when you read the Quattrocento Italian writers; the writers from the 1400s in Florence, the business writers, all of them see Florence or see their other city states as great marketplaces. And that's really what they were. Machiavelli's great insight is that the marketplace cannot work if it becomes destabilized by oligarchs who take over the market so that it can't function freely-- He calls them optimists, or by a sort of dictator; a Lord or a ruler who will use the city in the market towards their own ends, and therefore undermine the balance of politics, ethics, peace, and therefore functioning markets. Machiavelli's insight is quite remarkable and will influence economic thought enormously.

The major French economic thinkers and political thinkers will all turn back to Machiavelli; not all of them, but really influential ones will turn back to this idea that income and inequality-- He doesn't call it that, but unequal wealth and the power of optimists can lead to faction, strife and civil war as they fight. So the idea of Machiavelli is that you needed a state... He says that the state needs to keep itself rich and its citizens poor. He doesn't mean poor. It means that they cannot become so rich that they overwhelm the state and cause civil strife. So the state needs to be able to keep the peace and in other words oversee a somewhat fair and functioning market that's implied in that. So I thought that Machiavelli is the father of modern political science. He is the architect intellectually of how to build a state in many ways. He gives remarkably influential insight in this long genealogy of the need to have a powerful state that oversees markets to make sure they function fairly.

Ben (24:08):

Yeah. I see two strands of that going all the way fast forward to today, and then go backwards with-- I guess you could see what's happened with Russian oligarchs or even Chinese billionaires. Then I see a strand in thought in the west about-- I guess they'll call it crony capitalism. That the idea that some of these markets aren't really free because they're these kind of either oligopolies or verticals and that actually you need more intervention to make them more competitive or something of that. That seems to trace some of this thought about, "Well, to what extent do you make these things competitive or not? To what extent do you need the state to be there," which seems to have also floated tracing it back to that Machiavelli thought.

Jake (24:53):

Look, it goes to a closed room and I have many friends in business and highly placed in business. One of the things I did for this book is I flew around the world talking about accounting standards, but I also asked very wealthy business leaders if they believed that the market was free. The most general response I got was a laugh. That was the first thing, they laughed. Second thing was a long conditional lecture on, "Well, it's free in this way." That often meant not paying taxes or not having regulations that stifle. But I didn't get one straight answer from a really serious billionaire-- and I know a whole bunch of them, or vast business leaders. Some of them would say, "Of course it's free,” but then go into all these conditional situations that we would need for market freedom.

Each time I came away-- this is sort of one of the ways the book came about. Was saying, “Look, the people at the very top, the people making the money don't believe in market freedom. They also have relationships to the government.” One of their main beliefs is that taxation undermines their own business. Many of them are paying historically low taxes. It was very interesting. That sort of struck me. I don't know if this answers your question. But one of the things we do see today is states are unable to... Well, this gets back to accounting. They're unable to pay their debts whether it be by cutting spending or taxing. By the way, there's no way you're ever going to pay a massive state debt without taxation.

That's just a kind of general principle. The market will not pay your taxes for you, pay your debt for you. This goes back to my chapter in the book about the first bubbles; the Mississippi bubble and the south sea bubbles, which were market attempts to have the market take care of national debt. It doesn't usually work that way. So we're left with this great conundrum in many countries that we have what I would consider to be dangerous and unsustainable debt. We can argue about what we need to cut, although with income inequality it's pretty tough to cut things for the poor who are in pretty bad shape and have a lot less than they did 40 years ago. We know in Britain we're having a crisis that will most likely take many poor people's lives over winter, and in America, wealth inequality is literally startling given the wealth that's here.

Then we have a massively influential wealthy class that... America definitely owns parts of the political process on both sides of the political divide and makes it impossible to tax the very wealthy at a rate comparable to those people who are just making salaries. We can argue if that's right or wrong. Some people might say don't tax the most productive or those who have the most money. Some people say look out for the poor so they can spend. There are different theories of what works. But we do have a situation right now where I think it's hard to argue that it would seem that the optimists have a great amount of influence to the point where the state cannot go to them for its basic needs, i.e. in aid in paying off its debt. Many would disagree with me on how I frame that. But the reality is there that it's hard to get very rich people to pay taxes. It's hard to manage our debt and we're in a Machiavelli crisis moment. How do we solve that problem?

Ben (28:49):

That seems to me part of what you echo in the book about the rise of the power of institutions. Perhaps you could say institutions and you could say companies as well. I know there's a strain in economic history thought which goes, "Yes, geography's important. Yes, culture is important. Yes, innovation was important." But actually the role of institutions being quite key, if you evolve those institutions to companies today, you get this sense of whether they're oligopolies or at least they're very powerful and they have a certain incentive mechanism-- call it profits or whatever, which they're designed to do and it's very hard to knock them off that course. So I was wondering about that power of institution and how that filtered into your thinking on the book as well.

Jake (29:42):

I guess in this sense I'm a kind of light Burkean. I believe in institutions. I also get incredibly annoyed by them. I find them closed minded and often corrupt, but I believe that we've built them over hundreds of years. I think of universities, I think of governments, I think of other institutions. I think they feel very careful about knocking them down and attacking them wantonly.

