Sunday 2010-08-22

The New Financial Order by Robert Shiller

Technocracy-Optimist Shiller describes several financial innovations he'd like to see deployed, and the relevant histories of the ideas. He sees only good in his ideas and does not try to weigh out the pros and cons. E.g. on the ability of governments to track citizens' cash flows.

The inability of citizens to evade and cheat offers opportunities for social planners. We will be able to achieve a more equitable income distribution because we will be observing it more accurately.
-- Chapter Five, New Information Technology

While governments continue to fund criminal enterprises with blanket prohibitions, it seems likely to me that there will be a continuing war of advances and countermeasures in laundering money.

Given this one-sidedness, his histories of financial innovation provide the best reading:

A breakthrough of worldwide significance occurred in the United States with an 1811 general act of incorporation in New York State. Not only did the act set the precedent of allowing any business that satisfied minimum requirements to incorporate, but it also initiated the radically new step of specifying that all investors in New York corporations have strictly limited liability. Before this act corporations were usually creatures of government, enjoying a government-sanctioned monopoly, and incorporation ws not available to business at large. Moreover, creditors of failing companies could in principle seize all the personal assets of each stockholder, even those holding few shares, until the debt was repaid.
-- Chapter 17, Major Financial Inventions

Knowing this makes the first chapters of PanicOnWallStreet more intelligible.