Reverse financial-engineering to the Year of Capitalism

Social status is far more important than wealth. Social status allows one the opportunity to acquire wealth. Being wealthy is frequently correlated with high social status but doesn’t automatically elicit the respect of the community.

However, individuals who have acquired high social status because of intrinsic abilities and are, as it were, thrust into the limelight by their fellows, find it difficult — nay well-nigh impossible — not to comport themselves differently from the rest of the community. Among other aspects such as voice or bearing, high status individuals, being rare themselves, are allowed — indeed, encouraged — to wear clothing or ornamentation that is also very rare. As far as can be determined from recorded history and, archeologically, from pre-history and, anthropologically, from the few remaining hunter-gatherer groups observed today, personal ornamentation with rare objects has always been the case.

Rare metals (e.g. gold), rare gemstones (e.g. rubies), rare coloured rock (e.g. lapis lazuli or chrome), rare natural objects (e.g. particularly rare sorts of seashells or snailshells) or rare natural byproducts (e.g. amber or jet) have all featured as personal ornamentation for at least the last 100,000 years. But gold, being almost infinitely malleable, is the only rare material that emerged in all civilizations and thus universally desired.

The majority portion (about 70%) of all gold that’s mined and refined today goes into jewellery for everyday wear. However, well within a few generations, it will subsequently recycle from there as it becomes overwhelmingly concentrated in individual hands due either to the dowry effect (India) or the primogeniture effect (China) or death duty avoidance (in the West) and becomes too much for one individual to carry around. A proportion of unfashionable jewellery is then scrapped-out every year and then melted, re-refined, re-purchased and then cast into bullion ingots (international currency for governments only at the present time) or (in the last century) minted into tablets or coins (potential high-priced currency for individuals who are worried about banknote inflation in the coming years).

Today, jewellery is 50% of the total stock of the world’s gold. Because of annual scrappage this is steadily declining. It will never be a one-way street, however. Even if in the years to come when jewellery comprises only 20%, say, of the world’s visible gold, we’ll still see gold rings, bracelets and Rolexes. Its main use will be as a stored buffer against inflating banknotes and occasional financial catastrophes.

Of course, given the immense size of today’s world’s economy, gold coins can never be used again as a practical everyday currency as it was two centuries ago. It then began to be stored as the ultimate guarantee in case banknotes failed when panics arose. And then, of course, banknotes became impractical as the sole currency and had to be bolstered with personal bank cheques, And then, in turn, cheques had to be bolstered with personal credit cards. Very shortly (in 10 years’ time?), cards will have to be bolstered by the use of mobile phones when making transactions.

All the way through, however, gold has maintained its fundamental (albeit disguised) use as international currency. It is now quietly re-emerging as the basic world currency. Two years ago, Robert Zoellick, President of the World Bank was the first to explicitly suggest this. The Bank for International Settlements (the central bank of central banks) has deleted gold’s previous risk factor from 50% to zero. It is now given Tier 1 currency status. The largest investment bank in the world, JPMorganChase, are now treating gold as currency.

What is China doing? So far, in copying the products of the West on a massive scale, China has shown itself to be the ace reverse engineer of the world. No wonder! Every year, its universities disgorge more engineering graduates than the rest of the world put together. But also, its universities produce more economists every year than the rest of the world. We can’t possibly think otherwise than that, even with odds of 1,000 to 1 against, many hundreds or thousands of Chinese economists thoroughly understand the financial engineering of the West since the first year of Capitalism (1694 in the UK, 1811 in the US — the first legislation allowing joint-stock, limited liability corporations).

Before too long, China intends to expand its Pan Asian Gold Exchange (PAGE) into Europe and America when gold shops and depots will be set up. Purchasers on the Internet can either pick up their tablets or coins from the shops or store them in secure depots. There is no other conclusion in my mind that the Chinese know which side of the future world trading currency is going to be buttered. It’s not going to be the inflating dollar or euro. When the gold standard is restored as a basic, albeit invisible, discipline, as it was prior to WWI, governments will not be able to print money beyond which their economies need from year to year.


In my last days (months? years?) of increasing decrepitude I’ve been appointed by the family to give art lessons to my 10-year old grandson who is keen to learn. So I’ve dutifully drawn up a syllabus of 18 lessons ranging from still-life drawing and simple perspectives, thro’ the ancient Egyptian art of egg tempera and up to painting with modern acrylics. Whether Joss or I will stay the course remains to be seen. I’ve never taught in a formal way before so it’s caused me to think about the process of teaching and learning in a fundamental way.

Of which I am an expert. Or at least I like to think so. Or used to think so anyway. Some 30 years ago, after a marriage failure and total insolvency due to the collapse of a business, I holed up in a 10ft x 12ft bed-sit and decided to take a Sabbatical and study the brain, this being a subject I’d always been interested in but difficult enough, I thought, to give me a therapeutic diversion for the while. Indeed, it became the most intellectually fascinating period of my life and towards the end of the two-year period I was in correspondence with two of the world’s leading specialists, Benjamin Libet and Sir John Eccles. By this I mean that they were both kind enough to exchange more than a few letters with a layman, giving me guidance on this or that tricky point.

So, thus qualified, I will describe the learning process from the brain point of view, such that it is not described by educationalists. By this I mean that educationalists cannot yet rid themselves of the Medieval context of sermons and congregations, or teachers and classes, or lecturers and audiences. Indeed, my description, while fully in accordance with modern neuroscience, was the method by which the massive computer industry of today picked itself up by its bootstraps 50 years ago before there was any teaching of programming in schools or universities (nor for many years thereafter). In old-fashioned language, it is called “Sitting next to Nellie” — though I will dress it up a bit.