The question about institutions and free markets is what's the role of a private company institution? That's really complicated. I get into arguments about this with my friends in business. I'm often left perplexed because I don't completely disagree with them. I think these companies are amazing. I've worked for private companies. It can be an amazing experience. The speed which you can do things, the capacity for innovation, you just can't match that. It really is quite startling. But then you get institutions like Tesla. Once a California institution subsidized to the max by federal and state governments-- By the way, Elon Musk doesn't make any money selling cars. He makes it with tax incentives, with paybacks from the state. That's where his profit comes from.

So he's kind of a wealthy welfare baby. So the state in many cases creates these optimists and then the optimists go back. For example, he left California because he said there were too many regulations and too many taxes and he moved to Texas. He said, "There are too many taxes. This is absurd." We've paid well over 12 billion dollars in subsidies to Elon Musk. Have we gotten stuff back for it? Sure, we've gotten some battery technology which is really key. Also, if you take the state of California which has a very high personal income tax rate which is really a strain every year for businesses and many individuals, it does pay for the finest overall public research university network in the world, possibly more powerful than Britain's.

This is paid for and this is precisely why we've had so much tech in this state. We have so many hands on deck who are able from these phenomenal institutions-- many of which people haven't heard of. The University of California in San Diego is considered one of the finest technological and biological research institutions in the world. That's just one of many. So the question is, “Which institutions are important? How are they paid for? How does it all work within political discourse which has become simplified down to a tweet?--” Bring it back to Elon Musk. It gets pretty warped. This is where Machiavelli comes back. Here's an optimists, someone built up by the state. Should the state be building people like Musk? Well, maybe we do need people like Musk or competing with countries that are sponsoring quite successfully their technology sector.

I think obviously of China and Musk is a leader. The state has helped him. What is interesting is that he has the power economically at this point to kind of then sidestep the state in many ways. That seems to be a Machiavellian problem. That he's become so rich that he can influence things. He can move his operations and play the system and essentially not necessarily give back fairly. He also has the power to misrepresent the situation. Most young people that study Elon Musk or admire him don't realize this is a guy built on state subsidies.

Ben (33:52):

Yeah. That's really interesting. This idea that the state can build an organization or a person up and maybe even point them in the right way; green technology, batteries and things. This is the Machiavellian thing. There's almost a political economy problem. You become so powerful. I've heard commentators say that the court in Delaware is somewhat afraid because it's now in a case where you are not quite above the law, but you're certainly influencing on it because of your own power, which is a really interesting thing to be in. We can argue about how much of a net benefit or not. But just that cycle makes me reflect on another aspect which I think is touched upon only lightly in the book.

So I'd be interested if you had thought about this more. Maybe this is one of the elements that also didn't come to a fore, which is how this intersects with the idea of essentially patents or making some of these intangible things become securitizable, enforceable. It goes back to your comments on what you're saying about the Franciscans. I thought this idea of like, "Oh, what is value and what do we count for then?" It seemed to be there's a slightly mixed role, but this idea that you can patent things was the one element that you added to the market. “Oh, we've now got a market,” or actually not. You've got a monopoly for ideas or things like that. In fact, if you fast forward today, companies like Tesla-- and actually probably all of our technology seemingly would not exist without some sort of this patenting, copywriting element which seemed to be created around about this time when people were thinking about what do we need a market for or not.

Jake (35:42):

Yeah. I did not speak about this enough in the book and it's an amazing history. The first real copyright lawsuit is around the encyclopedia. The encyclopedia, much of it is actually stolen from-- or back then, they did not really have clear ideas about stealing intellectual property. It's taken from Jean-Baptiste Colbert's project dictionary of arts and crafts which then the encyclopedia takes and makes into its own giant project. There are lawsuits about this and some of the first lawsuits, if I'm correct, about copyright and patents. The other thing I didn't talk about in the book is we've always wondered why England gets the upper hand with France in the industrial revolution. We have a very simplistic story about this that's told the English are more virtuous. The English are more business minded. The English are freer.

France and England are the two scientific powers. They're both producing more or less the same amount of scientific discovery. England is able to apply it better. One of the things that we've seen is they have a much better patent office and that France, you literally had to just go to the monarchy and they would decide. That shows how absolutism is not great for such things. It's not to say that England was remarkably functional in the 18th and 19th century. You just need to read Dickens or any other author to find out what a Dickensian mess it was. But it did have these institutions that by the way, by the time we get to Dickens, Dickens will write about the patent offices and these other things as incredibly corrupt and slow.

But in the 18th century, there's no question that France does not have a good patent office. Therefore you have an evolution away from the practical in France, because it's just so hard to do. One wonders if the French monarchy-- and they were good at doing certain industrial and commercial projects quite quickly. The English were often extremely envious of the French centralized government's capacity to do industrial and commercial policy. If you read in the 18th century or even earlier, Samuel Pepys says the French can do all these things we can't do in shipping. He says that in fact, all standards come from France and the French government is the one behind this, i.e. Colbert. That's quite revealing. So it's not just this liberal versus absolutist and liberals always win. I hope the liberals do always win.

