The Challenge to the Investor

In Rare Albion, just as we only expend money if we have income, so with capital we only invest if someone has an initiative that needs to be invested in. We regard investing where there is no real initiative - saving for the sake of saving - as an ill-advised thing to do. Saved capital can always be put to use, of course – by creating a revised version of something, for example, or speeding up a process. But one needs to be careful lest thereby fewer people are needed to work, making the new thing unaffordable and thus, in fact, part of a ‘false’ investment. 

The fact that one can make something or borrow money to do something is not proof of its need or justification for its production. The good or service must be needed and its price must be affordable to both buyer and seller, consumer and producer, alike. Unfashionable and politically incorrect though it may be to say so, economic life entails a conundrum: Is it right to do something just because it can be done? The answer is obvious when it comes to driving on the ‘wrong’ side of a road, or murdering someone. But debarring the production of unneeded things?! Or prohibiting unaffordable pricing?!

Yet the fact is that before the Enlightenment – before, that is, the rise of ‘classical’ economics in the 18th century - economic life was seen to entail all manner of moral hazards. Money, especially, was seen as a medium for the devil to insinuate himself into human affairs. In those times, therefore, those who were responsible for economic life were constrained by historically deep-rooted mores, strict codes of conduct, and severe penalties for transgression. 

Even after the Enlightenment, when governments became responsible for money, private issue of money, whether by outright counterfeit or socially benign local currencies, was usually outlawed and transgressors subjected to stringent measures.

Islamic economics was especially strongly constrained by the moral precepts of Shari'a law, with its basic concept that no one should gain at another’s or the community’s expense. To do so was social and economic egoism and required clearly defined and rigorously upheld limitations. Indeed, in the view of its protagonists, it was the absence of such constraints in the West that provided the theoretical and historical justification for the Islamic fundamentalism that came to haunt humanity from the early 1970s onwards.

As the name says, however, Islam achieved this way of doing business by submission, by enforced edict. The challenge to the West, and to the Anglo-Saxons in particular, was to recognize the validity of constraining egoism, but to do so on a basis of heightened awareness of the true nature of economic life. It was for this reason as much as any other that the financial practices and institutions of Rare Albion were modelled on the basis of enlarged egoism.

When people had begun to say that the financial economy lived at the expense of the ‘real’ one or that the larger part of world trade was ‘speculative’ currency trading, it was this problem they were pointing to. The main challenge was, therefore, to manage human egoism; to recognize the vital part it plays, but to recognize its limits also and the damage it can inflict beyond our immediate field of vision. As investors, this confronted us with a profound challenge: Did we continue investing in ways that would make the markets even wilder than they had become? Or were we called on to ‘tame’ the markets through a change in our investment aims and practices? 

Things could not go on as they were, however. The more global economic life became – especially because of the globalization of finance – the more constraints reappeared. If not from within then from without through the re-imposition of credit controls, restrictions on foreign capital movements, and so on. The problem was that we had to modify the life styles and inner expectations that the financial liberalization of the late twentieth century had given rise to. In the end, we chose to do so by practicing self-constraint, and, better yet, doing so on a basis of heightened understanding of the nature of economic life. Thus we outgrew the need for central banking strictures, regulatory institutions and ‘disciplining markets’.