Wednesday, September 20, 2023

Birth of Plenty

Every once in a while, I go down the Bogleheads rabbit hole. Usually I emerge with a refreshed conviction about my savings and investment plan, but I usually pick up some other stuff along the way. On my most recent excursion, I picked up a book: The Birth of Plenty, by William Bernstein. Bernstein is an interesting guy: he worked as a neurosurgeon for an entire career, and along the way got interested in finance. He became one of the most eloquent and passionate early advocates of the philosophy of index-fund-based investing. He started his own financial advising firm, wrote several general-audience books on investing, and then branched out to write on a broader set of topics related to economics.


"The Birth of Plenty" was the first of these books. It's a sprawling, ambitious project, but the main thing it's trying to do is answer the question: why has the world been growing more prosperous over the last 200 years? He offers a thesis that there are four pre-requisites for a nation to turn into a wealth-generating engine. Prior to those dependencies being available, things will just grind along at barely subsistence levels; once in place, they become impossible to stop, and lead to ever-increasing levels of prosperity.

He wrote this book back in 2003, and I was a little surprised to see how much of its content I recognized from "Capital in the Twenty-first Century", particularly the first 1/3 or so of that book. I think there are a lot of things that have been generally known to economists for decades, but that only more recently became widely discussed among the general public. One particularly striking area is the last 2000 years of economic history. From roughly 1AD to 1000AD, there was no per-capita growth of income on the planet: things stayed at the same level for fifteen centuries! Obviously, individual people and groups would gain wealth through conquest or exploitation of resources, but it was very much a zero-sum game. Starting around 1000, there was a very very tiny increase in the world's per-capita GDP. Barely 0.1% growth year over year; but over 800 years, this cumulatively did lead to some increase in wealth. Things really took off after 1820, though: there was a drastic shift in the developed nations (the UK, then America, then gradually more "first-world" nations) of roughly 2% annual per-capita growth. The result has dwarfed thousands of previous years of advancement.



Bernstein's thesis, which he introduces and repeats often, is that four factors must all be present to unlock the compounding advances of the modern economy.

  1. Property rights. For him this is the first and most important element. Basically, you need to be assured that you will be able to hold on to the results of your labor and your investments, and that neither the state nor private parties can take them from you without following well-established law.
  2. Scientific rationalism. Embracing an outlook that allows for dissent, looks to advance knowledge via empirical experimentation rather than deductive reasoning, shares the results of science, builds on previous results and remains willing to question and throw out previously accepted ideas that are proven false.
  3. Capital markets. To start new businesses or expand operations, entrepreneurs need to be able to access money, in sufficient quantities and at reasonable enough rates. On the other side, holders of capital need to trust that they will stand to gain by loaning out their money, rather than keeping it sewn into their socks or mattresses.
  4. Rapid communication of ideas and movement of goods. The most awkwardly-phrased of the four pillars, this mostly boils down to "the telegraph and the steam engine". The former greatly facilitates collaboration, which enables larger-scale and more efficient planning. The latter greatly expands markets, allowing goods to be sold far away from their point of manufacture, and supplies to be sourced from far away as well.

Going into these a bit more:

I've been feeling a bit down on property rights lately, and this book was a good reminder of the arguments in their favor. (More broadly, I think most of my economic readings of the last 10+ years have been arguments against economic liberalism, and I think I'm well overdue to actually read an argument in its favor.) Going back to that period from 0-1000 where there was no growth: during this time, the vast majority of Europeans were serfs living in feudal regions. Under feudalism, there really is no concept of private property or ownership: your entire self, body and labor and land and production, belongs to your liege; your liege, in turn, belongs to his superior, and so on. As a serf, your lord will come by and take almost all of your production, leaving you only enough to live and continue producing. Now, if you were a very motivated serf, you could work a lot harder and a lot smarter and maybe find a way to double your yield: but it wouldn't really matter, the lord would still take all of your additional production and still leave you with the minimum required for subsistence. So why would you want to put in all that extra effort? Multiply that decision-making by the entire population of Europe, and you have a good understanding why there was no growth.

Property rights are closely bound together with a bunch of other concepts, including civil liberties (basically a property right over yourself), the legal system, and, interestingly, separation of powers. If the executive is the judiciary, then any action that the lord takes is legal: your property rights are only as strong as your relationship with the current king. Having a separate judiciary seems like a technicality, but actually is huge: it's an entity that can say "No" to your lord, or the king, or the President or whatever. This devolves true ownership of property from the king and the state to the individual.

Property rights doesn't necessarily mean that you get to enjoy uninterrupted use of your property in perpetuity: for example, if you fail to pay someone else what you owe them, you may be forced to sell some property to make them whole. But the key is that this is a legal process, with well-defined rules that are well-known in advance.

The upshot of all this is creating an incentive to generate more wealth. If you feel secure that you will get to enjoy the fruits of increased labor or a brilliant new invention, then you'll be motivated to take those steps. And that will eventually benefit all of society: you will then be able to buy more goods and services from others, or show others a more efficient way of doing things that will then allow them to increase their own productivity and create more wealth.

Next up, science! I found myself thinking of Ryan North's "How To Invent Everything" often while reading this book. Most of our technological advances are things that seem trivial and simple in retrospect; if you already know how something works, it's very easy to recreate it. But in practice, it often took a thousand years or more for a thing to be invented after all of its pieces were available. Why did it take so long? In Bernstein's view, the main issue is the historical lack of a system for discovering new knowledge and propagating the results. More specifically, we needed to embrace an empirical system that can be experimented on and proved, rather than lofty intellectual arguments that didn't need to be based in reality.

A secondary aspect has to do with the intellectual culture that surrounds potential innovators. If you know that your discoveries may cause you to be denounced by the church and burned alive at the stake, you're extremely unlikely to pursue those discoveries, and even less likely to share what you've found. Much like how the feudal attitude towards property kept the masses of serfs from improving their land and work, feudal dogma from the medieval Catholic Church locked up potential advances in European sciences for a millennium.

There's a bit of a dovetailing between science and property in the form of patents. Patents are a creation of law that confer a temporary monopoly to the creator in exchange for a thorough explanation of how their invention works. Patents replaced the old secretive guild-based systems, in which knowledge was jealously guarded, unavailable for outside improvement, and could be lost altogether - in one of the most startling anecdotes, the Romans knew how to make concrete, but that knowledge was lost during the Dark Ages, again for nearly a thousand years. Patents also replaced the old granting of monopolies, which were typically issued by monarchs for the benefit of a favored group of merchants: these monopolies created wealth for the monarch and the clique, but at the strict detriment of everyone else, and were a net destroyer of value. In contrast, patents generate entirely new value, and open the doors to future innovations in the future.

Here, I found myself thinking a lot of "The Code of Capital" by Katarina Pistor, as I think these two books use slightly different vantage points to describe the same history and outcome. Patents were a creation of the English legal system, are friendly towards private parties, and allowed Britain and then the US to significantly grow their wealth. It's a bit of magic, how the mere "idea" of a patent didn't exist, and then did exist, and brought a whole new major source of wealth along with it.

Moving on, capital markets are the third major component Bernstein demands of modern wealth-generating economies. A tantalizing question he asks is why Leonardo's helicopters never were produced. The concept seems solid, and there were materials around to make at least a primitive version of it. I don't think Bernestein ever directly answers the question, but capital markets seem like a major explanation. To bring helicopters from sketched doodles and diagrams to real working contraptions takes a lot of effort and a lot of money: experimenting, prototyping, developing, manufacturing and selling. Leonardo himself definitely didn't have the money to fund all that, and even if he did, he would understandably have balked at risking his entire fortune. He was connected with wealthy families in Florence and Milan, but again, the costs and risks were more than a single individual could bear, and there weren't yet the widespread risk-sharing instruments available for shared investments.

