“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” It is a nice coincidence in Dickens’s bicentennial year that the simple nostrums of Mr Micawber’s home economics have been elevated to a central financial doctrine in the eurozone and beyond. That quintessential 19th-century chancellor, Gladstone, would have approved. Dickens may not have written directly of “the balanced budget”, but he covered the gamut of the financial world, with pathos for its victims and with satire and ridicule for bankers and commercial fortune-seekers. And although he did not see himself as a financial commentator, he recognised the richness of material thrown up by financial disasters, and the plight of characters in thrall to forces beyond their comprehension or control.
A generation or two ago, with C P Snow’s “Two Cultures”, it was fashionable to see science as the great divider. Those who could claim to understand its workings were the insiders, while laymen – the majority of us – were out in the cold. Today, economics has supplanted science. It is the high priests of finance, with their arcane jargon and access to bewildering quantities of money, who appear totally divorced from much of ordinary life. The separation of finance from reality seems complete – until the system crashes and everyone suffers the consequences. Whereas we have perhaps accustomed ourselves to put science into a separate compartment and to await the results of long-term research, the rapidity and immediacy of the contagions that financial collapse produces allow of no such patience. Governments have to bend to the will of markets; pension funds are destroyed, benefits cut and taxes increased.
As we contemplate these disasters, the insights of a writer from the century before Dickens become ever more essential. Adam Smith is not, today, treated as a literary figure, yet his prose deserves to be read alongside that of Gibbon, Hume and Dr Johnson. He is to many the patron saint of the capitalist, free-market economy, but Marx owed him a debt that should not be forgotten. Economics, Smith insisted, was not a stand-alone activity: markets do not and should not operate in a vacuum. The Wealth of Nations – a work from the end of his career – builds upon his earlier lectures on jurisprudence and moral philosophy. They all stand together, interlocked, indivisible.
Is it too late to re-attach economics to broader issues of public morality and behaviour à la Smith? Robert Harris’s novel The Fear Index brilliantly captures the increasingly self-referential world of modern economists. Financiers will more often have doctorates in nuclear physics or advanced mathematics than a training in banking and corporate finance; they use algorithms and trading strategies of a sophistication that traps them, too, into a world of their own. The mistake that they collectively make is to assume that markets are rational and that human behaviour can somehow be predicted. None of this would matter greatly if such assumptions were purely those made in the privacy of the gambling parlours of Las Vegas or Macao, but such is the size of the international financial markets that gambling is no longer confined to the casino. Money becomes destructive, financial assets – even the once old-fashioned mortgage – are classified as “toxic”.
For the satirical novelist, bankers and their opulent lifestyles offer a tempting target. We should remember, however, that they are the followers rather than the instigators of this system, and ridiculing them will not put an end to it. Globalisation brings with it a dimension that no one now controls and alarmingly few (especially the practitioners) can explain; financial collapses cannot be contained as they were in Dickens’s day.
The plethora of books over the last 20 years describing the shenanigans on Wall Street and in the City – the destruction of once venerable banking houses, the power of greed and money to play Russian roulette with the ownership of companies – throw light on many of the murky aspects of the financial world. But all, by definition, are ex post facto accounts. Modern economists are not yet, by and large, writing for an informed public: Keynes has no modern successor in that regard. Are we to be condemned to understand the power and destructiveness of finance only after the event – by which time libraries will have been closed as public spending cuts are enforced, and publishers and bookshops forced into bankruptcy?
The simple answer is probably that it was always thus. From South Sea Bubbles to bank failures in Victorian England to the Wall Street Crash, hindsight has been more persuasive than foresight. Even if regulators (and politicians) start to do their job and enforce disciplines on markets, they will never stop crashes. They might, just, stop some of the contagion. But, back to Smith: “[F]rugality increases, and prodigality diminishes the publick capital…” . If there is a silver lining, it is here: one is hard pressed to see what literary gems have been born of frugality, but prodigality has spawned a long trail of literary masterpieces – and promises to do more as the current crisis gathers steam.
This piece originally appeared in the 2012 Royal Society of Literature Review.