Saint Patrick's Day

Speaking of apologies, I have heard no apology from the Republic of France for having cut off the heads of thousands of aristocrats during the Revolution. But like so many clouds, perhaps the violence done to the First Estate came with a silver lining.

Wealth and political power used to be wrapped together tighter than breeding snakes. But when Thomas Sowell studied ethnic groups in the 20th century, he found that those that were most successful financially tended to ignore politics.

The Overseas Chinese, for example, typically control a large part of the wealth wherever they reside. But they are usually shut out of the political systems — which favor the ethnic local majorities.

This is true of other groups, too — such as the Jews of Europe. They had no access to political power, so they concentrated on making money.

Almost every group that came to America began its sojourn as a minority. Each got to work, generally avoided politics and soon rose to have more money than the average American who was born there.

But there were two major exceptions — blacks. And the Irish. In the late 19th century, the Irish chose politics over economics. Blacks made the same choice a century later. In neither case was the decision rewarded.

The fall of the guillotine on Louis XVI’s neck may not have done him much good. But it seems to have had a salutary effect on France’s upper classes. All of a sudden, they became an oppressed minority with no access to political power.

Politics was a great way to obtain wealth in the time of, say, Tamerlane — who had a tower built out of the skulls of 20,000 of his victims. But when the source of wealth became more remote, abstract and complex — violence became less of a paying proposition. You could take a factory — but without capital, management and expertise, it would be worthless. This is precisely what African dictators discovered after they seized power from colonial administrations in the 1950s.

You can still use politics and violence to gain power. But it is not a good way to gain wealth.

Unable to partake of the organized plunder that is modern politics, the post-Revolution aristocrats of France — like the Overseas Chinese and the Jews — developed a richer, deeper, more nuanced view of wealth — and how to hold onto it.

They’ve been more successful than you might imagine. Madame de Cremier still occupies the Chateau de Bourg Archambault, a few miles from me. Her family has been there for hundreds of years. The La Rochfoucaulds still live in the famiy chateau in the town that bears their name, as they have for 1,000 years. In fact, many of the families that were prosperous before the Revolution of 1793 are still prosperous. What’s more — they live in the same chateaux, enjoy the same furnishings and continue to cultivate a refined and elegant lifestyle. They even find ways to make money.

Despite several wars…including occupation by foreign armies…more uprisings and revolutions…and the introduction of confiscatory taxes by governments dominated by socialists and communists — they are very often still rich.

What’s the secret? Well, they figured out that it takes more than money to be rich. It takes other forms of capital.

Yes, you need some money. But, to hear them tell it, that is often the easiest part of the formula. What’s more, they think that focusing too much attention on getting money destroys the more important aspects of wealth.

“We never spoke about money nor what one earned, nor what something cost,” said one woman describing the qualities of her caste. “We had learned very young to love beauty, but not money.”

Remembering Mancur Olson’s dictum that “virtue is what used to pay,” we have to ask ourselves — did rich people figure out that too much attention to money was negative — just like too many calories and too much horse manure?

Money doesn’t just come to people, it has to be earned. And after it is earned, it has to be put to work and carefully protected. The habits, rules and attitudes that go along with money represent an additional form of capital — part of the family’s cultural capital. But the rules by which a family lives go far beyond money. There are clothes, meals, decorations, education, religion — all of these tend to be controlled by women, who are the guardian’s of cultural capital.

The cultural capital of France’s Grande Familles is considered more important than the money. Money can be replaced. But you can’t replace tradition. And culture is almost impossible to recreate. In fact, you can’t create it at all. You can’t think your way to culture. Either you find it…or, most often, it finds you. And once in place, you cling to it with a blind, unthinking obedience, like an old sheep dog, loyal to his post to the end. No amount of logic will justify it.

Nor will any amount of argument prove that it is superior. But you have to believe it is. Otherwise, you will surrender to whatever popular culture is most in fashion.

“The trick,” as one aristocrat in frayed tweed explained to me, “is to never let people know how superior you think you are.” Successful cultural groups have great faith in themselves. They do not mix with the local cultures, except in carefully controlled situations, for fear that they will lose their identity and superiority. Children are sent to special schools, when possible, and marriages outside of the group are discouraged.