Much like the scientific method, capital markets need both the technical presence of a thing, as well as a broader cultural embrace of it. It's one thing to know how science works, and another to feel safe pursuing new ideas. Likewise, it's one thing (and not a small thing!) to have banks available that take in deposits, pay interest, loan out capital and charge interest. It's another thing to have banks that are trusted enough by the citizens to entrust their hard-earned life savings with them. In countries with low levels of corruption and long histories of financial safety, a large share of a country's wealth will be placed within institutions that can put that money to use in growing the economy. In other countries, such as France in the 18th century or many developing nations today, people will be far more likely to keep their money in household safes or buried in the back yard, thus preserving their value but denying the utility of growth.

Like many other elements in this book, capital markets form a virtuous circle: as they grow more trusted, people will place more wealth in them, which will generate more wealth in the national economy, which makes more wealth available for investment, which can further grow the economy, and so on. Now that I'm writing this, I realize that it's just another way of expressing Piketty's formula about the increasing share of the national income going to the owners of capital, but told from the perspective of the investor. So long as the additional investment unlocks growth in the economy greater than the rate of return, the total growth will cause the proportionate share going to capital to shrink; but if (e.g.) a 4% rate of return on capital is matched with a 2% per-capita growth rate, then while the economy will continue to grow, it will increasingly benefit the existing holders of wealth at the expense of others.

Anyways - how does that virtuous cycle get started? Bernstein argues that it's initiated by the state through the issuance of national bonds, like England used to fund its wars. The government is the ultimately reliable backstop of value: if the government isn't in good enough shape to pay its bonds, then as a citizen you're screwed anyways.  So people with excess wealth put that money to work by funding their government, experience passive income, and become familiar with the concepts of bonds. Once this is in place, local governments and large private enterprises can likewise begin issuing bonds. Being riskier, they'll offer higher interest rates, and an increasingly informed public can begin funding them. While Bernstein doesn't draw this line, it makes me think of Alexander Hamilton's genius in nationalizing the debt from the Revolutionary War: at a time when everyone else saw the debt as a troublesome burden, he had read enough economic texts to understand that the national debt would begin establishing creditworthiness for the US, and create a sort of financial umbrella that would facilitate the creation of capital markets on this side of the Atlantic.

Finally, there's rapid communications and transportation. I kind of threw up my hands at this point: why not just have 5 things instead of 4 things where the last one has an "and" in the name? Near the end of the book he tosses in the generation of energy as well. Overall, these things are kind of the magical ingredients that lead to a critical mass of positive developments that cause a self-reinforcing process of growth to occur.

I found it more helpful to think of this last point in specifics rather than generalities. Property rights and science are all that you need to come up with a good invention that will increase productivity and generate economic growth. Capital markets will allow you to get the funds to make that thing. And... then what? Prior to the creation of the telegraph, most people were only aware of things that were happening within their town or within about a day's ride of it. And before the creation of railroads, most people were born, lived and died within a short distance: long-distance travel of people or goods was extremely hazardous. So, even if you did manage to manufacture a cool new invention, you would maybe only enrich the lives of the 5000 or so people living in your town. With the telegraph, though, you could tell everyone about it, learn which markets were demanding your product, and communicate with local agents to source materials or deliver goods to places where you'd never go. And the railroads could ship more materials to you to ramp up production, and cart away manufactured goods for sale.

Bernstein is very insistent that all four ("four") elements are required in order to make a wealth-producing economy. In England and the US, the first three of them (property rights, scientific method, and capital markets) were available early on, and once those new technologies became available, they took off. (In an interesting sidebar, he claims that the Netherlands actually got a head start on it, as their capital markets were even better developed than those of Britain; they didn't yet have the steam engine, but were blessed with a geography that was compact and had lots of navigable waterways, which for most of history were far faster than travel by horse.) Because those inventions were the catalyst for the Industrial Revolution, modern economists and policy-makers have tended to believe that the key to improving a developing economy is to introduce these inventions and improve their infrastructure. But to Bernstein, these tools are insufficient on their own. If you're a communist or absolutist dictatorship that doesn't respect private property rights, then your citizens will not voluntarily toil to improve their lot in life and grow the economy. If you're a fundamentalist tribal society that values inherited religious wisdom over the cacophonous seeking of science, then your citizens will be unwilling or unable to engage with the rising tide of technology and make their own discoveries. And if your citizens stash their savings in their socks or in overseas bank accounts because they don't trust domestic financial institutions, then any profits from enterprises will flow to foreigners instead of citizens, causing newly-generated wealth to instantly evaporate from your soil.

The end prognosis is as clear as it is grim: becoming a "modern" wealthy society is more a matter of history and culture - vibes, if you will - than following a development plan or importing a certain set of technical and legal institutions. The reason why the West is on top of the world is because it lucked out centuries ago in developing a certain set of home-grown institutions. There's nothing about those institutions that's intrinsically tied to our bodies or our soil, but they also aren't something that can be flipped on at will. It will take generations for these institutions to fully take root, in an organic, fully-embraced way. But once they do, nothing will stop those other countries from enjoying the same growth and, eventually, surpassing Europe and the US.

This book was written in 2003, and one of the most striking and infuriating aspects of it was just how clearly Bernstein knew that George W. Bush's project to export American-style democracy to Iraq and Afghanistan was doomed. And this was written during the heyday of "shock and awe", long before the insurgency started. Bernstein confidently wrote that this was going to be an expensive disaster, a hopeless experiment, that no matter how much money we poured into these countries we wouldn't be able to turn them into Western-style democracies or shift their economies from resource-exploitation to manufacturing and service jobs. Anyways, it's really depressing to see Bernstein get this so right when the vast majority of our elected officials got it wrong. Watching the fall of Kabul nearly 20 years after he wrote this is really humbling; and, in many ways, can be explained through his lens. Why didn't the Afghans fight to stay in power? Well, why would they? Without a sense of ownership and a stake in the success of their country, there was really no rational reason to risk their lives.

One of the more provocative arguments Bernstein makes is that wealth produces democracies, and not the other way around. For the last 75 years or so, the more-or-less consistent message of the First World has been to encourage developing countries to create systems of representative government, with the thinking being that this will minimize corruption, help untap free-market forces within the country, encourage development and lead to an increase in posterity. From Bernstein's view, this is backwards: historically, political power has devolved in response to economic power devolving. The Magna Carta was signed after King John needed military and financial resources from his vassals. Parliament was empowered after the merchant class became wealthy and influential. The voting franchise was expanded after the economy shifted to industrial and service jobs. And so on. That's a surprisingly Marxist view of the interplay between economic and political power! In Bernstein's explanation, again, it all comes back to property rights: there needs to be enough wealth to be worth protecting, and then that wealth needs to receive legal assurances of durability; this will produce a sizable class of citizens who are invested in the long-term success of the country and will work to protect and expand it, and eventually will have the motivation and power to demand more say in how it is governed. Bernstein feels much better about the long-term prospects for democracy in a monarchy that assures private property rights than he does in a populist democracy can redistribute property at will. Again, this is a very different perspective than most of the other books I've been reading lately! But well-argued and a good perspective to understand.

I had a kind of hard time following Bernstein's politics while reading the book. He's obviously very focused on private ownership of property, and he frequently rails against socialism and communism. And yet he equally heaps scorn upon libertarians: he absolutely sees a role for government in establishing rules and ensuring everyone plays fairly, and like Piketty he sees value in increasing national tax receipts up to a certain level. In the last few chapters of the book, he abruptly shifts into asking the (very important!) question "What does this matter?". More specifically, does increasing wealth making us happier? Following a data-driven approach, he sees only a loose correlation between happiness and wealth at the national level: residents of very wealthy countries have a general tendency to be happier than residents of poorer countries, but it's only a rule of thumb, and lots of poorer countries report better well-being than richer countries (for example, Columbians are poorer but happier than Spaniards). But, within a country a person's relative wealth has a huge impact on their happiness. The people who are at the top 1% of a country's wealth and income distribution are significantly happier than those at the bottom 10%, and the size of that gap corresponds strongly to the level of misery. In Northern European countries with small gaps between rich and poor, everyone tends to be happier than in England, the US and other countries with larger gaps. And the source of this research that Bernstein cites? None other than Thomas Piketty and Emmanuel Saez! I gasped when I saw them, much like Nick Fury showing up in the final chapter of a Marvel movie.