Wouldn't it have been interesting had France created an efficient patent office sometime in 1725, right? Well, that might have changed things. Obviously, it didn't happen. So that question of how markets function well and having a patent office which is not completely corrupt and is somewhat open and fair moves quickly and judiciously. I think that's one of the secrets to Britain's success. That's one of them. There are many other elements. I’ve worked with teams that study the origins of the industrial revolution. It's quite interesting and it's not always what one would think. But that is one thing. And you're right. I wish I had talked about the need for intellectual property in the book or the capacity to ignore it as China often does, and go very far with that by just simply not playing with the rules. But there's a back and forth with that in China. When I work in China and areas in the Chinese sphere in Asia, that's a huge question of, “What does China create and what do we trust?”

Remember, patents are also about trust and about verifiability. So China can create all these things. Do we trust them and do we desire them? We might need them and use them. Many of us or some of us might not want their Apple phone. However, when we buy it we're buying it for that American California brand. Of course it's made in China. It's also made with Taiwanese technology and skill. So what is it that we're trusting in getting within all these patents? It's very interesting. So I just wanted to go on that because I find that fascinating.

Ben (40:38):

Yeah. Well, maybe there's another book in it. I did think that was really interesting in you elaborating on that because it comes to this question of state capacity and where you want your state capacity or not. There's certainly one reading I have seen which echoes what you were saying about essentially the problems in France which moniker the nepotism corruption. In fact, the reason that some historians think that you have these really large Swiss pharmaceutical companies now called Russian Novartis in Brazil, was because they moved to Brazil from Germany and France because of issues around patenting and patent laws. You have Japan held up the semiconductor patent for many years in order to get a leg up actually on IBM, which kick started their semiconductor industry. I think in the early 1900s the US did not have copyright on non US works of literature, again, to kind of have a leg up. So it's kind of really interesting where states decide what is in their interest or not in this state capacity idea. Also, what is free or what is not free or what's free for us and things. So I think it's really intertwined with that thought which I thought was really interesting there.

Jake (41:52):

I mean, this just goes to this idea somehow. It is a free market, I guess when Switzerland gives people incredible incentives. Doesn't make them pay taxes, gives them easier access to patents and certain things, to invite them to Switzerland. I actually love being in Switzerland and would like to be there more. I love it. But those are big state decisions and really, we have to always remember--- This might not be the case with Switzerland, but almost every large military industrial power has massive amounts of debt. Every tax cut costs the state. Then also so does cheap money too. So the idea of a tax cut is not necessarily freeing up a market. It is a subsidy of a certain kind. Bringing someone in and giving them a freer trade zone is a direct tariff policy where you've made a calculated bet that you'll earn fewer direct tariffs and make more money through other means.

The Swiss have focused on elite sectors of the economy to do this and they've been quite successful doing it. I was actually just in Switzerland a few months ago talking about what a tiny state like Switzerland-- then we can go on. Hong Kong is not there in the same way. Places like Singapore and then even Taiwan, which is really I think the most interesting case of all. How these small states can become powerhouses by playing with the market in these incredibly smart ways and entering into the market in incredibly intelligent ways. Singapore is a master of that. By the way, I always have to throw this in. I spend time in Singapore. I have lots of friends in Singapore and I'm fascinated by Singapore. I'm aware of the limits of Singaporean Liberty and of the political system, but I'm fascinated that when you start looking up free market states-- I'd spend a lot of time on the web and reading through these studies, which when you read these McKinsey reports which are always a bit self-serving to McKinsey and whatever, which states have the best atmosphere for business and which are the freest free market state, Singapore always comes out on top. 

I just get a belly laugh every time because the state owns Temasek Holdings. The state owns companies in Singapore. It might have fewer regulations and less red tape, but it out rightly owns companies successfully. Singapore Airways being one of the most remarkable examples, but there are many others since Temasek Holdings has 455 billion dollars of holding and is run by the Prime Minister sister or something like that. You're just like, "Okay, what do free markets mean?" If this is the ideal free market state and the state's running much of its own economy, what does that mean? I don't have an answer totally for you, or I don't want to give one facetiously. I just want people just doing that.

Ben (45:17):

Yeah, it's complicated. I always think the Norwegian government owns about 1% of every single company in the world through its things. It always blows my mind. I had a couple of small pivots on your book or just the absolute little wording of the book. I seemed to have picked up-- and correct me if I'm wrong, that potentially the original title of your book was going to be “Free Market: The History of a Dream” and you changed the word dream to idea. I kind of think that maybe in some ways dream is the more artistically correct, because this idea of the free market is this human social construct. I think as we've argued throughout this pod that actually the state or the people of society are really very relevant in shaping what a market is and to the extent of its freedom or not. Therefore actually, it makes it potentially a bit more of a dream. Something that you can aspire to or you can question on that. I guess it's similar to an idea or not. But I was wondering was it really a dream, and going from dream to idea is there some little phrasing that you wanted with that? Or am I reading too much into just one change of a word?