Visual, auditory and bodily-sensing perceptions (mainly) from the outside world pour like Niagara Falls into the rear part of the outermost wrinkled portion of our brain called the cortex. There they are processed and the results concentrated in millions of multi-layered micro-modules, each as powerful as personal computer. These modules are then usefully connected together, mainly in childhood, in vast neuronal networks. Then (particularly in the years after puberty), the impulses of these networks are sent to the frontal parts of the cortex where they are given permission, or not, to proceed further. If yes, the impulses are sent to a thin central strip of cortex (stretching roughly from ear tip to ear tip) called the motor cortex which then sends instructions to the muscles.

It is only then — when the full cycle of perceptions to activities has been performed — that all the appropriate networks in the brain start to become strengthened and true learning has taken place. Ignoring the philosophical question of freewill, it is a pure case of the environment acting on us, and us acting on the environment. Otherwise, any descriptions of “teaching” or “learning” or “knowledge” are pure abstractions that dangle somewhere in the middle of the real cycle of events.

Apart from saying that most educational methods need to be dynamited, and replaced by learning-by-doing, there is nothing more I’m able to add. There are 1,001 specializations in the modern world and growing. At least 1,001 unique learning environments need to be developed. So far in the course of the industrial revolution, business has got away with the expense of education and gladly left it to the state. The result is that business is increasingly complaining of the sub-standard quality of school-leavers and graduates.

Well, what a pity! If nation-states can’t be prevailed upon to dynamite their educational methods, then business will have to start taking over — as indeed some large corporations are doing so already. Quod erat demonstrandum.

Mario Draghi badly needs a tutorial

Announced a few days ago in a flurry of scientific excitement second only to the recent discovery of the Higgs Boson, an international team of over 400 research geneticists revealed that our “junk DNA” is not junk at all. The 97% of our DNA which some scientists hitherto considered to be useless turns out to consist mainly of up to two or three million switches (or epigenes) which control the expression of our 20,000 genes (3% of our DNA). The true situation in every cell in our body is rather as if the Albert Hall in London were fitted out as one giant Wurlitzer Organ instead of seating for an audience.

The implications for future health treatment of many complex diseases such as multiple sclerosis, heart diseases and cancers are immense and, already, hundreds of articles and blogs in the media speak of these. But genes and their epigenetic control switches are not only responsible for purely bodily functions but also (via our hormones) for psychological predispositions. Furthermore, epigenes, like genes, are inherited.

Except that, while genes are inherited for hundreds or thousands of generations at a time — for as long as a species remains a species — without a great deal of change, epigenes are inherited for much shorter periods and, to boot, many of them are constantly changing from one generation to the next. Each of us inherits the bulk of our epigenes from our parents (50% from mothers, 50% from fathers) but many epigenes fall away after one or more generations while new ones are added in the lifetime of every individual. The additions depend on the specific environment in which the individual grows up.

Thus, identical twins, both born with an identical set of genes and epigenetic predispositions to this disease, or this or that behaviour, can change markedly throughout their lifetimes as each twin leaves his or her family and grows up into the wider adult environment. One twin with a strong predisposition to diabetes or schizophrenia may succomb sometime during his or her lifetime while the other, with an identical and equally strong predisposition, may avoid the same dire consequences.

All this explains why the disease profile of one long-standing culture differs substantially from that of another. For example, people who live in the Mediterranean region are twenty times more likely to inherit a predisposition to cystic fibrosis than those who live in Northern Germany. This is due to centuries of different climates and environments in which they work, and the differential selection and de-selection of the cystic fibrosis epigene (as well as hundreds more epigenes). This also explains why the psychological orientation of Germans is distinctly different from Grecians, and will remain so. The descendants of a Greek family which moves to north Germany won’t become “authentically” German in disease or psychological predisposition for several generations until their inherited epigenes have largely blended with the majority of Germans around them.

The only way that the 17 countries of the Eurozone can become a United States of Europe — which is what senior officials and politicians want to happen — is if a common political and economic environment is imposed on them all by legalistic force and maintained for at least several generations until a large common set of psychological epigenes is acquired by all 17 countries by personal inheritance at birth.

At the very least, this could only be initiated by either civil war or fighting a war against a third party. These, in fact, are the only ways that most nation-states have come into existence already — and then the new unification subsequently maintained by legalistic (sometime military) force for at least (history suggests) a dozen generations or so. (Many nation-states, such as the UK, are still insufficiently blended and are already falling apart into previous separate cultures.)

Think on, O Eurocrats (Mario Draghi most of all), you won’t succeed in imposing a common taxation and budgetary authority over the Eurozone unless you have a civil war or find a common enemy to unite against. Otherwise, you would avoid a great deal of further dangerous damage of monetary affairs if you were to consult with any of the team of 400 research geneticists who have brought off the most spectacular discovery yet in the human sciences (since Crick-Watson or Darwin, anyway).

Keith Hudson

Leaps and non-leaps of faith

Ben Bernanke, the US central banker, took a 24-page speech at the annual Jackson Hole meeting yesterday to say in coded language (and Freudian slippage) what could be summarised as the following paragraph:

“We don’t know what to do to stimulate employment except — perhaps — to repeat what we have tried so far — quantitative easing (money printing). It hasn’t worked, but neither has it tripped off hyper-inflation so far. My policy committee wanted to do this but I daren’t do so before the November Presidential Election because, if it does in fact trip-off hyper-inflation, then what sort of job could I go to when Romney sacks me in January? I would lose prestige even quicker than Greenspan did once he’d retired.”

After the speech, the price of gold immediately shot up by $40 an ounce as a leap of faith by non-American central banks and investment funds as a further sign of the growing belief that gold has a longer, more dependable future as a world reserve currency than the US dollar.

Keith Hudson