In response to: “The King’s Revolt” (Vol. 2, No. 4).


To the editors:

Why the title? I was, at one time, a company director in the energy sector, responsible for maintaining productivity and cash flow. In that business, the quantity of money was considerable in comparison to capital and we had to finance ourselves in the international markets. We never chose projects on the basis of cash flow, but on their profitability, whether it was a case of investment in the traditional sense of the term, or of organizational expenses. These were all the same to me.

I used to teach economics at night, which enabled me to find concrete meaning, or a lack thereof, in the macroeconomics that was included in the curriculum, in particular its monetary facet. I had long been a reader of Alfred Sauvy and Jean Fourastié, two “engineer-economists” that are recognized globally by the general public and by the great French schools, but not by academia. It is because of them that I could recognize in my own efforts towards productivity a direct contribution to the general standard of living. The maintenance or growth of this is, in principle, the objective of economists, money being only a means. In particular, it is a means of obstruction… It should be clear that I do not mean at all that money is a simple veil.

This is the context of my opinion. It is not that of scholarship, which I respect. Each to his own.

I can only agree with the first paragraphs of Henri Lepage’s review, adding that a negative rate never made an uninteresting project interesting. Computerizing a procedure is justified only if it returns at least 30%, especially considering the resulting human costs. Whether interest rates go from 5% to 2% or from 1% to –0.2% matters not. These great maneuvers pass over our heads!

I also approve of the second section. In particular, I agree with the criticism that “uncertainty may be limited to the mathematical manipulation of known probabilities.” In practice, we try to assess risks, and mathematical predictions are not very helpful, both by their nature and by the impossibility of quantification (see, in our profession, for example, the Islamic Revolution of 1979 in Iran; a tip of the hat here to the inventor of the “black swan”). The “view from below” makes us extremely wary of “errors” and especially of the “claim that we know.”

In the third part, I follow Lepage’s description of King’s reasoning. But I have a reservation regarding Krugman: if mathematical formulation is indeed a test of coherence, it has the disadvantage of masking the practical meaning of variables and their articulation. This can lead to the development of self-justifying models. I experienced this with my polytechnic students in the year they applied to the ENSAE. There was a glaring contrast with their fellow students who worked in business during the day. I am willing to believe that econometrics has since been perfected, especially with the power of computers, but I fear that it no longer masks unconscious assumptions. The controversy over the equations of climate change is an illustration of this.

I continue to follow Lepage in the fourth part, letting him describe the innovations of the BIS, and noting, with him, that the world is not drowning in liquidity.

The part about changing the central banks and the critique in the section on resurrecting an old debate and developing a new plan seem to me to illustrate Lepage’s distrust of all those who want to hinder market mechanisms. This, in the name of a level of knowledge of the global economy that is still impossible in practice for individual agents, even for a central bank. Relying on economic history does not help, because of the power of unconscious assumptions (Lepage writes, more brutally, “clichés”). This suspicion seems to me justified, as noted above, because of econometrics and its abstraction, which conceals the assumptions of both writers and readers. It is a distrust also justified by the temptation to planism, which is natural for those who have tasted power.

I can only endorse Lepage’s idea of the creative function of the market and the temptation to planism based on my experience as a former company director in industries that are highly competitive, encourage creativity, and that have long faced a regulatory framework—the law of 1928, for example—far removed from the real situation. This law and its later versions established a state monopoly on importing petroleum. Recall that French refineries were “non-customs,” which meant that the monopoly also affected French production. This monopoly was given to the oil companies for only a few years and renewing it was therefore a constant threat obliging companies to accede to all the planist demands of the administration. King’s project seems to me to be of the same nature, and, as Lepage says, presupposes an “omniscient and angelic” state, which was not the case with the political leaders I used to encounter.

All that being said, the following part (in the French, “Tout cela est-il cohérent ?”) is pretty self-evident. Similarly, the section about global money, which criticizes King’s “accounting and territorial” vision, draws upon Lepage’s preference for the market. The spontaneous banking activities that King criticizes under the name of “shadow banking” are analyzed as progress. Like Lepage, I suspect that this reaction springs from a desire for planism, and that the reality is instead a spontaneous evolution towards a new monetary order. This reminds me of the arrival of Eurodollars. As an economics teacher by night, I had to convey Raymond Barre’s theoretical questions about the nature of this innovation (Was it a currency? Was it a destabilizing phenomenon of the monetary system and, in particular, of the French credit framework?). As a CFO by day, I saw it as the beginning of a new, simple, and practical system that was easily comprehensible. The use of euro coins has indeed been imposed without complications. The “view from below” was the right one.

This bottom-up viewpoint, although perhaps trivial, leads me to conclude that the major players in national and global finance have drifted far from their mission: development. That is to say, increasing productivity (including that of the banks, which is certainly necessary), which they disrupt by abstract squabbles that sometimes conceal a search for intellectual, or concrete, power. And they drive politicians mad by describing apocalypses for which they are partly responsible. I therefore support the analysis of Lepage.

An example to consider: Very large investors (AXA manages about 1000 billion euros) were forced to sell all their assets in shares over the course of a few years and, de facto, to reallocate all their investments in public bonds which, in accounting models, pose no risks (and yet!). Similarly, the pressure to “decarbonize” investments has begun making them sell all their shares in the energy sector. At this stage, it is only necessary to declare, in the usual manner, carbon assets since July 2015. But this is only the beginning.

Yves Montenay


Henri Lepage replies:

There is between Yves Montenay and myself a longstanding complicity. We have often held complementary points of view that have, at times, allowed us to recycle what economic analysis expresses too abstrusely in a language more easily accessible to a wider public. His practical knowledge of the business world, complemented by his teaching experience, is an undeniable asset for linking abstract thought with the concrete worries of those responsible.

In his letter, two points in particular strike a chord with me.

Firstly, his allusion to “the controversy over the equations of climate change.” I thank him for explicitly evoking this problem, which I did not dare introduce into my discussion of King’s book. To do so would have required explanations too long for the space I was given. There are, in fact, criticisms to be made of an overreliance on mathematical climate models at the expense of a rigorous conception of science and the need for debate and openness that flow from it. Similarly, one may mistrust econometrics, the abstractions of its models, and the use of mathematical and quantitative techniques to justify political approaches that tend, always, towards increasing centralization.

Secondly, his reaction to the last paragraphs of my article which deal with the three themes of shadow banking, global money, and the Eurodollar. Here I was too brief and cursory in my article. These are essential topics for understanding the reality of the events that we have been experiencing since the great financial crisis of 2007–2008. It seems that the scientific community and the public authorities are moving more and more towards a scenario of secular stagnation to explain the great failure in growth of the past ten years. I am currently writing a study in which I express regret that insufficient attention is paid to the perverse effects of the monetary policies and prudential regulations. The consequence is to provoke the decline—and thus the crisis—of the current monetary system of the global Eurodollar. As a result of economic and financial changes linked to globalization, this has become the contemporary form of what was once called the dollar standard.

Thank you to Yves for providing me with the opportunity to present these clarifications.


Yves Montenay is a French author and president of the Institut Culture, Economie et Géopolitique.

Henri Lepage is a French economist.

Translated from the French by the editors.