Mantel and Macro
In Wolf Hall, the wonderful novel by Hilary Mantel, He (Thomas Cromwell) is given to extended ruminations. Mantel’s novels about the career of Henry VIII’s Lord Chancellor manage the essential trick of good historical fiction; they perfectly balance an evocation of the strangeness of other times while speaking artfully to our own. We feel like we are among exotic peoples whilst also learning fundamental truths about ourselves.
This is much in evidence when Cromwell reflects on money. Mantel’s character is thrifty, and becomes wealthy. But he also reflects on the nation’s finances, which in Early Modern Europe are still largely intermixed with that of the monarch. There is a globalised, neoliberal tone to be heard in Cromwell’s reflections as he sits in front of Lord Harry Percy exhorting him to give up his claim to Anne Boleyn’s hand in marriage:
“How can he explain that to him? The world is not run from where he thinks. Not from border fortresses, not even from Whitehall. The world is run from Antwerp, from Florence, from places he has never imagined; from Lisbon, from where the ships with sails of silk drift west and are burned up in the sun. Not from the castle walls, but from counting houses, not by the call of the bugle, but by the click of the abacus, not by the grate and click of the mechanism of the gun but by the scrape of the pen on the page of the promissory note that pays for the gun and the gunsmith and the powder and shot.”
The incentives of trade and profit; the rituals we use to control and define finance; these can sometimes intercede when they are not respected. Cromwell, a low-born bureaucrat, can bend the Lord to his whim because he controls parts of the financial infrastructure that underpin Percy’s military and political power. In the novel Percy submits when Cromwell points out that he will make sure the Lord’s extensive debts are called in if he doesn’t relent.
A parallel from recent history would be the cabbage-length career of Liz Truss as Prime Minister. Her attempt to aggressively disregard conventional thinking on the country’s deficit, circumvent the independent Office of Budget Responsibility and borrow heavily to fund tax cuts was ultimately stifled by a cabal of the country’s bond investors and the Bank of England. To put it in terms Cromwell would be familiar with, no one wanted to lend the Crown money because it was about to go broke from excessive spending. In both these cases matters of political vision or personal principle are subjugated to economic reality.
The balance between these forces is an issue we must wrestle with today. We live, despite the protestations of some, in an incredibly stable era. The forces described by Mantel through Cromwell have been ascendent for decades; most of our lives have been lived in a period of peaceful prosperity which largely continues. It is important to acknowledge this stability, because our situation is not without threat and we will miss it, if it goes away. The uncomfortable truth is that, in the relationship between economics and politics, it goes both ways. While it can be appealing to give primacy to one or the other, to say politics is always created from underlying economic realities or that economic realities are simply expressions of our political culture, the world confounds simple models of causality. Sometimes the bean-counters tell the King he can’t have his war; sometimes the King decides the war will happen regardless and the money will be found. Moments like Brexit, the re-election of Donald Trump and the war in Ukraine are sharp reminders that the world is not governed by economic rationalists; as Cromwell reflects in Wolf Hall, “No prince ever says, ‘This is my budget, so this is the kind of war I can have’.”
As investors we must reflect carefully. It may well be that the principles that govern how portfolios have worked for the last forty years will need updating. Professional investors do not have good theoretical models for how to think about unquantifiable risks and are generally bad at predicting and pricing them. That can create a situation where financial markets move suddenly in response to events. While geopolitical events have generally been shrugged off by stock markets in recent times, this can’t be relied on. A lot rests on the prevailing stories that underly beliefs about the value of financial assets. Usually these stories are stable. War in Europe doesn’t matter than much; inflation will be low and stable in future; generative AI will be a disruptive economic force but broadly increase productivity. Financial crises are often the result of these underlying stories changing. Trying to time these shifts is foolhardy; being prepared for them is a necessity.
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