Today’s theme results from lying in bed for a couple of days with little to occupy my mind but feverish dreams.
I noticed by the bedside a couple of books I had been reluctant to tackle. They are studies of the richest families in France…actually, France’s “old money.” Despite wars, revolutions, socialist governments, foreign occupation, riots, persecutions, the industrial era and countless innovations and whipsaws in both technology and society, these families have managed to preserve their wealth.
This seemed worth studying. But the books were thick, and dull, and in French, which makes it a little tougher. Still, with nothing else within reach…I picked them up and dug in.
I found that the “old money” families had discovered some of the same secrets that Thomas Sowell describes in his studies of successful immigrant groups in America.
But I will leave those secrets for later. Today, I just want to take up the subject in the broadest way: by looking at the nature of wealth itself and why it matters.
Imagine a Pharaoh in need of a root canal. Is he a rich man? Or a poor one?
Imagine an investor with millions of dollars worth of shares in one of the hottest new IPOs to come out this year. But his stock is “locked up” for a full year. And he knows the business is a dog. Is he rich…yet?
Compare Bill Gates’ car (or Warren Buffett’s house)…to yours. Is there much difference?
If not, why spend your time — and risk your money — trying to gain more wealth?
There was a time when wealth was simpler — it was survival. Wealth became attractive because it made it more likely that a person’s genes would survive. Looking at the issue through the lens of sociobiology, you would say that the genes that did survive were those for whom wealth was attractive.
Wealth was also closely connected to power — the power to get food…and protect it…as well as the power to protect oneself and ones’ family…were what made a man attractive to females and likely to pass his own genes to the next generation.
This is, of course, just speculation. But it seems plausible. At the margin, people died during times of famine. Those most likely to survive were those with the wealth and power.
Even in special circumstances in modern times, calories can be the ultimate wealth. In a Russian camp, for example, 95% of the German soldiers taken prisoner at Stalingrad died. Those who survived were usually those who were small, thin and lucky. Such was the case with a German count. He owned castles, land and precious furnishings. But the wealth that really counted in the summer of 1943 was the crusts of bread given to his fellow prisoners who died before they had a chance to eat them.
As people shifted from hunting and gathering to agriculture, the nature of wealth changed. It was not only measured in calories — grain in storage, number of sheep and so forth — but also the source of the wealth…the land itself.
Again, wealth and power were closely allied. If you were a hungry tribe out on the steppe, it didn’t take much imagination to figure out how you could increase your wealth. You could try to plant wheat yourself. Or you could attack one of the successful farming communities within range and take the wealth away.
Better yet, you could set yourselves up as the lords and masters of the conquered people. In effect, you would be offering them a bargain — protecting them from other marauders in exchange for a portion of the wealth and the privilege of acting as a ruling class. You would be providing government, in other words.
Besides, you could name your own terms. If the conquered people resisted your proposed “social contract”…you could kill all the males. Heck, you might want to kill all the males anyway. Sometimes, as the Old Testament records, you could actually get into trouble with your God if you failed to kill them.
But that’s another story.
By the time of Julius Caesar, whose death we remember today (though the calendar has changed since), little had changed. Wealth was still tangible. It was measured in precious metals, but had its source mostly in land. So stealing land was still a paying proposition. Rome extended its power and wealth by capturing foreign lands and demanding tribute from the local rulers. Rome had become a multi-national.
And 1,000 years later, in Europe, the business was still going strong. I choose this date because it is to about that era that some of France’s “old money” families can trace the origins of their wealth.
The aristocracy of Europe was little different from the steppe tribes that invaded the Tigris Valley in prehistoric times. They set themselves up as the ruling class…a military class, whose job it was to protect their own claims and defend their own monopoly privileges.
Wealth was still based on land and what it could produce. If you were rich, you had land. If wanted to get rich…you had to take someone else’s land. The ancestors of Prince Rainier of Monaco, for example, disguised themselves as monks and knocked off the previous owners in a surprise attack.
But the world is profoundly different today. Land is almost a liability. As I have discovered, it is barely worth trying to rent it out.
And calories? They are no longer a sign of wealth — but of poverty. Poor people in America consume more calories than rich people — and die sooner as a result.
What is wealth today? What even is the source of wealth? If it is only an abstraction…a printout from an electronic record…what good is it?
More about this to come…
Paris, France March, The Ides of March, 2000
*** I expected to see the buy-the-dip folks back in the market yesterday. They were there…but the best they could do was to keep the market from falling further in the morning. By the afternoon, they were exhausted…and the whole market gave way.
*** Remember, the Nasdaq is what Joe Granville calls “the hook” that keeps investors from noticing the damage done by the bear…by focusing their attention on a sector that is still rising. The Nasdaq…and the techs & Nets generally…have been the greatest hook of all time.
*** Wells Capital Management, for example, took out the 66 techs and Nets from the S&P 500 and found the index would be 30% lower than it is today — back at 1998 levels, in fact.
*** The “NY Times” reports a Salomon Smith Barney study showing that three-fourths of S&P stocks are down at least 20% from their highs.
*** But while stock after stock, and sector after sector, has rolled over in bear market patterns — the Nasdaq just kept rising. It was the perfect hook.
*** But what’s happening now? Is the Nasdaq rolling over, too? Is it possible for such a dreamy, hypey, spiky market to gently and quietly slip its moorings and drift downward? Won’t there be a Hindenburg-style crash?
*** We’ll have the answers very soon. This morning…the French market is in trouble. Techs and Nets are getting hit hard.
*** Yesterday, everything seemed to be drifting down. The Dow was down 135 points. The S&P went down 24 points.
*** The A/D ratio and H/L ratio performed as expected for a bear market. There were 1,287 advancing stocks and 1,694 declining ones. There were 39 new highs and 152 new lows.
