In English the title is Ship of Fools and the illustration is by
Albrecht Durer, published in 1498. The inspiration is from Book VI of Plato's
Republic. The first line is "Imagine then a ship in which there is
captain who is taller and stronger than any of the crew. But he is a little
deaf and has a similar infirmity in sight, and his knowledge of navigation is
not much better."
It is doubtful that Plato could have contemplated an interventionist
central bank based upon arbitrary notions rather than upon practical
instruction from history.
However, he unwittingly set up the concept that led to such a
destabilizing agency. Which was the confection of a "Philosopher
King" whose wisdom would guide the community. In today's Federal Reserve
System, the theoretical captain has a theoretical ship. The irony is that any
tribe anywhere can come up with the concept of an omniscient and omnipotent
ruler.
The wonder is that the practical side of modern society has tolerated the
delusion for so long. Perhaps this will change when today's speculation
completely exhausts itself and most asset prices go down.
For a couple of decades this writer has considered that any urges for
sound central banking have been suborned by the need to provide unlimited
funding for yet another experiment in unlimited government.
However, let's assume most central bankers still sincerely think that they
can actually "manage" a national economy. Their main blunder is the
concept of an economy isolated by political boundaries. There is no such
thing as a national economy and the question becomes "How long can the
delusion run?"
A war novel provides an interesting critique of method and dedication in
the face of consistent failure. It could be called a parable of chronic error
incapable of self-criticism.
Novelist C.S. Forester is known for his Hornblower novels about the
Royal Navy. Non-seafaring novels include The African Queen (1936) as
well as one about World War I, The General (1935).
The latter is an interesting review of just how the generals in that
deplorable conflict got it so wrong, for so long. Sure it is a novel, but it
gets the points across, particularly about theory and results.
"The whole opinion of the assembly was with him. The attack at
Loos had been correct enough in theory. There had only been a failure in
practical details and a deficiency of men and materials. It could all be made
good. A staff that could handle half a million men in action could be found.
So could the half a million men. So could the guns and ammunition for a
really adequate artillery preparation."
Somehow, Draghi's "Whatever it takes" comes to mind.
"Quite noticeably the spirits of the gathering rose; within a very
few minutes they were discussing the ideal battle…With visions like this
before them, they could hardly be blamed for ignoring the minor details of
machine guns and barbed wire. Minor details vanished into insignificance when
compared with the enormous power they pictured at their disposal."
"In some ways it was like the debate of a group of savages as to how
to extract a screw from a piece of wood. Accustomed only to nails, they had
made one effort to pull out the screw by main force, and now that they failed
they were devising methods of applying more force still,…of using levers and
fulcrums so that more men could bring their force to bear. They could hardly
be blamed for not guessing that by rotating the screw it would come out after
the exertion of far less effort; it would be the notion so different from
anything they had ever encountered that they would laugh at the man who
suggested it."
Of course, proper deployment of many tanks by the Brits was the equivalent
of the screw driver. Tanks and mobility materially assisted the end of that
devastating war. It also marked the inevitable defeat of that dreadful
European experiment in authoritarian government.
With the transition of state intervention from forceful in the 1960s to
belligerent in the 1990s to astonishingly reckless more recently, central
bankers are still trying to use a claw hammer to remove a screw.
Instead of standing back to criticize the system or their own recklessness,
central bankers have been distracted by the problem of funding ambitious
bureaucracy. To keep the perpetual motion funding going they must maintain
bubbles in all asset prices. At the moment, they still think they have the
power and if applied even more forcefully they will succeed. They cannot
doubt or even criticize the method. Not even for a moment, not even in
private.
But financial bubbles cause contractions and the next failure is just
around the corner. With it the public will make some discoveries. One is
common sense and the ability to criticize obvious failure involving their tax
monies and prosperity. The collapse of every great bubble since the first one
in 1720 has been accompanied by massive recriminations.
The public will also realize that no matter what titles they have,
financial adventurers in quasi-state agencies are still financial
adventurers. Ambition has overwhelmed scruple. To thwart this the public will
force central bank reform that will include a de-nationalized currency that
by choice will be convertible into gold. And above all, central banks will be
forced to accountability. A Fed audit would be a modest start.
For their own posterity, central bankers will belatedly discover the claw
hammer.
In the meantime, another precarious 'Ship of Fools' is drifting onto the
rocks.