Jake (46:30):

No, not at all. It was thought that because I'm not against free markets-- I like market freedoms. I just think that they're not... I don't believe in general equilibrium. I just don't believe the market just exists on its own with supply and demand and no government. I believe the government is in there and I also believe that... I like individual freedom. I don't like the state coming around and messing with me. At the same time, I want to be able to open a carton of milk and not get poisoned. We can just go into these things rather simply. We changed the name at the last minute might have been an error because what we're seeing is people who are questioning free markets might think this is a confident defense of an old Orthodox free market idea. People who want to hear once again a backup of the old Orthodox idea that you don't need any government are actually buying the book and being disappointed. I'm a little worried now that there is a kind of misrepresentation about what you're going to get and that is affecting who reviews the book and how they feel about the book. So yes, what I thought was a kind of, "Yes, let's just make this a little more general and approachable” might now have been a grave error.

Ben (47:54):

I can see. You didn't want dream to sound fanciful or critical. You just wanted to be more balanced. But I hadn't I guess fully appreciated in my view how deeper work of historical scholarship the book really was, which I guess maybe-- I mean, it should be there because you have the word history in the title. But I guess there's so much debate around free markets.

Jake (48:21):

What someone said to me is that in many cases you're not talking about dreams, you're just talking about an idea. So this I think in some ways is a more technically accurate title. The problem is I asked one of my best friends who is frustrated with the Orthodox idea of free market. I said, if you walked into a bookstore, would you buy this knowing that it's not going to be a kind of new critical reading? He said no. And I said, if it said a dream on it, would you be more interested? He said definitely more interested. And I said, hmm. So who knows how it plays out? Who knows how much this plays out? But I will tell you this, that it's often reviewing institutions, people who pick the book up, read it and say, “This is interesting.” Or just say, “This is a big topic, we want the book reviewed,” will often send it to someone who they think might be amenable to the work. It's often being sent to people who are not amenable to the work. So I do think that the title... There's a question of whether that's an issue or not. I think it's a legitimate question. I don't know how much it really plays, but I do know in my short survey of friends, “What would you pick up at a bookstore?” they were less apt to pick up something that wasn't more obviously-- let's not say critical, but innovative.

Ben (49:36):

Yeah. A new way of thinking about this rather than the standard libertarian thought which we have there. So I have another slightly pivot question. This one from Diane Coyle, an economist who I had on the podcast a few months ago as well. She asks slightly controversially, "Do you think the end of history is here for the idea?" So I guess this is maybe referring to Fukuyama and end of history and where do things go. But I guess is this the end of the road for this type of idea? Can it evolve any further or not? She didn't give me any further details on the question, but I thought it was quite provocative of saying, "Well actually, is this something which has got to the end of its road or is there another version of it?" I guess another way of thinking about this perhaps is if markets are never really free or free in this sense of a dream or idea we've been talking about, how would we potentially or how would you think about reforming them or nudging them or things like that? So is this the end of history for the idea or what are we going to do for reformation?

Jake (50:46):

Well, Diane's a good friend and she's super smart and she's also good at pressure points. So that's a really smart question which there's no easy answer for. However, I will say we're always dealing in discourse and speaking with ideas. That's another reason I wrote this book. It's that people throw the word free market around without seemingly being in agreement what it is. You can get a California Democrat to say, "I'm a free market guy. I don't like the state in there, but I'm for taxes and public schools." Actually, we don't have great public schools here. I wish we did. And we don't have taxes for public schools either. But that's a bad example. The fact is we use ideas as part of the way we discuss things.

So one of the things I'd like to see is that when we talk about free markets, we get beyond this idea… I'm also constantly at business dinners where people say, "I just want to get rid of the state." I'm just like, "Oh, fancy that." That's like a dinner conversation starter that people think is legitimate or somehow real. When someone starts a dinner conversation with me like that in one of these business settings, I just try and be polite because I'm like, "Look, I've never seen it happen in history.” I've seen situations where there are low regulations, but in those situations like in the Reagan administration, we saw massive government spending and the juicing of certain sectors like aerospace through military contracts. There was not a free market in some ideal sense under Reagan. He even subsidized the space sector. He was dumping money into American agriculture as almost all American governments do.

I didn't want to go into all that, but I would like to get to a point where no one comes and says without having to back it up with some proof, “I just want to get the government out of there all together.” Because then as I note in the book, you get sort of South Sudan. You just get a warlord state. By the way, some of these people I talk to would like that. They just want their house on the hill with some armed guards and no one telling them what to do. That's a kind of militia libertarian view which is not uncommon in the United States. I'm terrified of that idea having traveled the world. So I don't know if that's a good answer. I think we really still need to talk about what ideas mean and how we use them.

It would be great to get to a point that when someone starts talking about free markets, we started a more sophisticated and productive moment saying, "Look, we know the state is always there. We know it's been there. We know that every time we claim to deregulate, the state is either in the background or comes in with a bailout because it leads to problems.” It can lead to great wealth too, deregulation, but that doesn't necessarily mean we have no government. So I'd like a more nuanced discussion of such ideas. The word free market is going away but I'd like it to be more nuanced. I'm not sure I'll succeed with this book, but that's what I'm trying to do.

Ben (54:17):

Maybe that'll be for the next one as well. I definitely picked up the strand of thought. I guess I'd call it-- I think you might have even called it. There's a tradition in free market thought call it the other tradition, which focuses on innovation, trade, industry. If you take it from the American view, I hadn't realized Alexander Hamilton was such a kind of advocate. This idea of strong government fosters innovation, fosters industrial development, fosters these domestic markets allowing nations to thrive and all of that. I guess I don't see it talked about and I think your book does bring it out for those who are looking at it. This economic freedom is really essential to wealth production and this pro industrial thinkers, but actually needs state direction for these markets which seems to me the way you lay it out in the book kind of obvious. But actually, obviously that's not really how it's talked about today.