The end of the book was honestly a bit of a whirlwind: after spending most of the pages explicitly defending the sacralization of private property, Bernstein shifts towards arguing for high tax rates on the richest people, redistributing wealth via transfer payments to the very poor. I didn't see that twist coming! He has some opinions on how best to do this. He's rather skeptical of funding social programs, like subsidizing higher education or health care, due to the "deadweight loss" of value: the dollar price of providing e.g. health care in America is greater than the value a consumer would assign to it. He never uses the phrase "universal basic income", but I think he's advocating for something closer to that, just straight-up taking dollars from rich people and giving dollars to poor people.

He acknowledges that higher rates of taxation and transfers of wealth will have a negative impact on overall wealth creation and economic efficiency; it removes some incentive to grow wealth at the highest levels since innovators won't retain as much of their income, and may similarly remove some incentives at the lower levels if people are sufficiently comfortable without working very hard. But he still thinks it's a good idea for several reasons. First, it helps with overall happiness, which at the end of the day is more important than money. And relatedly, it also improves social cohesion: people who are desperately poor and hungry are far more likely to steal than those who have their essential needs met. You could have a highly unequal society with a few very rich people surrounded by massive slums of very poor people; but such a society would also need lots of policemen, high walls, private security, and other ongoing costs to defend that wealth. In contrast, a more egalitarian society doesn't need to spend as much of its wealth on maintaining internal security from its own citizens.

Or, to put it another way: Bernstein, like Piketty and Pistor and Elizabeth Warren and others, doesn't see unfettered capitalism leading to an eternity of inequality; rather, they see unfettered capitalism as bringing about the downfall of capitalism, when the miserable masses have finally had enough and rise up in violent revolt against a system that has treated them poorly. All of them ultimately see capitalism as a machine that hums along and creates wealth that can benefit society, but that needs to be kept in check lest it destroy itself.

Ultimately, I think Bernstein falls squarely in the category of being a Social Democrat, while being vehemently opposed to Democratic Socialism; where most of us see a gradual continuum between the two, for him there's a very sharp line dividing them. In his view, it's absolutely necessary to reward inventors, entrepreneurs and investors, so it's desirable to have a society where some people are richer than others and where risk-takers receive greater benefits. "Socialism" crosses a red line into a world without private ownership, where people are expected to labor for an amorphous promise of uplifting society rather than concrete incentives of making a better life for themselves.

Adding a bunch of random thoughts here:

Reading this book felt a lot like reading Neal Stephenson. There's an ostensible central thread - why and how we changed from a world where the vast majority of people had a subsistence standard of living, and transformed to a world where many people share in an increasing amount of wealth. But it's surrounded and often overwhelmed with a ton of fascinating digressions and side-notes. Orbital mechanics! Farming techniques in the Attican hills of Greece! Calvinism! Intrigues of the Elizabethan court! With both Bernstein and Stephenson, you get the sense that they stumbled across something so interesting that they just couldn't help sticking it into their book, whether it belongs there or no. And there's a huge amount of overlap with The Baroque Cycle and this book, dealing with the creation of reliable specie currency, creation of the scientific method, and investments in long sea-voyages.

It was actually a bit stunning in just how many ways this book connected with other stuff I've read recently. "House of Morgan" was a fantastic concrete example of the creation and application of capital markets, and Bernstein name-checks Morgan as only investing in established technologies, due to the very high failure rate in new ventures. "Freedom & Necessity" occurred during the social upheaval of post-1820 as the existing social classes adapted to the new economy, and Bernstein's extensive quotations from Engels line up with his presentation in that novel as a businessman-slash-revolutionary. And ALSO I was amazed by all the detailed ways in which this book and Europa Universalis IV lined up with and commented on one another, down to details like how granting monopolies worked, why conquest-driven expansion can produce short-term power but leads to long-term economic decline, the ways in which trade-based economies differ from production-based mercantilist ones, and so on. Reading this book made me appreciate EU4 even more, and having played EU4 gave me a deeper appreciation of this book. EU4's institution-embracing gameplay pretty exactly covers the progression out of the Dark Ages through the renaissance and development of property rights, science and trade, and ends in 1821, exactly when Bernstein's modern world kicks off. That makes me want to play Victoria even more!

As I noted before, this book also dovetails nicely with Pistor's "Code of Capital". Very briefly, Piketty notes how much additional wealth has been created in entirely new categories that didn't even exist centuries ago (copyrights, patents, financial instruments, etc.). Pistor covers how those categories were created, describing the common-law process of private-sphere contracts that endow certain intangible assets with the public protection of property rights. Bernstein more vigorously argues for why it's actually a good thing that more of our wealth is in these new categories, and does so rather persuasively. Prior to the 20th century, most wealth was in the form of agricultural land. The problem with this is that it isn't very scalable at all. Obviously, there's only a finite amount of land on the face of the planet, and all the good land is taken already. If society is going to grow, we need to bring more farmland into production; but because all the good land is taken, that will either mean enormous expense at reclaiming new land (as the Dutch did), or else bringing marginal land into production (irrigating deserts, planting in places with shorter growing seasons, etc.). Increasing investment leads to diminishing returns as worse and worse land gets brought into use.

In contrast, once we shifted to an industrial economy, we had much lower marginal costs. Building a second factory costs about as much as building the first, and may even be slightly cheaper if you already have plans and know-how. If you start with 1000 workers, and later expand to 2000 workers, you'll probably roughly double your output: the second batch of workers will likely be about as good as the first ones. And in fact, there may be some small improvements in productivity and returns: training 2000 workers costs less per worker than training 1000 workers does. So (making up numbers here), while doubling farming profits might require farming 3x or 4x as much land, doubling industrial profits just requires about double the investment, leading to a much more scalable economy that can continue to grow.

Bernstein sees even more promise for the more recent forms of capital, particularly digital copyrights and software patents. Without any physical product to manufacture or replicate, your marginal costs are zero, or close to it: it costs Larian about as much to sell 10,000 copies of Baldur's Gate 3 as it does for them to sell 10,000,000 copies of it. There are no supply shortages to be concerned with: you can produce more at will, scaling up to meet demand instantly. This has the potential to lead to even greater growth than industrial and service jobs. Not infinite exponential growth - you're still ultimately limited by the number of people on the planet and the money they have - but far faster growth and far fewer limits than in the past.

While for the most part I loved this book and found many of its arguments strong, there were certainly parts where the author's enthusiasm and belief seemed to outrun the data. For much of the first 2/3 of the book, he'll be making some argument and say "We'll cover this in more detail in [a later chapter]". In the last third of the book, he turns to a lot of contemporary research and raw data (from surveys, old national records, studies, etc.) to try and prove correlations between things. Often times this takes the form of a very noisy scatter-plot with a trendline drawn in. Beneath one he'll mention "there's a lot of variance here, so it's a weak relationship between [X and Y], just moving from 0-2% between the extremes". But the immediately preceding scatter-plot will look equally messy, and have a trend line moving from -1% to +1%, and yet have been claimed as definitive proof of a strong correlation. I look at these sorts of arguments with extreme skepticism: it's very likely that some other factor better explains the correlation, or, even more likely, that it's a complex multiplicity of factors, nay, individual histories, and there are strong limits on what sort of universal truths we can derive.

From the opposite angle, while Bernstein makes an eloquent and passionate case for the primacy of empiricism over deduction, he does periodically lapse into deductive arguments. He'll write something like, "Unfortunately we don't have good records of the size of the economy in Britain during the 15th century, but we know that it grew by about 0.1% annually, because the population of London grew by about that amount over that time." Um, no: the correlation between population density and economic development is a theory that your book is trying to argue, you can't use that same theory to infer a fact!

Overall, I found this a really impressive book. I think that 25-year-old me would have thought it was the most amazing book ever: ambitious, sprawling, persuasive, fascinating, touching on technology and science and warfare and money and politics in one heady stew. Middle-aged me is sorting this somewhere in my much-expanded mental bookshelf, shoving over some Piketty books to make room for this one, mulling whether to move it to a new shelf or rearrange my other tomes. There's a lot to nerd out on, a lot to chew on, and a lot to enjoy about this book.

