Byline: Tokyo
In the next edition of Commerce, I will add Daniel Yergin’s Commanding Heights to the recommended reading. A superb book that shows how the phrase Commanding Heights, first used by Lenin to refer to the role of government in managing national commerce, came to be the standard for the 20th Century battle of state command of commerce versus its opposite, market command of commerce.
Free markets that were emerging in the beginning of the 20th Century got a bad name because of the wildly erratic business cycles and the arrogance of hereditary social elites that commanded many monopolistic corporations. The Great Depression and the command economy of WWII gave great impetus to popular support for the state as the command authority.
Yergin misses several of the key historic phenomena that reduced the volatility of the economy and ultimately led to the triumph of the market. The introduction of the Federal Reserve Bank in 1912, along with the creation of fiat paper currency, FDIC insurance of bank deposits, the freeing of the Fed in 1949 to regulate money, the disconnect of international trade from gold at the same time and the final abandonment of the gold standard by President Nixon. All of these contributed to a more stable economy and a legitimate decrease in fear of a new great depression.
Yergin, genius author of the history of oil in the 20th Century, misses the key person in the transition. The oil capitalist friend of communists, Armand Hammer. Hammer, CEO of Occidental Petroleum, in his effort to crack the European oil monopoly in the late 1960s made a deal with communist Libya for oil with a high premium paid to the Libyans. That action along with the Israeli victory in the Yom Kippur war of 1973 created the OPEC oil embargo which in turn created the run away inflation and stagflation in the U.S. and Europe of the 1970s and early 1980s. A decade of stagflation killed the dominant love of socialism and Keynesianism.
Milton Freedman personally told me that the first oil embargo is what moved him and his views to the forefront of government policy. Friedman was also the economist who in the 1950s showed that gold, as currency, had been the cause of 19th Century economic volatility.
Yergin also gives undue credit to Margaret Thatcher. At the same time that Thatcher was PM, Ronald Reagan was President. Reagan, a former union chief, fought the U.S. air traffic controllers union to total defeat, and delivered the coup d’grace to the century long union movement. Both Thatcher and Reagan ended the role of the state in the commanding heights.
Comments