Jake (55:17):

By the way, Hamilton's project for manufacturers which is one of the most sophisticated works of economics I've ever read, I wish I had written about it more in the book. I have a suspicion that it is written in 1791 that it's actually response to Adam Smith. It's a response to Smith's idea that wealth comes mostly from agriculture and also that we need to open up agricultural and industrial markets. Smith did not have a clear view of manufacturing. It was not something he seemed to know much about. He did not seem to understand the manufacturing world around him aside from a nail factory in his town. So Hamilton writes this long treatise saying, “If we open ourselves up to Britain in 1791…“ I mean, by that point, Britain is really the super advanced economy at a staggering level. Even more advanced than France which is the other great industrial power. He said we'll be wiped out. 

So we need infant industries. We're going to have to-- This is what sort of startled me. His understanding of business was so specific that he said, "We're going to need tariffs, but they can't be too much. We can't scare off business and other industries, otherwise we're going to have supply problems. So we need to just do a small tariff and then take that tariff and use it for strategic industry development." You're just like, "That’s really smart." They're building from nothing. America barely even had a currency at this point. His heir, Henry Clay who continues his protectionist and his infant industry policies says that British free market thought is colonialistic. He calls it British colonialism. That's what free market thought is in the 19th century. If we open up, they will colonize us economically because we're not yet powerful enough. Now that's going to change by the 1870s, but it's going to take several generations for it to happen. So America was built on development economics, the very thing that many free market economists say that the third world or developing countries don't need and that they should just open their market straight up. Americans did not think that and built the foundation of their economy on a very pointed sophisticated strategy of protectionism and infant industry support or subsidies.

I think that might be one reason that some people are having a strong reaction against my book. There's a myth of America as this free market nation. It's just not the case. There are periods. There is a sort of great period between Reagan and Clinton where free markets were really sponsored and supported in the United States. Clinton actually was the only one that saw the government getting smaller in the United States and the deficit getting smaller. But that's a relatively short period that's then punctuated by economic shocks and government bailouts. These are hard questions. But is America a free market country? Historically the answer would be not much. Partially a bit, but altogether not necessarily.

I'm actually writing an op-ed about this right now. I did write an op-ed. I don't know if I'm going to get it published. America's history points to a back and forth and a much more sophisticated strategy. That's what I'm saying. I don't think there's one answer to all this. The only thing I know for sure is I've never seen a completely self-sustaining market. Do we need more government? Do we need less government? That's something we can argue about I think quite seriously. But the government's going to be there. It's going to play a massive role. What role should it be? That's the question. Not no government.

Ben (59:44):

Yeah. I can see that. I was just going to refer to a couple of our other early examples like Japan and how it basically made a play on semiconductors. It protected its own industry to give them a head start. You can argue about to the extent China's done that. You can argue to the extent South Korea has done that and various elements. I thought you even get people talking about a kind of state capacity libertarianism. Just this idea that, "Okay, even a lot of libertarian thought agrees you're going to need state capacity now.” You can argue about where you need it and where you want it which I guess is a legitimate argument. But I think a lot of those are thinkers. At least some of the most sophisticated ones agree that you are going to need it. And maybe you should lay your bets on where you want it to be; technology or healthcare or basic research. Any of these things.

Different countries might want to lay their bets differently because of culture or geography or whatever it might be. I think maybe that's the more sophisticated way to get down to the nuts and bolts. Have to put it in the context of history like you say. There's always been some form of state capacity. You can argue about whether it was good or bad and how much of it. So now today, we can also argue about how much of it, and good or bad, and more importantly perhaps where you want it. So if I were to sum up my reading of your book on the history of the nation's state and free markets, is that in the history of all of the nations that you've looked at, there has always been state capacity or government needed to make markets or some sort of free markets thrive. Is that a correct and fair view if we take into account the UK, Britain, America, Japan, and all of these industrialized nations?

Jake (01:01:28):

Right. If we take all the rich nations, this is the case. But let's take Britain which has always shown as the liberal alternative. Britain spends hundreds of years with protectionist laws and industrial strategies and tariffs. The most famous being the navigation laws of 1651 and 1660. By the way, Colbert will copy these. Adam Smith will call them the wisest legislation of all time. England has a massively long period of development where the state is involved in one way or another quite strongly. In the 18th century, even though there are people calling for free markets, figures such as Defoe and Malachy Postlethwayt and others say, “Absolutely no way. If we open our markets and we don't have the government working on, for example, shipping, we will get destroyed by the Dutch and the French, straight out. We can't have our industries compete for example with French wool-- and wool is really important. They'll just undermine us completely.”

The other thing I find sort of amazing once again is this idea that we should all just function with no government and everything's going to be fine. Well, let's look at rich states. America had a protectionist subsidized beginning. The German states followed suit. Japan looks and sees what these states are doing and it does it with remarkable speed often working off the Germans. The Germans are inspired by the American system of development. It's pretty funny. The Americans are looking at the French and the early English system. Japan is always interesting by the way because Japan seems to never really follow any rules.