Friday, September 01, 2023

Baldur's Gate 3: Everyone Is Still Evil

Whelp, I've gone and done it: started playing Baldur's Gate 3! I'm loving it so far and can tell this will be another nice big meaty game to dig my teeth into. So far I've played for maybe a dozen hours or so; it's a little hard to tell because I now realize that Steam is (sensibly) including the time I played the Early Access game three years ago.


So far, this seems to be very similar to the Early Access experience: I haven't noticed any changes in the plot so far and only minor additions to the characters. But it's definitely a lot more polished and enjoyable. For example, you can actually disarm traps now! The animated cut-scenes are also a lot less janky; they still don't really look like a AAA game, but have a nice Dragon Age: Origins level of polish, which is plenty for me. 



A lot of my current thoughts line up with my initial post from early access. Recapping those briefly:

  • This feels more like Divinity: Original Sin 3 than like Baldur's Gate 3.

  • That isn't a bad thing! Divinity was a great game, and I'm loving the strategic combat (no trash fights), good use of the environment (e.g., traps are driven by physics rather than just triggered by entering an area), exploration, and subtle sense of humor.

  • Combat isn't as tightly tuned as D:OS, but, again, individual encounters tend to be more fun and rewarding than individual encounters in BG.

  • Party members still love walking over discovered traps. This game badly needs an option to automatically stop party movement when a trap is detected; I think every other modern RPG I've played recently has had that option, and I keenly feel its absence here.

Some technical improvements I've noticed from early access:

  • I still hate inventory management, but at least they've added powerful sorting options to the inventory (sort by latest, sort by weight, etc.), which helps a ton. They've also added a Search option, which is awesome! The only thing that would be better would be not having an inventory at all!
  • You can now select genitalia for your character! And they've further split up the male/female categorization. I think this is the most genderqueer-friendly game I've played: facial hair, genitals, chests and voices are all freely mix-and-matchable. It's a little thing, but I like how when you select a voice, it alternates between masculine and feminine voices, instead of having them all grouped together or defaulting based on your preferred form of address.


While the high-level plot seems to still be the same, my experience so far has been very different, mostly because I'm playing as a new PC. Instead of playing as a Tiefling... Cleric, maybe? it's been a while... I'm playing as a (Seldarine) Drow Bard. This is drastically changing my experience playing through the game. The Tiefling refugees react to me with a lot of fear and dread, while the goblins react to me with... well, fear and dread, but helpful fear and dread. Whereas before they came at me with a lot of aggression and challenging persuasion rolls, now when a goblin sees me they're always like, "Oh, dreaded mistress! I cower before you in my abject despair! Please tell me how your lowly servant can be of use to you, my dark master!" It's really funny and enjoyable.


I've avoided reading reviews, but one thing I have seen noted about this game is its high level of reactivity. My drow experiences are great, but not unique: apparently, everyone gets a lot of custom reactions and dialogue based on their race, class, decisions, and other levers.


Oh, yeah: playing as a Bard opens up a lot of fun stuff as well. I chose Bard in large part because I wanted to be the party spokeswoman, so that synergized with high Charisma and bonuses to Persuasion, Deception and similar conversational rolls. But there's also a lot of straight-up [Bard] dialogue options. A lot of these bypass conversation rolls altogether, which ironically de-values some of the mechanical advantages of being a Bard. But anyways, they're a blast: you might start singing a limerick to fluster an ancient evil guardian, or sing an inspiring song to lift the spirits of a dejected warrior. I'm sure that other classes get similar advantages as well, but I'm loving the Bard experience.



I've reached level 4. I took the College of Lore specialization at level 3, and am serving as a substitute Thief as well as my primary role of talker. There's a slight annoyance at this specialization - 5E D&D rules say that you should be able to pick any extra 3 proficiencies, and apparently that was implemented in earlier builds of BG3, but in the public release it's hard-coded to always pick Sleight of Hand, Intimidation, and Arcana (!). Proficiencies don't stack, so any duplicates from character creation are wasted. That's a bit of a bummer, but I'm hoping they'll fix it in the upcoming patch, and then I can make use of the in-game respec option to take the proficiencies I actually want. 


(Update: In the time between when I drafted this post and when I published it, Larian released Patch 1, which does, indeed, fix this bug! Hooray for Larian!)

Anyways - I'm currently mostly focused in CHA and secondarily in DEX. INT is my main dump stat, and I do like the roleplaying aspect of being a very good-natured and likeable but dumb person. I was initially planning on dumping WIS as well, but Perception rolls are very useful in the game: unlike most skill checks where you just want one party member with a high value, for Perception everyone's roll is potentially useful. And there are a lot of WIS saving throws, which protect against nasty effects.


My CON is pretty decent; I plan to mostly fight from range, but I'm pretty decent with a rapier, and a handful of useful Bard abilities require being in melee range (including a nice destabilizing attack that can be done as a Bonus Action), so it's good to be able to take a couple of hits. STR isn't very important for me since I can Finesse my melee weapons, but it is a nice quality-of-life for carrying loot and performing my favorite action in the entire game: Shoving enemies off of very high places.

In combat, I typically try to get to high ground and snipe enemies from a distance with my crossbow, but I'll sometimes move in close to Threaten enemies or draw their attention from vulnerable teammates. All of my spell picks so far have been for out-of-combat utility: Talk with Animals, Friends, Detect Thoughts and so on. I'm honestly not using them a whole lot, except for Talk with Animals, so I may shift some of them into buffs or offensive abilities.

My main party at the moment consists of La'zel, Shadowheart, and Gale. La'zel is mostly used for melee combat but is also very effective at range when I'm dealing with exploding enemies or other people I don't want to get too close to. She hates me! I haven't found any ranged weapons yet that Shadowheart can use. I'm mostly using her ranged cantrips, but sometimes bringing her to the frontline. Her buffs are useful, but at this low level she doesn't get many casts per day, so I don't get to use her magic a lot. I'm thinking of shifting away from Concentration spells and focusing on buffs that last until the next Long Rest. Finally, I'm mostly using Gale as a ranged AOE damage dealer: I had him take the Evoker specialization, which includes a really nice ability that prevents friendly fire from Evocation spells, which in turn lets him cast with abandon. He also gets a lot of utility out of disabling spells like Sleep. I recall Grease being really useful during Early Access but haven't used it much in this playthrough. I'm hoping to load him up with more utility spells in the future, especially to clear out environmental hazards.


Gale's storyline is the biggest difference I've noticed so far from Early Access. I remember La'zel's hunt for the creche and Shadowheart's relationship with Shar, but I don't remember Gale talking about his peculiar condition. I suspect that was added to the game between then and now, but it's possible that I just missed whatever trigger causes him to open up about that. I vaguely remember Gale being the one person in the party who's just generally nice and enjoys doing good things, so it's cool to have a complication to the character now that isn't just "he's secretly evil". I'm still very early in this storyline and very curious where it will lead; so far I'm getting the impression that this is some form of an addiction, and Gale's personality does remind me a lot of some other addicts: very charming and persuasive, which may serve to hide or support the addiction.



I'm still very early in the storyline, not having reached the Goblin camp yet. So far I'm basically making the same decisions and alliances as I did in Early Access. For better and for worse, the morality system in this game seems more in line with classic Baldur's Gate than with more modern and nuanced systems like Mass Effect and Dragon Age. The "Evil" choices feel very evil, while the "Good" choices are more like the defaults - being good doesn't require truly sacrificing anything important, just behaving decently towards people and protecting them from harm. I think it's cool that the game provides these choices and that players can choose to go down other paths, but personally I never really find it enjoyable to take these kind of cartoonishly evil decisions.



That said, from what I've seen so far there isn't a formal alignment system in the game: you don't create a character as being "Lawful Evil" or "Chaotic Neutral" or anything like that, and you don't see those labels slapped onto other party members. That's a good thing! Those rigid alignment descriptions have always bothered me, and I'm glad that at least the system isn't beholden to them, even if the writing so far seems to be.


