#OccupyLSX: This is how it all started you know

Working at OccupyLSX is the most exciting and engaging thing we\’ve ever done, but we can see that some of what we\’re doing seems unclear from the outside. Not having a set programme for people to \”buy into\” is deliberate – we\’re choosing a different way of going about things. Our response to systemic failure is not to propose a new system, but to start making one. We\’re in the business of defining process, and specific demands will evolve from this in time.

This is how the financial markets developed in the first place. People sitting around in caffs wondering how to organise things, standing around the courtyard of the Royal Exchange and wondering what rules there should be  about how to buy or sell stuff.

Couple of centuries later and we\’ve got The City.

What interests about all these discussions about how the system should be built anew is that if you did start with a blank slate and were deciding how you were going to allocate capital, allow savings to be employed in investment and all the rest, you\’d end up, after the usual blind alleys and mistakes, with a system not appreciably different from the one we\’ve got now.

Specialist intermediaries doing the moving the money around, sucking in the savings and spewing out the investments. Those specialists would be highly paid by the standards of the society simply because when you handle all the money some will stick to the palms. We\’d have primary and secondary markets, we\’d have markets in most things.

For, you see, this same game has been played out in a number of different places over the centuries. No financial intermediation means no large scale industry of any type. No secondary markets makes primary capital hugely expensive, thus making the society poorer. Things with no markets tend not to work very well.

We\’d end up pretty much where we are again. Might be a few changes around the fringes but the more revolutionary calls for a \”completely new system\” are futile. For we\’ve tried any number of systems, from allocation by birth, bureaucracy, political connections even religious observance and what we\’ve found out is that allocation by markets works least bad.

So allocation by markets will be what we end up with again then.

17 thoughts on “#OccupyLSX: This is how it all started you know”

  1. I think the Middle East is a fairly good example of what relatively prosperous countries with underdeveloped financial markets look like in practice. Admittedly, we could get rid of the City and still not get hot dry weather.

  2. Surely you’re making the logical error of saying that markets produce best outcome because you define best outcome as what markets produce.
    The medieval system of guilds & monopolies was very good at producing a medieval society if a medieval society was what was desired as an end product. Replace medieval with communist & you get the same result.
    Markets are the best way of the majority of people getting what they want but is the majority of people getting what they want really the OccupyLSX folks’ aim. People getting what the OccupyLSX folk want seems closer to the agenda & that isn’t necessarily provided by a market system.

  3. ….People getting what the OccupyLSX folk want seems closer to the agenda & that isn’t necessarily provided by a market system…..

    No a Caudillo would be their preferred system

  4. Yeah but there is a massive demand for affordable houses in the UK which the market fails to provide.More like the market ensures there is no flooding by new houses to keep up the price of those in existence.The UK Political Parties love this because they rely on the homeowner vote:they are all Homeownerist parties.
    So this is not a sectoral problem:the ill effects of wholly dysfunctional housing market spread out and subsume whole economies:Japan ;sub-prime America>the world banking system via collateralised debt obligations; Ireland,Spain and the UK where the bubble is kept inflated.
    It is no use the widget market working superbly if the housing market is bringing the whole shooting-match down.

  5. DBC Reed – shouldn’t need to say this, but it’s the planning rules that keeps the supply of new houses down (and the price of housing up).

    If we got rid of planning constraints there would be lots more housing.

    And if the existing house builders tried to stand in the way, other builders would come in.

    Go on all you want about land banks, but the house builders could only ever buy a tiny, tiny percentage of the land – nowhere near enough to affect the market if it wasn’t for the artificial scarcity caused by the planning rules.

  6. And I agree, that “It is no use the widget market working superbly if the housing market is bringing the whole shooting-match down.”

    But what we generally see is that the relatively free bits of the economy do reasonably well, the government controlled ones are screwed up. Housing, health, education…

  7. DBC Reed “there is a massive demand for affordable houses in the UK which the market fails to provide”

    Subsidies create demand.

    Tax less/subsidize less = everyone has more money in their pocket to afford housing.

  8. If only the State auctioned off its land plot by plot, not in massive chunks only the usual suspects could buy, then you might see a more varied group building houses and more varied houses to boot.

  9. The current system has a broken / co-opted price discovery mechanism (high frequency trading / naked short selling / disproportionate leverage etc) – stop the grand larceny at the HEART of the system and watch the whole thing stabilise.

  10. bloke in spain: Tim isn’t making that logical error. He talks about specific bad outcomes – no large scale industry, and society is poorer. Not very specifically, but it’s not a circular argument.

    (And, more objectively, the flows of people tend to be to the more market-orientated economies, implying that markets provide more of what people tend to want.)

  11. DBC Reed: “It is no use the widget market working superbly if the housing market is bringing the whole shooting-match down.”

    But if the housing market doesn’t manage to quite wreck everything, then it’s a good thing for the widget market to be working superbly. Indeed, if one particular market is working badly for political reasons as you describe, that makes it more valuable for the other markets to be working well.

  12. Tracy W
    “….no large scale industry, and society is poorer”
    But there are people in the Occupy movement who would be overjoyed at this as an outcome.
    The greens who would like to reverse the industrial revolution.
    The Spirit Level mob who want a more equal society & would happily accept a poorer one as a consequence.
    The Trot element who see the creation of poverty as a stepping stone to revolution.
    There are apparently, even people like me who’d welcome the whole edifice tumbling because the other side of the collapse we’d have a chance of re-building the thing (or as Tim implies, letting it re-build itself) less the overwhelming State & the vested interests.

  13. Bloke in Spain: Perhaps, de gustibus non disputandum est after all. But it is possible to avoid a circular argument in pursuit of any particular taste.
    And the moment someone starts making claims about what most people want, as opposed to what they themself, or a particular group, wants, it’s quite possible to bring in empirical evidence.

  14. @blokeinspain (and TracyW) – As you point out, the mediaeval system was good at producing a mediaeval society, if a mediaeval society is what’s wanted, and I take it for granted that’s indeed what they did want (no evidence to the contrary being available).

    So your assertion that “markets are the best way of the majority of people getting what they want” is disproved by your own example.

    If “what most people want” is eternal salvation in the arms of the Lord, which seems to have been quite a preoccupation at that time, then who cares whether there is any “large scale industry”, or whether “society is poorer” in economic terms. Presumably a mediaeval person would argue that in fact their society was richer than ours, in terms of what (they would say) really matters.

  15. Churm Rincewind, why do you take it for granted that mediaeval people wanted the mediaeval society they had? When have people ever been happy with the societies they have? Were mediaeval kings really content with the loss of land to the Muslim conquests? How about the various heretic movements that arose during this time, were they happy with mediaeval society? How about the various peasant revolts in the late Middle Ages? Going back a bit earlier, were the Northern English, say, happy with William the Conqueror’s Harrowing of the North? All these events strike me as evidence against the idea that mediaeval people wanted what they had, I’m willing to be persuaded otherwise, but you’ll need to show me some evidence to outweigh these events. (And as far as I know, there was no population-wide opinion polling in mediaeval times, so I think you’re going to have a hard time persuading me that mediaeval people generally definitely did want the society they had, even if you can dig up some writers who were happy with the society they had.)

    Of course a mediaeval person could argue that in fact their society was richer than ours, in terms of “what really matters”. As indeed, could a person nowadays. But said mediaeval person can’t make it so that everyone else agrees with them.

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