*** What was new was that not only was the Nasdaq going down, too — it was going down at Internet speed. The Nasdaq lost 200 points — or 4% of its value. Let’s see, the Nasdaq has a total value of about $6 trillion. So, that’s…hmmm…about $1,000 per household.
*** Where did the money go? Did it rotate back into the “Old Economy?” Nope — the Old Economy took losses, too, knocking about another $500 off the average family’s net worth.
*** The “money” vanished. It disappeared as the “wealth effect” went into reverse. But what the heck, it was only on paper anyway!
*** Easy come, easy go. Last year, the Nasdaq’s total market cap jumped 150%. It has to go down by 60% just to get back to its level a year ago.
*** Well, yesterday’s losses were only on paper for rich speculators and hedge fund operators. But people who use their tax or tuition money to play the market are likely to find the losses all too real. Few banks are going to forgive mortgage loans just because the market went down.
*** The biggest losses were in the biotechs. Those on the Nasdaq were down 12% for the day, and now 31% from their highs. The market was startled when both Britain and the United States said that gene research should be freely available to scientists.
*** Gold went down, though more modestly, along with equities. April contracts were down $1.80. What’s gold’s problem? I don’t know, except that maybe it is thinking about those trillions of dollars of notional purchasing power (in equity prices) that are about to be drained away.
*** Because there is a lot of draining to be done. The OTC index is trading at 250 times earnings. It will have to fall 95% to get to a more “normal” level.
*** Gas prices went over $2 a gallon in Southern California last week.
*** Poor Gilbert Mining. I saw him at church in Lathus a week ago and told him that I had had no success in locating his WWII friend, Jack McDonald. In 1940 Mr. McDonald lived at 2750 South…it looks like…Alemeda Blvd., LA, CA. But by 1942, he was in the Army and stationed at Rabat, Morocco — where he met Mr. Mining of the Free French Forces. Anyone know his whereabouts? Mr. Mining would like to hear that his old friend is still alive.
*** We’ve heard so often about how the Internet will create unparalleled wealth. Each time I hear it, the same question leaps to my lips, “how?” Neither in George Gilder’s elegies to broadband nor in the jargon-filled threads on the Internet itself is there anything that sounds much to me like real progress.
So I was grateful to see in today’s “International Herald Tribune” that the founder of MicroStrategy, a hyped-up, overpriced Net company mentioned here just last week, sat down and wrote a column explaining what the new wealth is all about.
“The potential now exists,” writes Michael Saylor, “for an infinitely more intelligent, efficient and caring society that can provide amazingly better things than we have today at stunningly lower cost and that will benefit people equally whether they are rich or poor, black or white, Democrat or Republican.”
I’m glad he threw that last sentiment in there…I mean, who would want to benefit from something unless everyone else could benefit, too?
But okay…I’m on the edge of my seat…how? Will the lame be turned into Olympic sprinters? Will the blind be fitted with computer vision devices and turned into air traffic controllers? Will the world’s poor all become as rich as Venture Capitalists and IPO specialists? Will cherry trees bloom all year long…and mosquitoes bite only Republicans…or only Democrats…so you could choose your party affiliation on a more rational basis? Could justice be meted out to rap singers, school boards and killers…while husbands and bar tabs are freely forgiven?
Alas, Mr. Saylor had a different idea:
“Current automobile flow is chaotic,” he observes, “…software could…recommend to drivers which routes to take.”
Is he kidding? They already do that here in Paris. There are electronic signs up all over the freeway…they tell you how long it will take you to get to various points. Does it help? Yes, marginally. But it is hardly “amazingly better.” Often all the roads are jammed up anyway.
Okay…having solved the world’s traffic problems, Mr. Saylor tackles health care: “the data exist to tell us… who the best and worst doctors are.”
Again, you hardly need the Internet to do what Mr. Saylor imagines. “Consumer Reports” could have rated all the doctors in the country if it were that easy. Saylor seems to have never considered the distinction between the quantity of information available and the quality of it. He thinks judging a doctor’s success is as easy as feeding statistics and medical records into a computer.
There are certainly some opportunities for comparisons. If you are going to have a heart operation, you might want to check on the success ratio of the surgeon. But what will it mean? Did he reject patients because they were high-risk, and maybe bring down his reported ratio? Were the results statistically reliable? What if your case is slightly different? What if another surgeon suggests that you don’t really need the surgery? Is the quality of that advice measured by the survival figures?
The analysis is subject to so many qualitative distinctions that it becomes — at best — an incremental advantage, not a revolutionary one.
But wait…there’s more: “When a mugging is reported…a database could automatically ring every home with an alert.” An alert? This would be helpful information to the mugger, perhaps, who could use call forwarding to have the “alert” relayed to him. But by the time the mugging “is reported,” he’s usually long gone anyway. What would the alert tell you — that it is probably safe to go out, because the police are on the scene?
I used to live in a high-crime neighborhood up near Druid Hill Park in Baltimore. My phone would have been ringing off the hook. And what would it have told me that I didn’t already know?
And finally, the marvels of the Internet could be applied to the field of education: “anyone in the world could take online video courses.” Wow…that’s a breakthrough! I remember when the promise for the television was similar. Back in the late `50s, you could turn on the TV and learn to speak Russian. Probably still can on some obscure cable channel.
The Internet improves the technology. A friend of mine used it to tutor kids in California while he was staying at my farm in France. But these are evolutionary improvements — hardly the stuff of a whole New Era.