I think that's is so far! Lots lots more game to come. I'll probably chime in again as I complete major Acts or something. Don't expect any Elden Ring updates in the meantime, but I am expecting to jump back into that once I finish this journey in Faerun.


Thursday, August 31, 2023

John Donne's Body

I received an unexpected book for my birthday: "Super-Infinite: The Transformations of John Donne", by Katherine Rundell. I'm slightly embarrassed to admit that, despite being an English Lit major, I wasn't completely sure just who John Donne was: I recognized the name, but I don't think I read anything by him in school, and couldn't even tell you what century he lived in.



Given that lack of understanding, this turned out to be the perfect book for me. It's kind of a mix of biography, literary criticism, collection and history. It's a relatively short book and itself is written really well, forcefully making claims and backing them up with vivid language.

The book is also pretty perfect for me because, it turns out, John Donne is mostly known as a poet, and I'm not very well versed in poetry - I admire poetry in the abstract, but have a really hard time connecting with it in practice. At first I thought this might be a collection of Donne's poems, and if that was the case I probably would have bounced off of it. Instead, Rundell introduces the context in which Donne was writing, shares brief stanzas of his writing, and cogently draws out what was so startling and refreshing about it.

Donne was a contemporary of Shakespeare; it isn't clear whether they ever actually met, but they definitely moved in the same circles of London, spanning the reigns of Elizabeth I through James and Charles. Shakespeare is mostly remembered for his plays but also wrote popular sonnets. Donne moved through several different phases of literature during his life. As a young man he wrote poetry; what you might call "love poetry", but even today it's weirdly raw, visceral, engorged, overflowing. At a time when most poets were singing the praises of their beloved in the most ethereal, spiritual way possible, Donne was focused on bodies, on sex, on desire and panting and ecstasy. And while his contemporaries were writing courtly verse with elegant meters and expected imagery ("Oh how my love / Is just like a dove"), Donne broke free of these staid forms, and used unexpected, attention-grabbing metaphors that haven't been used before or since. His poetry collected a lot of indignation and scolding from literary peers in his lifetime and after, but it also made a deep impression on people, lodging in their brains... the evidence of that being that folks are still reading about him over 400 years later!

Near the end of his life, Donne became, rather improbably, a preacher: Dr. Donne was appointed by James I to be the Dean of St. Paul's Cathedral in London, after a successful career preaching at other churches around London. It seems like quite a leap from an oversexed Catholic boy to a dogmatic Protestant man, but you can tell that it's the same person: in both mediums he was trying to communicate something important to his audience, and deploying terrific imagery and words to do so. His sermons were very popular; in one instance, three men were nearly trampled to death by the eagerness to see him. And much like his earlier verses were copied and passed around between friends, so his sermons were recorded and re-read over the coming week.

In between his early poetry and his late sermonizing, Donne led a very full life. He trained as a lawyer, and worked hard to try and work his way into the royal court, without ever really succeeding. He was thrown into prison after marrying the 17-year-old niece of his employer, then proceeded to have 12 kids with her over the next 16 years. He served in several military expeditions. He also did a lot of writing, including some very obtuse metaphysical treatises and a shocking defense of suicide.

Rundell obviously greatly admires Donne's writing, but she doesn't airbrush any of his imperfections. While his love of Anne seems to have been genuine and lasting, it was also fairly squicky, as they married when he was 30 and she was 17, and their marriage removed her from a life of comfort and support to one of poverty and almost constant pregnancy. John doesn't seem to have been a good father: he wasn't very present for his kids, and only mentioned them when they were born, when they died, or when they were especially annoying. Those of his kids who survived to adulthood seemed to have turned out poorly, variously convicted of manslaughter and embezzlement and other crimes.

I guess that's kind of the inevitable conclusion of a lot of literary/artistic biographies: "This person did some terrible things, but their art is still really great, and worth experiencing today." While Donne had faults, it does seem like, for the most part, he was honest: honestly grappling with God, with desire, with his personal ambitions for fame and money and comfort.

I was pleasantly surprised by how readable the Donne excerpts in this book are: I think they're closer to modern English than Shakespeare is. Part of that is because Donne was creating modern English: a lot of our words were first invented by him, as well as some of our best-known phrases ("No man is an island"). So, it turns out, I did known John Donne after all!

Monday, August 21, 2023

Freedom & Necessity & Revolutionaries

When I'm looking for something new to read, I have a few possible avenues to follow. The easiest is thinking of an author who I already enjoy and finding a book of theirs that I haven't read yet, either because it's their latest book or because I haven't exhausted their catalog yet. I also maintain a reading list spreadsheet; this is where I pop in books that are recommended to me in one way or another (personal recommendations, a positive review I stumble across online, a reference from some other piece of media, etc.). A recent source from the last couple of years has been a particular list from China Mieville, an author who I generally enjoy, and who has led me to quite a few enjoyable books from authors I otherwise wouldn't have read.


The latest entry from that list is "Freedom & Necessity" by Emma Bull and Steven Brust. I haven't read (or even heard about) either author before; from some extremely light online research, it looks like they usually write fantasy novels (separately). I went into this book completely cold, not knowing anything other than that China Mieville enjoyed it.


The first thing I noticed was the form: the novel mostly consists of a series of letters written between the major characters. Each person will usually recount some piece of action that recently occurred, but also include a lot of their personal reflections, references to previous experiences, and maybe some good-natured ribbing. Early on I would typically flip forward to find who signed the letter, then go back and read the whole thing. After a while, though, you get to know the voice of each author so well that this becomes unnecessary. Kitty is particularly easy to identify, with breathless run-on sentences spilling from her pen. Along with the letters we get occasional journal entries: Susan encrypts hers, while Richard does not. And there are a few articles from The Times which, apparently, are taken verbatim from the actual paper.

Unlike my initial assumption, this is not a work of fantasy, but rather of historical fiction. It's set in England during the 1840s, and while reading this novel I came to realize just how little I know about this period: well after the War of 1812 and long before the peak of the Empire, what was happening in England? There were quite a few times while reading this that I went over to Wikipedia to look up some reference and would swiftly go down a rabbit hole, swept up in the fascinating revolutionary movements of that era that I was completely ignorant of. For some reason I assumed that both authors are British, but I see now that they are American, and I think it's cool that they found and explored this period of history.

There were some parts early on when I thought that there might be some fantasy to this after all: Kitty writes about opening the gate and communicating with spirits, James speaks in an unrecognizable tongue. Much later in the book there are some other references to pagan-ish rites. The book itself seems resolutely realistic, though. Characters are interested in mysticism because people of that era were interested in mysticism, not because mysticism is real within the context of the book.

So, what is the book about? It's pretty hard to tell for quite a while! I honestly had a bit of a hard time getting into it. The letters-writing mechanic isn't my favorite, and the plot is so vague and for quite a long time that it's hard to hold on to anything in particular. There's a general sense that something is afoot and various events that seem to be evidence of some form of conspiracy, and that sense of foreboding looms over a lot of the book before you start getting clarity. Which isn't necessarily a bad thing: most of my favorite fiction of these days are from writers like Bolano who specialize in ominous-but-vague writing. The old-fashioned language may have been an issue as well; the book uses modern spelling, but the pacing and writing is a lot like the contemporary Austen and Bronte novels.


Once you do get to the actual plot, though, I found it really compelling. There are a lot of different threads in play, but the most exciting one revolves around the Chartist movement. I'd never heard of this before, but it was a working-class political movement in England and Ireland that was agitating for a more democratic system. That included demands like universal male suffrage, salaried members of Parliament (so people who weren't independently wealthy could afford to serve), proportional representation, and so on. Today all of those demands have been implemented and they sound innocuous, but at the time it was seen as a dangerous, treasonous, revolutionary sentiment, and the Chartists were brutally suppressed, with many leaders thrown into prison or killed by the state.