It just does things its own way. Everyone's always writing Japan off and then Japan emerges better than anyone thinks it will for the oddest reasons. I think that's also something to look at. A country which does use ideology, but also just goes back to its own ways of doing things to be successful. I think local culture is very important in all of this. Then we get to China, and this I think-- there's a lot of anti-Chinese sentiment. Some of it is because of authoritarianism, fair enough. But some of it is just shock that China has arrived and is so rich and powerful. Why are people shocked? Everyone I know in business in the nineties was heading to China to make their buck. A lot of them came back and I had not been and told me, "Wow, you wouldn't believe it."

But there's been this sort of shock I think in places like America and Britain, that China, this place once colonized and once so poor just a few generations ago, is now by many measures the richest country in the world. I truly believe it's because we were told we could only get rich with free markets and without government intervention and that an interventionist economy like China's, was always going to be somehow subservient. Well, they’ve showed that's not the case. I don't know if it'll last. I must say that studying economies, I've rarely seen economies without tolerance and freedom produce wealth on a consistent basis for more than 70 years or so. But now we're moving into rising uncharted waters at every level. But I think there was a lot of shock that China emerged simply because it didn't follow that rule.

It followed the old rules which we were told didn't work. Who were we told by? Developed America and Britain who had already developed and used those old development methods. Now we're kind of on top of the world and wanted other countries to enter into free trade often for the right reasons and sometimes for the wrong reasons. It's very complicated. But I do think it's worth asking how China got there and can we actually learn from China's economic growth? I hope we're not learning from China's authoritarianism. I hope we're getting the opposite lesson. By the way, Taiwan shows that the Chinese people can not only be free, but love it and do it better than anybody. I love Taiwanese culture. Taiwan is also used as a kind of free market story, but there is a lot of state strategy and a lot of American support which also brings us finally to the Marshall fund.

How do we get Japan and Germany being these super mega states while somebody actually just subsidized it and built them back up? Then once they were back together, they could trade freely but they were already industrialized then subsidized and then they industrialized again. I just think it's time to get rid of sweeping ideas that are supposedly universal because I don't think they always are. I do believe in universal freedom for individuals and human beings. I believe that might not always work, but that it's absolutely essential. That I think is different than saying, "Should the state be involved in economics and economic development?" I do see them as two different things.

Ben (01:07:04):

That brings me to one point you raised a couple of times just now which is this idea of culture. Obviously, it's a bit nebulous. We can use it in different ways, but there does seem to be something very important. You go back in your book and you can talk about-- Although again, very different strands of it. But the Christian culture and then you fast forward and you've got supposedly the American frontier culture, which some of it might survive today culture in Japan and things. I guess some people say the idea of the representative democracy in the industrial revolution in the UK was an important part of that at all. I was wondering if you had thoughts or observations on that. I guess hard to measure, difficult to kind of say, but seems to be an important element in all of this history.

Jake (01:07:54):

I spend a lot of time in Asia and I spend a lot of time in my friend's Chinese families. You want to talk about business culture, just go to a Chinese family. Its business, business, business. So sure, culture plays a role, but the idea that somehow... There are certain cultures which like business less, I will say France, which still has a remarkably sophisticated business culture and has some of the most sophisticated corporate culture and is still the greatest center of branding in the world. Talking about business is still seen as tasteless even amongst business people, but not in China. I do think doing things locally and thinking about things locally is important. That gets back to that thing where I said, "What can we learn from China?"

Well, we might also want to learn some things about Chinese culture, but what is Chinese culture? People speak about China as a monolith. "It's enormous. It's ancient. It's complex." The west still barely has a handle on Japan. So I do think interaction, understanding, listening is super important. By the way, people who do well in business are often very international people who have an understanding of all these different cultures. That's one of the great advantages in international finance and business. So I think that's absolutely key. That's why saying that having a completely unfettered market with no government is the only way to go is not always the case. That's not to say I believe in protectionism. I really believe in international trade. I don't like tariffs. I'm horrified by wine tariffs and cheese tariffs and all these things.

But I do think it all has to be nuanced and it has to be done according to strategy pragmatism. I don't know if that makes sense. I benefit and love free market and free exchanges. I'm horrified that I can only bring two bottles of alcohol to Singapore or places like that. I should be able to bring a suitcase of alcohol to Singapore. It seems absurd to me. At the same time, those are questions about what are good for certain industries or what local customs are, or it could be just protection as a monopoly. But it's always, I think going to be particular. So I don't know if that makes sense. I just think sweeping concepts applied to all, just don't always work.

Ben (01:10:37):

That makes a lot of sense. I think that really comes through in your book that the thinking around free markets has been very nuanced. It goes back to Stoic and Cicero ideas and involves very sophisticated, has always involved the state. Has different strands on it; whether you call it the industrial innovation strand and the other strands, and that to just paint a simplistic picture of it doesn't correspond to historic record. Importantly, will probably not help you in thinking about how it needs to evolve and develop in the future.

Jake (01:11:09):

Exactly.

