From the Guardian:
You'd think from the horrified response to Vince Cable's comments about capitalism yesterday that he'd called for City traders to be rounded up and sent to re-education camps in Caithness. The Liberal Democrat business secretary, declared the Sun, had launched a "vicious attack on the free market". This was an "all-out assault on capitalism", the Daily Mail warned. The Federation of Small Businesses demanded an instant apology. Was an anti-capitalist business secretary actually possible, one BBC presenter wondered.
It's a measure of how bizarrely constrained political debate remains in Britain that when a government minister makes the blindingly obvious point that markets are often rigged and that capitalism "kills competition where it can", it is regarded as both extraordinary and outrageous. Where have all these people been for the past two years, during the greatest market failure and crisis of capitalism since the 1930s?
Amazing, isn’t it, that the response of many in the City to what Cable had to say was that he was “cretinous”. According to the CBI he was Marxist. And yet this is a man who is as the Guardian rightly points out is “a stronger deficit hawk than some of his admirers, and is a more orthodox economist than his reputation may imply.” Oh, too true, regrettably.
So why the reaction to Cable saying what Smith did so long ago that:
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."
And yet Eamonn Butler, director of the Adam Smith Institute, said: "Vince Cable is wrong on capitalism and wrong on Adam Smith. Unfortunately, we have a business secretary who doesn't understand business and who misinterprets the founder of modern economics too."
No he wasn’t wrong: and just because law could do nothing about those things in 1776 and concepts of justice then were inconsistent with concepts of justice now does not mean Vince was wrong to say what he did and threaten what he did.
Like it or not, what the messaging about what he says really reveals is that he knew exactly that what he was saying is right — and so do those whom he targeted know it is right. The difference between Vince and the likes of Osborne is though a simple one. Osborne, Cameron, Clegg et al have never been in business. Cable has. So have I. that’s why we know and they don’t.
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The headline on yesterday’s “Daily Express” topped all of this. The big type read “Taxman wants all our money” – followed in smaller type by “We will just get pocket money”. What planet is the editor of that appalling gutter rag living on?
So he was called names. Big deal. Didn’t Cable call them “spivs” and “gamblers”. Let’s get a hankie out shall we?
In similar vein to your (correct) quote from Smith, Richard:
‘Nothing is more dangerous than the influence of private interests on public affairs.’ Jean-Jacques Rousseau. The Social Contract, Book 3, (1762).
Consider a world in which there are only 2 banks. They each employ their own capital and bet on the rise or fall of markets. They each pay their fair share of taxes on the profits they generate and pay their managers bonuses in relation to the return on equity. Now consider what happens when they lend as much as they possibly can to each other before betting the same amount as before on the same rise and fall of of the same markets. Providing interest rates are low, the return on equity is vastly multiplied and so are bonuses. But the tax paid is significantly diminished because interest payments on debt are tax-deductible for businesses including financial corporations. Now multipy those 2 banks by the number of banks in the City. What do you have? Tax subsidies for gamblers on a vast scale leading to the creation of more debt in the financial sector (excluding depositor and shareholder liabilities) than all the other sectors combined. It’s not as though these financial corporations need this tax relief, it’s of limited value to retail banks, so isn’t it time this subsidy for gamblers was abolished (or at the very least capped)?
so you think he was making a serious point, rather than political posturing to his audience?
@alastair
I hope he was making a serious point
In amongst the politicking you will perhaps have spotted the serious points – they are after all ConDem policies he was spouting. But mostly the language used was typical Vince playing to the gallery. Personally I think a lot of it was actually George playing politics. I find it hard to believe that Vince walked into the traps of his own accord.
I understand that Vince also spoke out for taxing land – this is most definitely not Tory policy.
@David Marks
David, that is not right – in your scenario the interest each bank receives from the other is fully taxable, so there is no net tax effect.
On the other hand many private equity acquisitions were built on shareholder funding from tax havens which is equity economically but debt for tax purposes and therefore piles up vast tax losses.
Richard, Alistair, I agree Vince was playing the gallery and keeping the troops happy, and not playing serious politics. There is much that could be done to curb the excesses of recent years, but that requires an interest in detail and implementation that Vince does not seem to have. Surprisingly good Telegraph article making this point – http://blogs.telegraph.co.uk/finance/tracycorrigan/100007707/cables-anti-capitalist-rhetoric-makes-it-less-likely-real-problems-will-be-tackled/
@ Marc Daniels
Thanks Marc, but if the equity reduces in proportion to the amount of debt employed so that the total resource available is the same with or without debt (excluding depositor and shareholder liabilities) then my analysis is correct. And in practice, isn’t that what has happened?
That doesn’t happen in your scenario – they each raise debt and use the proceeds to subscribe for debt in each other. There are no funds available to pay down equity.