Forum: Ask Peter Jay
Peter Jay, the presenter of The Road to Riches, spent three years working on the series. He is also head of Economics at the BBC, and his varied career has included a stint as a civil servant at the Treasury, time as British Ambassador in the US and a period as Economics correspondent for the Times.
Here he answers a selection of your questions about The Road to Riches.
A: In my opinion economies can, cyclically and perhaps in the longer term, suffer from demand deficiency, i.e. demand less than sufficient to reduce unemployment to its "natural rate", i.e. the rate consistent in the longer term with stable prices. Secondly, the natural rate of unemployment may be, probably usually is, higher than that implied by any independent standard of "full" or "high" employment.
It is the second "problem" than cannot be addressed by demand management. The first may well require stimulative action, whether fiscal or monetary.
A: Thank you for your interesting question. The gloves were made of carbon fibre. So was the suit I was wearing. Carbon fibre is a good "conductor of electricity", which means that electricity passes through it easily. That means that a carbon fibre suit works as what is called a "Faraday cage". This is named after the famous British scientist, Michael Faraday. He discovered that, if something (or somebody) is surrounded by a good conductor, electricity will pass round it (or him or her).
That was one reason why I did not get electrocuted even though I was attached to about 400,000 volts of electricity. A second reason was that I was hanging 40 feet above the ground and was not connected to the ground by any good conductor of electricity. The wire holding me up contained a long rod made of glass fibre which does not conduct electricity. As a result only a tiny charge (about 0.1 amps) passed through my suit and gloves; and that is what you saw as sparks jumping from my fingers to the big toadstool (called a "bushing") on the wall of the laboratory.
If you would like to know more about it, the head of the National Grid High Voltage Laboratory at Leatherhead in Surrey, Jack Blackett, will be happy to hear from you. His email address is firstname.lastname@example.org
A: The basic reason, in my opinion, was that the Romans used coins, not paper, for money. Coins can, and throughout history mostly were, issued by the state (King, Emperor etc. etc), who owned, controlled and legitimised the official mint, which issued them, though coins were also privately issued at various times. No banks are needed to issue money in this form; and so ancient economies could and did operate without what we would recognise as banks, though some simple forms of money-changing and personal lending was common in the ancient world and grew more sophisticated in the Islamic world.
It is only paper money that normally needs banks (or central banks) to issue them; and, of course, when deposits in banks come to be regarded as money, as in modern economies, then such money presupposes the existence of banks. Good luck with your coins collection.
A: I think personally that what you suggest would be a misunderstanding. I do not think that specific people or peoples are picked out by fate to be for ever poor - or rich - or that the rich necessarily see it as a goal for them that the poor should be kept poor, though that can easily be an effect of what they do to increase their own wealth, e.g. slavery and the slave trade.
I do, however, think it quite likely that for at least the rest of the century now beginning there will continue to be a large minority of people who are poor, absolutely poor in the World Bank sense of living on less than a $1 a day. This is not inevitable; but there are a number of good reasons for fearing that it will be so:-
None of this is insuperable if the global community, such as it is, really wanted to end - or drastically reduce - poverty; but that would require wisdom and foresight by governments and a strong sense of human solidarity among peoples all over the world, neither of which commodities are conspicuously plentiful.
A: No, not even the Bank of England or the Government of Iraq, though some took a little while to come across !
A: Yes, I am more than ever impressed by the deep interconnection of economic performance with its attendant political, social and cultural circumstances. Indeed, the importance of government in explaining economic success and failure is one of the main themes of both the TV series and my accompanying book.
A: In my book I say:-
Although cheques and bills of exchange were unknown in Athens, banking was conducted - commonly at tables set up in the Agora, the market-place below the Acropolis - in the form both of money-changing and of accepting deposits that were then lent out at interest (usually 12 per cent), the classic basis of banking profits almost ever since. But it would be wrong to read into Athenian practice the modern conception of banks as credit institutions supporting economic activity across the board. For the most part Athenian bankers were closer to bureaux de change and pawnbrokers and played little part in financing maritime trade, handicrafts or agriculture, although some of them, such as Pasion, a former slave who died in 370 BC, did well enough to leave their names to posterity and useful fortunes to their heirs.
