Thursday, October 3, 2013


AM | @HDI1780

"Un despote ne doit pas obtenir du crédit" — Diderot

In his large-scale revision of Book XIX, written for the 1780 edition of Histoire des deux Indes, Denis Diderot delivers a masterful blow to "realists". The trouble with realists, he argues between the lines of his carefully crafted paragraphs on Russia, is the paradox at the heart of the notion of équilibre. The story goes like this. Realists like to play balance-of-power games — but only in the international arena. Domestically, most of them behave like despots; they are completely unwilling to see their power checked by independent judges, a free press, or a popular assembly.

Therein lies the problem.

* * *

Diderot adheres to what I have dubbed the "institutional theory of credit markets" developed over a number of decades by Bernier, Trenchard and Gordon, Montesquieu, Galiani, Raynal and himself. The theory postulates a radical incompatibility between despotic government and the availability of credit. Sooner or later, authoritarian rulers run out of resources. They are thus in no position to play large-scale balance-of-power games over the long-run. The high cost of capital is the Achilles'heel of despotic/realist rulers!

Thus Diderot sends a clear message to Catherine II of Russia à propos her latest measures in the field of finance:

Il fut créé durant la dernière guerre une caisse de dépôt à l’usage de tous les membres de l’empire, même des esclaves. Par cette idée d’une politique saine & profonde, le gouvernement eut des fonds dont on avoit un besoin pressant, & il mit autant qu’il étoit possible les serfs à l’abri des vexations de leurs tyrans. Il est dans la nature des choses que la confiance accordée à ce papier-monnoie s’altère & tombe.

Un despote ne doit pas obtenir du crédit; & si quelques événemens singuliers lui en ont procuré, c’est une nécessité que les événemens qui suivent le lui fassent perdre. Telles sont les difficultés qui nous ont paru s’opposer à la civilisation de l’empire Russe. Si Catherine II parvient à les surmonter, nous aurons fait de son courage & de son génie le plus magnifique éloge, & peut-être la meilleure des apologies, si elle succomboit dans ce grand projet (HDI 1780, xix.2, p. 52).

Un despote ne doit pas obtenir du crédit! Magnificent! This idea lies at the very heart of the liberal critique of realism. It is still largely unsurpassed in terms of analytical depth (*).

(*) This is precisely what happened to Charles de Gaulle, a fascinating figure in terms of realism. When the Soviets invaded Czechoslovakia in August 1968, an unprecedented panic took hold of French financial markets. It was this crisis, more than mai 68, that eventually led to the Général's downfall. (Unlike the independent Bundesbank, Banque de France was heavily influenced by de Gaulle). See Agustin Mackinlay: "Charles de Gaulle and the 'Deconstruction' of the Dollar", Roosevelt Study Center Prize, 2005 [available as an e-book at Amazon's Kindle Store]. See also this post on modern-day Russia.

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