Not all who squander are lost

In 1948, Montagu Norman, Governor of the Bank of England from the end of World War I through the Depression, looked back on his career and wrote:

“As I look back, it now seems that, with all the thought and work and good intentions, which we provided, we achieved absolutely nothing … nothing that I did, and very little that old Ben [Strong, Governor of the Federal Reserve Bank of New York,] did, internationally produced any good effect—or indeed any effect at all except that we collected money from a lot of poor devils and gave it over to the four winds.”

I’ve seen the last part of the quote cited before as evidence against the ability of central bankers to effectively do anything at all. It just came to my attention again at the end of Lords of Finance, Liaquat Ahamed’s wonderful book examining how the heads of the four major central banks (and others) accidentally steered the world economy into the Great Depression.

I don’t think this quote discredits the efforts of the people who run our economies. Instead, I think it is a reflection on the limitations and futility of economic control. If we knew exactly how the economy worked, we could control it well. We don’t. We do understand it better every day, however when “we” understand “it” better, “it” changes, because “we” comprise “it.” We comprise the system, and our models of the system change it. In a very real sense, our models of the system are the system. If our models of the system were perfect, then parts of the system (our models) would be equivalent to the whole system—they would be fractal: infinite. So our models must be either useless or approximate.

Thus, there are limits on how much we can know or control, and they are not precisely known. Perhaps neither we nor Montagu Norman ran into them, but I think the existence of these limits means that when Norman says he “took money from a lot of poor devils and gave it over to the four winds,” we should not demonize him, but acknowledge his “good intentions,” remind him that the road to hell is paved with those, chide him for his lack of humility, and be on our way. There is yet more world to save.

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