One of the main characters, James, has been an undercover Chartist for years. Like all of the other main characters, he was born into the aristocracy, but he sees it as corrupt and wants to overthrow (or at least reform) it. One of the tricky things about the book is that James is coming from a life of deceit, and so a lot of the information we get from his letters (or that others record him saying) isn't accurate. It takes a while for us to get a clearer picture of what's actually been happening.

While not a key part of the plot, one of the most enjoyable elements of the book is the inclusion of Friedrich Engels and Karl Marx as supporting characters. We barely see Marx at all, but Engels is a great presence: warm, helpful, challenging, curious, bright, passionate. You get a sense that "fellow travelers" existed long before that term existed; Engels is following his own program, but sees the kindred spirits in Chartism and wishes them well.

The big revelation near the end of the book is that, rather than trying to untangle a single big elaborate conspiracy, they've actually been facing something like three or four separate conspiracies, all after them but for different reasons, and competing with one another as well. That was a pretty clever reveal; it makes things even more complicated, but that feels appropriate to what the book is trying to do.

The core political conspiracy has to do with the Prussian government stoking a false-flag operation that will cause the British government to crack down on the community of Continental leftist exiles living in England at this time, eliminating the threat to stability that they pose. There's also a set of personal conspiracies revolving around James, the son of Andrew Cobham: Andrew is a wealthy and powerful man in society, and we learn that he also leads the Trotters Club, a secret society organized around ritual murder. There's a three-way struggle within the club: Andrew wants to keep control of the club and eliminate James, his bastard son and a living embodiment of Andrew's shame; Allan Tournier is a longtime foe of James who also joined the Chartists but has been informing on the organization, and now seeks to kill Andrew and James and deliver the Chartists to the government, so he can be rewarded with leadership of the Trotters as well as receiving the old family estate; and Allan's sister has arranged to get impregnated by James and wants her unborn son to inherit the estate.

It was kind of satisfying to have all these threads finally out in the open and start to draw closer near the end; the flip side was that the novel becomes "The James Show" near the end, with everything being about the character I liked the least. Kitty has the most compelling voice but is almost completely missing from action; Richard is incredibly likeable but is in exile in the Continent for much of the last third of the book, and only appearing to back up James at the end; Susan is great, and does have some really wonderful lovemaking scenes with James, but (her great feminist words notwithstanding) by the end she seems to mostly serve as a window to show us more of James. James himself does change by the end: he's more trusting, less cynical, has a reinvigorated sense of purpose and destiny, while keeping his lifelong determination; but, I dunno, I just didn't like him all that much.


Even though it wasn't completely my cup of tea, I did enjoy this book, and liked it a lot more the further I got into it, as I got more used to the language and could wrap my arms around some of the plot. I am pretty curious about exactly how it was written: my assumption would be that Emma wrote the parts that came from the women's perspective and Steven the parts from the men's, but I wouldn't be shocked to learn that they did it differently.

Looking back, it seems like the 90s may have been the peak time for collaborative novels. When I was growing up I loved the (age-inappropriate) Thieves World books, a shared-world setting with a bunch of different authors contributing stories that used each others' characters. Terry Pratchett and Neil Gaiman's Good Omens came out in 1990 and might be my favorite collaborative novel ever. Freedom & Necessity was published in 1997. I'm sure that people are still co-writing spec-fic novels, but off the top of my head I can't think of one I've read from the last decade. Which definitely could say more about me than about the publishing industry! But it is interesting that in an age where it's so easy to collaborate with one another (both technically, through sharing editable documents rather than mailing manuscripts, as well as through the many tools available for instant communication over long distances), we don't seem to have experienced a corresponding explosion in collaborative works of fiction.

Thursday, August 03, 2023


Phew! I just finished reading Ron Chernow's first book, the massive tome The House of Morgan. I checked it out from the library at the same time as two more reasonably-long books, and was amused to see that while the others were due on July 8th, HoM was automatically checked out until September 19 - I think it's cool that they would automatically give extra time for getting through it!



It's a fascinating book, and very well-written, so engrossing that I once completely missed my bus stop and had to loop all the way back around. It covers the history of the J. P. Morgan bank in its various manifestations, from a small American outpost in the City of London established early in the 1800s through its titanic presence at the turn of the century through its involvement in the scandals and malfeasance that came to characterize Wall Street in the 1980s. Chernow published this book in 1990 and it continues right up to that point, through the 1987 stock market crash and the presidency of George Bush. It has some aspects of a biography, but it's more of a biography of a dynasty than of an individual person. It's also a fantastic walk through history, especially compelling because it tells a coherent narrative story instead of needing to broadly cover everything that happened over those momentous 150 years.

I picked this up for a couple of reasons: I've highly enjoyed all of Chernow's other books I've read (biographies of Hamilton, Washington and Grant), and the financial thrust of this book seemed likely to align with my recent fascination / obsession with topics of wealth and inequality. To my surprise, for once I read a book and was not constantly cross-referencing it with ideas from Thomas Piketty. Instead, the book that most often came to mind was Matt Stoller's Goliath. Both books focus on roughly similar eras, from the start of industrialization through the present (although the "present" was three decades earlier for Chernow). It is really cool to see the same history through different perspectives. Chernow's book is a lot longer page-wise but its focus is narrower: primarily on the Morgan bank, and by extension the companies it did business with, which includes a lot of other competitive banks and railroads, but not many of the industrial and retail firms that Stoller pays attention to. Some of the people who towered in Stoller's book are barely mentioned here; one of the biggest examples is Andrew Mellon, who is a huge villain in Goliath but here is only fleetingly referenced as Hoover's secretary of the treasury. But they both have a lot to write about Louis Brandeis, and the creation of the Federal Reserve, and the various Congressional hearings of the first half of the 20th century, and how National City / Citibank is and always has been absolutely awful, and how Walter Wriston in particular is terrible, and so on.

The first 2/3 or so of the book reads like an anthology of biographies, covering the strong-willed men who started the Morgan empire and describing the world in which they operated; Chernow also does a great job at giving layman-level introductions to some key financial concepts, while keeping the focus resolutely on the human beings who execute those transactions and are affected by them. The story begins, oddly, not with a Morgan but with a Peabody: George Peabody, an American who relocated to London and became the de-facto representative for Americans seeking to raise money from the British. One of the biggest themes in this book is the shift in the flow of capital over this period of time. In the 1800s, the British were the world's richest empire and the biggest creditors, investing in projects around the world; the Americans were vibrant and developing upstarts, frequently in debt as they sought funds to build out their railroads, factories and other infrastructure. After the two World Wars, this orientation had shifted, with Wall Street the financial capital of the world and the place everyone went to raise capital, and Britain now playing a financially subservient role.

The genesis of this bank was having a foothold on both sides of the Atlantic, being able to vouch for the credit-worthiness of virtuous American projects, and acting as a clearinghouse for both lenders and borrowers. In particular this was what was known as a "merchant bank". Unlike a retail bank, which took deposits from individuals and small businesses (checking and savings accounts) and made loans (mortgages and small business loans), merchant banks only operated at the wholesale level, working with large companies and nations to raise large sums of money. They started off as financing mercantile operations such as long ship voyages, and evolved over time to exclusive providers for capital-intensive projects.

Peabody seems like a copy of Ebeneezer Scrooge. He was very miserly, and there are some great anecdotes about how this fabulously wealthy man would wait twenty minutes for a cheaper carriage to come by. Near the end of his life, he turned into a very generous philanthropist, giving away most of his fortune to care for the poor and other worthy causes.

Peabody never married (though he was very fond of prostitutes). He didn't want his bank to just vanish after he died, so he asked his American associates to recommend a partner to him, and they sent over Junius Morgan, a bright, serious and hard-working banker. Junius carefully analyzed the operation and agreed to join as a partner. Junius felt some bitter disappointment when Peabody gave away most of his capital rather than keep it in the bank, but carried on after his death, rebranding as J. S. Morgan. He opened another office on Wall Street and thus carried on bank business on both sides of the Atlantic axis, eventually bringing up his son Pierpoint Morgan to manage affairs in one hemisphere while he managed the other.