Maritime commercial loans, secured on ship and cargo, to finance risky voyages and loans secured on landed property (usually for non-commercial purposes) were nonetheless significant parts of a financial system that included important innovations in commercial law, such as the recognition of slaves and other non-citizens as legal persons and of foreigners as having equal legal status with citizens. Written agreements were recognised; and the idea that justice needed to be expeditious as well as fair found expression in a rule that commercial cases must be decided within a month so that traders could sail away in accordance with commercial necessity, an idea that the modern world appears to have mislaid somewhere since classical antiquity.
The dominating factor in the supply of money and credit to the ancient economy remained the minting of coins, which in turn depended on adequate supplies of precious metal and a credible sovereign state. The military and political successes of Philip II of Macedon (359-336 BC) who conquered Greece, and of his son Alexander the Great (336-323 BC) who defeated the Persian empire itself and much else besides, were largely financed by their access to and control of the mines of Thrace.
The vast coinage that was produced from these mines (in gold, silver and bronze) paid the army, at least until the fabulous wealth of the Persian emperors fell as the spoils of war into Alexander's hands. The scale of this monetary wealth was of a different order of magnitude to anything previously known in the Greek world - even including the riches of King Croesus of Lydia - and was not seen again until the Roman Empire had conquered the entire Mediterranean. But the system of money embodied in coins, developed in Lydia and spread around the Aegean and the Mediterranean by the Greek city-states, remained the standard throughout the Hellenistic period of the ancient world (300-30 BC).
I think you are wrong about the nature of interest. It is not primarily a compensation for inflation. It is a payment for the service of being able to use a sum of money belonging to someone else for a period, which implies the lender's inability to use it during that period.
So long as there is any economic life on earth remotely comparable with what we have witnessed over the last two and half millennia - in practice very much longer - I believe people will want at times to borrow money and others will be willing to lend. If any form of market freedom exists through which such borrowers and lenders can find one another, there will be a price of credit, i.e. a going interest rate; and it will be set at the level that equates supply and demand in that market.
If all economic life were obliterated, one must suppose that there would be no interest rate; but that would hardly be the main problem at such a time.
A: No (see above), though it might no longer be in the form of coins, notes and bank deposits.
Remember what I said in Yap,
"money is whatever people believe is money";
and it is already taking an increasingly electronic - or "virtual" - form. But without money in some form, then there could be no multilateral exchange (i.e. swaps between an indefinitely large number of buyers and sellers).
Without such exchange there could be no large market, little or no specialisation and division of labour, little investment, little capital, little technical sophistication (except in the hands of government) and so few living standards much above subsistence.
I do not expect such a world, though in the very long term the essential pessimism implied by Thomas Malthus and Charles Darwin may eventually prevail over the optimism of writers like Thomas Macaulay and John Maynard Keynes
My question focuses on how we may become more closely involved in a dialogue with the so-called third world countries. As it has been shown India is on its way to build up a sound scientific base. Indian scientists are well regarded in the USA and here in Germany the government is keen to attract was the press calls Computer Indians to come to work and live in Germany. Thus far similar close ties have not been build up with Indonesia, Malaysia and the Philippines. Not to mention the African states.
Can you envisage a scenario where we might get the boost for our economy from African countries?
How would you improve in a cost effective way global communication between communities?
A: You ask a most fascinating and difficult question, to which I do not know the answer.
We must not forget the huge boost which Britain, as well as Europe and North America, already received from Africa, both through the forced migration of slaves (and the profits from that trade) up to the nineteenth century and from the voluntary migration of African people, until the irrational imposition of self-defeating immigration controls, in the middle of the twentieth century.
I believe the best way of improving global communication between communities in a cost-effectively is to remove artificial and politically motivated barriers (such as immigration controls in European countries and such as the EU's common agricultural policy and common external tariff) to the free movement of people and money and the free exchange of goods.
History suggests that this is normally favourable to economic progress and to mitigating the gaps between rich and poor regions of the world.