Ben (01:11:10):

So if you'd like, we have a short section here on a kind of underrated overrated. So I give you a little thing and then you can pass, underrated, overrated, or you can make a little comment. So we've got three or four of these and then finish with a couple of finishing questions on your projects and your life advice. So overrated or underrated, GDP as a measure?

Jake (01:11:36):

Overrated. Talk to Diane Coyle.

Ben (01:11:42):

Yeah. I guess some people argue that actually it correlates with these other factors quite well, but I think most people also admit that it doesn't encompass a lot of things that we talked about like natural capital and human capital. Okay. A carbon tax or carbon pricing, underrated or overrated?

Jake (01:12:01):

Complicated. I think that the problem with carbon is its being played by the markets and is starting to do the opposite of what supposed to do which often happens with regulations. But I do think we need incentives to move away from it, and California shows again and again that it can work. It's not going to be perfect, but it can work. But it will take a large state policy to do it. McKinsey is not going to solve the plastic problem. In fact, it seems to be making it worse, as often it does. It might just take a big state to say, "We're going to only use electric cars." That will cause huge problems in some cases, but it might actually move the needle. It's very hard to do these policies. I'm sorry, I can't use these short answers.

Ben (01:12:53):

No, that's fair. The complexity is a good answer in itself. So I'm going to go for standardized sustainability measures, overrated or underrated? You're probably aware-- I think that International Financial Reporting group has created this ISSB for Sustainability Standards Boards and they're trying to standardize some of these sustainability measures to the extent that they can. Do you think this is underrated or overrated project?

Jake (01:13:24):

That's an important project. Be careful that it's not used to smash poor nations.

Ben (01:13:33):

That's a pretty pithy answer. Yes. So I guess this is the problem about the fairness of things or not. Also, I guess to your earlier points about how nations develop. A lot of nations have developed with some form of protectionism or support or industrial strategy or tariff in their early days. There's a lot of emerging nations which would argue in their early days. Great. So underrated, overrated-- we'll do this as the last one, universal basic income or the idea of UBI?

Jake (01:14:05):

Worth thinking about.

Ben (01:14:09):

Very good. Would you experiment it somewhere?

Jake (01:14:13):

It already sort of exists in certain places, and we're going to see that with wealth and equality in the markets in capacity to actually get wealth to huge numbers of people or for huge numbers of people to live on the wealth that they earn… Look at the average salary of a French person. It's really low. It's not clear they can live on it. So it seems to me that if you want to avoid civil strife-- and France was unable to avoid that for a long time, it might be something really to think about. Economies are changing. We're going to have massive change with climate change-- that's an understatement. We'll see what happens with markets and how they affect income. One of the things that frustrates me over and over... By the way, there are lots of economists that think that the market works perfectly on giving people income. Talk to the people who can't buy groceries and who have rotting teeth and can't get cancer treatments. I challenge anyone in this country who is not wealthy to get functional health and dental care.

Ben (01:15:33):

So the critique of it would be that actually UBI is a kind of free market solution to something, whereas some people would argue that what you want… I think even Diane Coyle argues that. That actually over UBI for income, what you really want is universal basic infrastructure. So this is where you get health and all of these things. Rather than the income, states should build the capacity in whatever. I guess it comes to our earlier thing. We have to decide where you want state capacity, which is a relevant thing. And then where you do, you've got to give it. But for the US-- Everyone in Europe thinks it's kind of crazy the US healthcare system, because for whatever reason, US has not really decided that healthcare is a human right in the same way that Europeans view it as a very simplistic argument. But then that's reflected in the universal basic health infrastructure of Europe versus the US which is chosen to go a different route.

Jake (01:16:28):

Actually to get onto that, I think that we've dismantled the universal infrastructure that we used to have. By the way, that's what the gilets jaunes, the yellow jacket uprising was in France. A lot of it was because in France-- I grew up in France and other European countries, you could get just about anywhere on an affordable train. Anywhere meaning to the smallest villages in the countryside. Wonderful trains where you could actually have the doors open and your legs hanging out and you could smell the flowers; the old France that I partially miss. All those trains were taken away. People without a lot of money in rural areas had to buy used diesel cars. When Mark called upped the cost of diesel, it then became unsustainable and all the poor people in the country freaked out. He had no idea. He didn't know any poor people.

But the infrastructure had essentially been taken away. In France we're seeing the health infrastructure, the travel infrastructure all being cut back. We might need new infrastructures but one of the problems is-- When I grew up also in the United States, healthcare wasn't a big issue. People had it. So a lot of it has been scaled back and then we have falling salaries in the United States since the nineties. It's a long time that people are making more or less in the same dollars that they were making 30 something years ago and their social infrastructure has been cut back. I can even talk about state schools and public schools. Then we really do have a crisis. The other thing I was going to say is it's going to be pointed. I think that the infrastructure answer is right and it's going to have to be updated, but not everybody needs the same things in the same places. So right, you might get 250 euros a month and it might not solve your problem more, but it's better than nothing when you can't buy food. And I know that's the case for many people in Spain where salaries are very low. Getting a minimum wage raise of 26% is the difference between eating and not eating. I think the people that don't have those problems cannot relate to them. And I think that's a problem too.

Ben (01:18:43):

Yeah. I can see that. I thought that even real wages in US had been going up, but it depends on which decile of wealth you were.