Chernow dips a lot into the psychology of the people in this story, which makes for very compelling reading, although I did find myself feeling curious about how confidently we can say what these individuals were thinking and feeling. In some ways, this weighty tome is a story of intergenerational neglect and trauma, a series of damaged men rising to powerful positions while carrying unrequited feelings. Junius seems to have had good intentions in raising his son, but, perhaps to compensate for their physical distance, was extremely controlling and micromanaging, constantly giving advice and orders on how much to chew his food, how to spend his day, how to talk to people and make friends, and so on. Perhaps in response to this, Pierpont became a very driven and cold individual, and seems like he would have been extremely unpleasant to meet: when he was done with a meeting, he would simply stare silently at his visitor until they got nervous and left. Pierpont was a fantastically skilled banker, but unlike his father, didn't get any joy or pleasure from banking; it seems like it was just an obligation to him (albeit an extremely lucrative one). Pierpont's biggest passions were the Church, collecting fine art, and having lots of mistresses.

Pierpont's relationship to his son Jack was almost the opposite of Junius's relationship to Pierpoint: Pierpont mostly ignored his boy and rarely shared his own feelings or acknowledged Jack's. Chernow sees this resulting in a vulnerability and sadness in Jack; he lacked his father's rough edges, as well as his confidence. Jack also wasn't especially passionate about banking: his own passion was for sailing. It's interesting to see how Junius's strong will carried on for many generations of Morgan men, even in the absence of true feelings for their profession.

The dramatic human elements are a strong part of the book and a big part of what kept me reading, but personally I was just as fascinated with the economic-historical parts. In the first half or so of the book, railroads loom over most of the activity: raising investments for railroads was by far the biggest focus of Peabody, Junius and Pierpont's careers. Railroads have also come up a lot in other books I've recently read about the 1800s, including histories of labor. I was a little surprised when Chernow confidently asserts that, due to the high fixed costs associated with railroads, they should have been funded as public utilities, and were only created as private enterprises because there were insufficient public resources. Chernow doesn't really back that up or explain why; that idea does sort of make sense to me but I don't think I've encountered it elsewhere.

A big theme of the Pierpont era has to do with efficiencies. As Chernow explains (and I've read elsewhere), lots of people were starting up railroads, which often traveled redundant routes and competed against one another. This lead to price wars and bankruptcies. Pierpont and his ilk hated inefficiencies, and their drive to consolidate seems as much of an aesthetic and philosophical objection as out of a desire for profit. It's wasteful to spent millions of dollars laying track that doesn't provide any advantage over the existing track, so Pierpont wanted the major players to join into cartels and work out their differences behind closed doors instead of competing in the market.

I don't remember Stoller spending a whole lot of time on the railroads in Goliath; he's much more interested in heavy industry, which the Morgans mostly eschewed until well into the 20th century. (Industries were very new at the time, used significantly less capital than railroads, and were much riskier.) I'd be curious to hear Stoller's thoughts on railroads, since he invariably values competition over consolidation, even publicly-owned consolidation. I've mulled over it a bit, and I think Stoller might still have preferred the wasteful status quo of the early Pierpont era: slashing rates was terrible for the owners of the railroads, and the banks and wealthy individuals who invested in the railroads, but those same low rates were a huge boon for users of the railroads, mostly small merchants and farmers. "Creative destruction" may have led to investors taking haircuts and lower ongoing prices. (The pains of consolidation are described by both Chernow and Stoller in the debacle of consolidated railroads slashing costs and safety measures, leading to widespread crashes and deaths and triggering nationwide recessions in their wake.)

Glass-Steagall has been on my mind lately, especially with this year's failure of Silicon Valley Bank, First Republic and Signature Bank. Glass-Steagall is a big presence in this book from the introduction. I kind of knowingly chucked in the first few pages when Chernow lays out his thesis: basically, banks used to be hugely powerful and influential in the 19th century when they controlled the flow of capital, heading empires that ruled over weak corporations. In the 20th century, though, Glass-Steagall neutered banks and corporations became the new goliaths, capable of funding their own expansion through retained earnings, and so today banks are once more serving at the whims of their customers rather than ruling them as their masters. "Ah," I chortled, "Little did Chernow know that by the end of the decade, Clinton would undo Glass-Steagall and banks would rise to once again become powerful and destructive forces in the economy!"

As I headed deep into the third section ("Casino"), though, I came to realize that Chernow and Stoller actually pretty much share the same thesis: that Glass-Steagall was neutered in spirit decades before it formally ended, and its repeal was more of a burial than a murder. Thanks to decisions made in the 1960s to relax rules around acquiring deposits (which Stoller calls "hot money" and Chernow calls "bought money"), banks regained their muscular power and their ability to reach far beyond traditional loading operations, into increasingly arcane and risky financial speculation.

And honestly, I think the last couple of chapters of the book sort of belie the claims made in the introduction. We see a world where Glass-Steagall is still technically the law of the land, but completely eviscerated: a few very narrow technical things still can't be done, but there are a dozen ways to do equivalent things, and everyone assumes a formal repeal is around the corner. I was really struck by how similar the lending crises of the 1980s are to the things that happened in 2000, 2008, 2023, etc. I've been conditioned to blame these crises on the repeal of Glass-Steagall, but this stuff was already happening decades earlier. Motivated by greed, and not feeling sufficient caution, banks plummet into disaster again and again.

Chernow points out a significant change from the pre-Glass-Steagall era to the modern one: governments are now larger, more muscular and effective than the banks, so unlike previous times they are capable of taking direct action and don't need to defer to the banks. But we also start seeing government bailouts, rescues from the risky decisions made by the banks. This feels like another form of co-opting, similar to the creation of the Federal Reserve, which both Chernow and Stoller convincingly portray as a Progressive initiative that was captured by the banks for their own uses. I think of 2008's financial crisis as being a watershed moment, the final nail in the New Deal's coffin: but it was exactly the same as the bailouts from Latin American defaults and other earlier activities, where banks threatened to bring down the economy unless they were rescued. Going back to Stoller, refusing to allow businesses to fail keeps them from acting well. We've created a world where they're strongly incentivized towards the riskiest possible legal strategies: if they profit, they'll reap enormous rewards, and if they fail, they won't suffer meaningful consequences. They get bailed out by threatening economic calamity if they go under, and the solution to that is to keep any institution from getting too big to fail, too powerful to say "No" to.

Chernow does have the marked advantage of not coming across as racist like Stoller does, though. Throughout the book he carefully notes the prejudices and blind spots of the generations of Morgans and later people who headed the bank; in some cases their antisemitism was perfunctory and clubby, other times it was deeply felt and vicious. Chernow recounts how the Morgans' anti-Catholic prejudice led them to spar with Koe Kennedy, and how antiquated their attitudes towards women were. Unlike Stoller, Chernow doesn't seem at all nostalgic for the days when mediocre WASP men ran the banks.

Like I mentioned before, I was kind of expecting more "Aha!" moments with Piketty's works than with Stoller's, since these days I seem to read everything through a Piketty lens. I think the difference might be because Piketty operates mostly at the micro level (what's happening with individuals) and the macro (entire countries), while House of Morgan and Goliath are both more focused on the middle level (companies and sectors). But where HoM does overlap with Piketty they seem to reinforce one another. In particular, the transformation from the 1800s to the 1900s is revealing. Previously, central governments had small tax bases and limited power in the economy, and later on they acquired money and power that shifted previously private functions into the public sphere. Piketty persuasively shows at the level of national accounts where, when and how this has happened, while Chernow gives some vivid, on-the-ground examples of this change, most especially in how economic crises have been handled.