This brings us to another type of capital, which is likewise extremely important — social capital. “The person who is alone,” goes the expression “is lost.” Not only are the bonds of family, and extended family, extremely important — so are the bonds within the whole group. The people I know in this milieu entertain frequently. They maintain close connections with family and neighbors. And they are careful to maintain useful links to the power structure. Often, family members and friends will hold high posts in the French bureaucracy.

This Social Capital pays off. After the war, for example, the big, heavy machinery businesses — like the automakers Peugeot and Renault — were nationalized by the government. But the families that owned them used their connections to make sure they came out ahead. Most of those businesses were obsolescent anyway. Typically, the government bought the dead-end assets at inflated prices. The rich families took the proceeds and invested them in a new generation of industry. Everyone was happy.

More to come…

Enjoy the weekend. Your correspondent,

Bill Bonner

Paris, France March 17, 2000

*** Double Wow! The bear seems to have passed not just the hook to the Dow — but the rod, reel and a picnic cooler loaded with beer and sandwiches.

*** We’ve been noticing for months now that many of the Old Economy stocks are selling at bargain prices. They’ve been beaten down by a relentless, but largely invisible, bear market.

*** They were ready for a bounce. But this is a super- ball bounce. The Dow was up nearly 5% yesterday. The transportation stocks were up 157 points — despite a higher oil price yesterday.

*** The really important numbers were the Advance/Decline figures. These have been almost uniformly bearish for nearly two years — since April ’98. But yesterday they turned bullish in a major way — with 2,431 Advances and only 646 Declines on huge volume. Meanwhile, the number of new highs was almost equal to the number of new lows, 54 to 52, respectively.

*** So what does it mean? Well, most likely it means that most stocks have been going down too much for too long without a break. The A/D ratio could stand a major rally — without really disturbing the major trend, which is down.

*** We will just have to watch and see what happens. We’re also watching the Nasdaq, which may have topped out a couple of days ago.

*** I got an e-mail promoting Michael Murphy’s service. “Expect a stair step decline,” he said, “that will ultimately knock tech stocks down 10% to 15% from their late 1999 highs.” Where does he get this stuff? Why 10%? Why not 29% or 74%? It’s all nonsense, of course.

But sure enough, yesterday the Nasdaq looked like it was going nowhere, or down — then a Bloomberg headline announced that it was down 10%…and boom, it was off to the races again.

*** The Nasdaq finished the day up 134 points. The Nasdaq 100 did even better, up 223 points, or about 6%.

*** Conspicuous by its absence from the parade of success stories yesterday was MSFT. Every Dow stock rose — except for MSFT. Another group notable for bucking the trend was the gold stocks. Gold went down $2.60. And the gold shares went nowhere.

*** I haven’t looked, but remember that “hot tip” I passed along a week or so ago? ePlus. It was selling at $42. Now a DR reader writes to tell me is up about 30% to $57. What did the guy say on the train? He had heard it was going to $75, right? Who knows, maybe it will.

*** Why bother to try to figure out anything? Just buy the rumors.

*** Yesterday’s big news was that U.S. wholesale prices rose 1% in February — the biggest gain in 10 years. Inflation? What’s that? “The inflation problem is still an energy price problem,” said one economist. By that he meant that inflation is no problem if you ignore the things that are going up in price.

*** Building starts and new permit applications fell. Permits were down 8% — the biggest drop in five years.

*** Amazon went dark yesterday. Customers, who may have been just about to buy something, were told that the store was closed.

*** In these days of apologies, you’d think the English could come up with a few lines of regret on St. Paddy’s day. And surely the Norman French ought to apologize to the English for treating them nearly as badly after William the Conqueror crossed the channel and defeated the English under King Harold.

*** But why stop there? Have we heard any apologies yet from the Scandinavians for the Viking raids and settlements that created Normandy in the first place?

*** One reader responded to Pope John Paul II’s apology to the Jews, wondering why the Jews had never apologized for nailing Catholicism’s leading figure to a cross. But of course, if they hadn’t martyred him, there would be no Christians to whom they could apologize.