Jake (01:18:54):

Exactly.

Jake (01:18:56):

I haven't seen all of the data, but it's a complex thing. And like you say, what different geographies, different communities, different people want or need is actually is more nuanced than you might think.

Jake (01:19:07):

Right.

Ben (01:19:09):

Maybe that one brings into a final couple of questions then. So if you were a policymaker in government or maybe you are kind of a business leader-- so you could see it from either the private side or the government side, what one or two policies or ideas that you think we should try out that maybe we haven't done enough of? I guess there's some ideas around human capital, some ideas around carbon and environment, something around what should be more free or not. But where do you think is most promising that we should look to in the evolution of where we are?

Jake (01:19:47):

So wait, you're asking a question of where I think governments should invest in a general thing?

Ben (01:19:52):

I guess it's either invest or it could be a policy idea. So something around climate, something around education or some focus. It harks back to what aspects of the market you think maybe should be adjusted or reformed. If you had a silver bullet on one or two policy ideas or laws, or you could do it for business, what's the arrow that you would shoot and go like, "This is what we should think about?"

Jake (01:20:21):

I have a few... Those are hard questions because remember policies have a way of turning around and doing the opposite thing in government sometimes. I say true, tried and tested, invest in public education. When you say it doesn't work, don't throw your hands up. Go in and make it key. Literacy usually seems to be a measure of wealth in many ways. There's the other idea. This is the old free market idea of not taxing the things that are the most efficient. So we have to now decide what efficiency is. Amazon is now our biggest company. Amazon and Apple are these huge companies. We're struggling with global warming. We're struggling with all these things. Are they the most efficient companies? What are they costing us? How should they be taxed? I don't know because I actually use both of those companies more than anything else and they work for me incredibly well.

But I do think that the idea of giving tax cuts to wealthy people, which is a serious arguable idea that you want to free up people that have serious-- You want to free up capital in large sums so it can be invested, is a credible idea but it does equal a government subsidy. If we're looking to the old market idea of freeing up the most efficient things, should we have a more sophisticated view? So what is the most efficient thing given the crises that we face right now? Is it this and Amazon, everything around me? Well, I'm not sitting on an Amazon couch, but I'm talking about books and other stuff. So I think that's a real question I'm startled by, for example. I'm still not convinced that the American private space race between Tesla, Amazon, and then to a much lesser extent, Richard Branson isn’t bringing anything right now and we have global warming. I'm really not convinced. That was heavily subsidized in many ways. Should it be, should it not be? That's a question.

And of course then I'm going to go back to my old thing. Just like education there are a few things that are no brainers. Accounting standards, people need to use-- Before we even decide how sophisticated our balance sheets should be, people need to use accrual double entry balance sheets to always measure loss with gain. Otherwise they cannot balance their wealth or have any understanding of what they have, how to invest it and how to use it and how to think about the future of the money that they have or do not have. So I think that there are a few universal things, education and accounting standards, which have worked and continue to work incredibly well. I've been harping on that now for almost a decade and I truly believe it; for the left and the right, for everybody. Then we can get more sophisticated about what gets on a balance sheet. But let's first use balance sheets.

Ben (01:23:43):

That makes sense. Education, we’re the tax; those sort of areas.

Jake (01:23:52):

We're not the tax. That was my sort of facetious point that if free marketers-- I believe in some of this stuff. We can't tax a productive class too much. That is a serious idea. The question is, “What is the most productive class given the challenges we have? Can we decide that?” Well, we are making that decision when we give tax cuts across the board to certain people. We give tax cuts to our oil industry all the time. It's great that America has a good oil industry right now because winter's not going to be terrible, but is that sustainable, et cetera. It's certainly a lot more sustainable than depending on Russia. So these are not easy questions. I'm a super climate guy, but I'm also someone that knows... This morning I read that European factories are closing down. They don't have petrol for this. This is really serious. So maybe some of those subsidies to American oil were security issues. Maybe it should have been based on making a certain investment in sustainables at the same time. Again, these are hard questions. I could go on and on. I'm talking too much.

Ben (01:25:05):

No, that makes a lot of sense. Final question then, what sort of life advice or advice that you would see in your career would you give to other people or people listening?

Jake (01:25:19):

Don't read easy to read books. I think they are the most destructive thing on our culture; these CEO books. “Pull up your boots and tie your shoes in the morning. Don't let the government give you eggs.” I read some of these books and I'm like, "How is this helping anybody?" Go back and read the kind of books we were reading when we were actually building big states and building things that have proved sustainable. If you don't know what they are, just go back and read great literature and great novels. What is that? Well, you can make a decision. It can come from any country. It can come from any religion, but there are great books. Over centuries I see traditional books that we've decided over time are extremely useful to us. Go back and read those. For me, it's the 19th century novel. It has become Roman and Greek philosophy. It's also become the early works of the fathers of the church which never ceased to fascinate me. The writings of William of Ockham, Duns Scotus. Those are fascinating books. Read serious books. I really think it's time to put down the Harry Potter and get challenged.

Ben (01:26:36):

That's a really good call. A call for essentially the serious study of humanities again. Well with that, thank you very much.

Jake (01:26:46):

Thank you so much, Ben. A pleasure.