Throughout the book, Chernow does a fantastic job at structuring the narrative. This could have been an unreadable slog, but he thematically groups stories into his major sections: he'll lay out the theme up front, tell the story, tie events back to the theme, and then move on. Things generally progress forward in time, but he'll follow one set of characters or a development through a period to its conclusion, then rewind a few years to tell another subplot. This occasionally feels slightly odd when jumping back in time across a major political event: you'll read one page discussing reconstruction after a World War, and then a few pages later you're back to events that occurred during that war. But it all reads well and is much better than the alternative of a rigid progression through time while simultaneously tracking a dozen actors. This gets even more true in the second half of the book: during Jack's time the bank evolves from the manifestation of one man's will into a collegial team of bright, talented, interesting men; eventually the singular bank shatters into several separate organizations, who first cooperate with one another but eventually turn into vicious competitors. Along the way the hereditary Morgans are nudged out, first as wealthy playboys who are merely token partners and eventually gone altogether. We're left with a revolving door of top executive leadership, and again, it's a huge testament to Chernow's writing skill that the story remains comprehensible at this point. He has a knack for quickly and vividly drawing a few characteristics for a new player, so we can make sense of the brief part of the story they're occupying.

Why are we reading a book about J. P. Morgan & Co in 1990 (or 2023)? I imagine a big reason people pull this book from the shelf is due to the centuries-long mystique of the Morgans as all-powerful manipulators of finance and politics. Particularly during the Progressive era, the Morgans in particular were often depicted as the shadowy power behind the throne, manipulating nations into profitable wars and inflicting misery to pad their profits. Chernow takes this reputation seriously, pulling back the curtain and exploring in what ways their reputation was accurate and in what way it wasn't. Much of this reputation was a natural consequence of Morgan secrecy, which in turn was a natural outcome of the nature of their business. Merchant banking inherently feels secretive since regular people can't interact with those banks: you couldn't walk in to a Morgan branch office with a paystub and open an account. Merchant banks only deal with companies, nations, and a handful of the wealthiest individuals in the world. Even within the elite world of merchant banking, Morgan always had a very outsized influence relative to the amount of capital it directly controlled. The reasons for this outsized influence (which I and nobody else call the "Morgan Bump") varied over time. Early on, Morgan was lucky to have footholds in both the City of London and on Wall Street, benefiting from connecting the two major sources of capital in the world. Later on its power came from strong personal connections between the bank's leaders and and government officials, central bankers, and the heads of major corporations: a Morgan could get the Secretary of the Treasury on the phone at a moment's notice, and could summon the heads of all the major banks and industries into his office, not because he had bribed these people but because he personally knew and worked with all of them.

Chernow shows how Morgan often used this unique power for good, stepping in to prevent or limit recessions that were caused by less cautious banks. There's a strong sense of noblesse oblige that colors the first 120 years or so of the bank: they make good money, and feel a social responsibility to keep the economic machine and the nation it resides within humming along as smoothly as possible. As the bank continued through the generations, its reputation grew and became its own source of power. Pierpont seems like an unlikeable and deeply unpleasant man, but he also always kept his word and dealt fairly and straightly with people. Almost nobody liked him, but everybody trusted him, and could count on how he would respond in a given situation. I was surprised to learn that Pierpont never negotiated: he would make or receive a single offer, it would be accepted or declined, and that would be the end of it. I tend to think of business leaders as being cunning negotiators and hagglers, but Pierpont was the ultimate take-it-or-leave-it guy, and in the end, that did more for his reputation and power than he would have won as a skilled haggler. He was feared but trusted.

A major concept that's introduced at the very beginning and continues through the end is the idea of the Gentleman Banker's Code. This is a certain unwritten but iron-clad code of conduct by which the merchant bankers in the City of London and Manhattan operated. The key principles were basically:

  • Your word is your bond. If you say you'll do something, you'll do it, whether there's a formal contract or not.
  • You serve your clients. Advise them fairly and act in their interest. Avoid any conflicts of interest, even if it means forgoing potential income.
  • The relationship between a banker and a client is seen as sacred. Banks won't poach other banks' clients, any more than they would pursue another man's wife. If an existing client wishes to move to a new bank, the new bank will seek the first bank's approval before accepting.

Chernow repeatedly uses the phrase "golden handcuffs" to describe the relationship between a bank and its client. For much of history, this was seen as a symbiotic relationship: the company could share its deepest secrets with the bank, without fear that the bank would exploit it. The client could count on the bank to raise the capital it needed. In return, that client provided a lot of money to the bank, often in the form of keeping large deposits in the bank that bore no interest.

Between banks, there was a sort of high-level maneuvering, but competition tended to be very abstract and obscure. A gentleman banker would never dream of "stealing" another bank's client by offering lower fees or better interest rates. Banks as a whole were definitely a cartel, quietly colluding to keep fees high and their clients content. There was definitely competition between banks, but it had more to do with actions they took in the real economy, what sectors and regions they invested in, what new business they sought out and nurtured, as opposed to directly opposing one another. Again, you can see why this spawned so many conspiracy theories about banks, many of which were quite reasonable.

It's an interesting thought experiment to imagine whether we'd be better off today if the Gentleman Banker's Code was still around. Ending it diminished the power of banks (probably good) and cut into their profit margins (also good), but led them to take increasingly reckless risks that could bring down the economy (very very bad). Individual clients as a whole are getting a much better deal today, keeping more of their money working for them and having more options as a result of the competition for business; but it feels like the economy as a whole is shakier now that everything is transactional rather than reputational.

I'm reminded of a comment that the Federal Reserve made to Morgan in the 1960s, essentially "It's OK if you do this, but not if other banks do, so we can't let you do it." Morgan was, to its credit, a conservative bank up until the 1970s or so. Banking used to be managed by norms and culture. "We do first-class business in a first-class way" is not just a catchy slogan, but how generations of Morgan men defined their purpose and existence, and that North star kept their banks on a generally reliable course.

Norms and culture mostly worked, but definitely had problems: less scrupulous institutions could flout the unwritten rules and create major damage, and sometimes even the major banks would turn a blind eye towards bad or risky behavior. After the Progressive and New Deal eras, banking was increasingly managed by laws instead of by customs. That worked really well while the law was actively enforced, with both banks and society as a whole on a smooth, profitable, nicely boring trajectory. Once enforcement of the law eroded, though, the old norms were no longer in place to provide guard rails. My feeling is that bank behavior in 2023 is much worse than it was in 1864, unconstrained by either vigilant government nor a moral sense of obligation.

Speaking of rules, though, it is interesting to see how strongly different rules in the path impacted investor behavior. Several times we read about how Junius and Pierpont would re-organize a flailing company, which would often include getting bondholders to agree to exchange their higher-interest bonds for lower-interest ones. I wondered why they would agree to this, but it turns out that at the time, people who had a financial interest in a company and stood to profit from it could be held individually liable for other unpaid debts and obligations held by that company. These reorganizations were a little like a private-sector form of bankruptcy, where creditors would receive some amount of payment, bondholders would swallow lower interest rates, owners would put up more capital (often borrowed), and management could be replaced or continue working under less-extreme financial pressure. Anyways, it's interesting to see that just two centuries ago there was a system where investors were incentivized to act for the good of the whole rather than their own narrow best interests. I'd be curious to hear more about how that system worked, when and how it changed: it sounds like reviving a similar system could go a long way towards restoring a more humane and less cut-throat world of business. (As I'm writing this, I'm reminded that Pistor's Code of Capital writes quite a bit about the history of prioritizing creditors versus prioritizing debtors, which seems to dovetail with this topic.)

As I reached the last several chapters of the book, it was cool to start seeing familiar contemporary names popping up as characters in the narrative: Robert Reich, Paul Volcker, Alan Greenspan, Rudolph Giuliani, Ed Markey, and others enter the story. In the end, that's one of the great achievements of this style of book: presenting history as a single contiguous narrative that seamlessly brings us to the present. The world we live in now is the outcome of decisions people in the past made, and it provides an implicit reminder that the choices we make, individually and as a society, will shape the lived experiences of people yet to come. With the financial system in particular, we seem incredibly short-sighted; it's depressing to see how banking crises causing depressions and recessions used to recur every 20 years like clockwork, then were held at bay for much of the 20th century, and now are with us once again. House of Morgan gives a really valuable and compelling behind-the-scenes look at just how banks work, how they cause and respond to those crises, and hopefully we can remember the hard-won lessons of the past. We don't need to keep doing this!