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the Complete Review
the complete review - economics / history

The Creation and Destruction
of Value

Harold James

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To purchase The Creation and Destruction of Value

Title: The Creation and Destruction of Value
Author: Harold James
Genre: Non-fiction
Written: 2009
Length: 277 pages
Availability: The Creation and Destruction of Value - US
The Creation and Destruction of Value - UK
The Creation and Destruction of Value - Canada
  • The Globalization Cycle

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Our Assessment:

B : solid look at modern financial crises and their impact on globalization

See our review for fuller assessment.

Review Summaries
Source Rating Date Reviewer
The Economist . 3/9/2009 .
Forbes . 2/12/2009 Edward Alden
The Independent . 6/11/2009 Hamish McRae

  From the Reviews:
  • "At a time when economists are accused of having forgotten history, yet few historians can explain the world of bank bail-outs and the turmoil they cause, Mr James has a rare gift for being able to marshal an impressive knowledge of economic and financial history in order to highlight previously unrecognised connections with the past. (...) The Westís values (re-examined or otherwise) will not by themselves determine the nature of the world that emerges. That the debate about values at the core of Mr Jamesís otherwise wide-ranging book is essentially a Western one thus remains one of its ultimate frustrations." - The Economist

  • "James is also skeptical, perhaps overly so, of the ability of governments now to avoid the mistakes of their 1930s counterparts and work cooperatively to chart a path out of the crisis. He exaggerates the relatively modest degree of trade protectionism and anti-immigrant sentiment that has surfaced. He also underplays the accomplishments of the G20 nations in beginning, however tentatively, to address economic imbalances and financial regulatory weaknesses that contributed to the crisis. But he is unquestionably right that the scope of such cooperation is likely to be limited, perhaps too limited for the task at hand." - Edward Alden, Forbes

  • "Where he adds most value is in his effort to put the crisis into its international political context, asking some tough questions on the way." - Hamish McRae, The Independent

Please note that these ratings solely represent the complete review's biased interpretation and subjective opinion of the actual reviews and do not claim to accurately reflect or represent the views of the reviewers. Similarly the illustrative quotes chosen here are merely those the complete review subjectively believes represent the tenor and judgment of the review as a whole. We acknowledge (and remind and warn you) that they may, in fact, be entirely unrepresentative of the actual reviews by any other measure.

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The complete review's Review:

       In The Creation and Destruction of Value Harold James tries to show that globalization is not nearly as firmly entrenched as was commonly believed at the beginning of this century, and that, indeed, it is very vulnerable in times of financial crises. He focusses on the Great Depression and the current (ongoing from 2008) crises -- and begins by differentiating between what happened in 1929 and 1931. James points out that the stock market crash of 1929 remains a historical puzzle and is an (extreme) example of "the irrationality of financial markets" -- but was also not the cause of the Great Depression -- while 1931 was a much more fundamental and far-reaching "crisis of confidence in capitalism" itself (but also one that can be much more readily understood and explained).
       The historical overview of what happened at these two junctures -- and the reactions and ripple effects -- are eerily reminiscent of recent events, and James (who, after all, teaches history, not economics) does a nice job of presenting an overview of these. Sobering, too, are the comparisons to more distant times, as he suggests:

The ease with which the United States and other big countries can finance their deficits bears a resemblance to the most famous case of long, drawn-out imperial decline, that of Habsburg Spain. The equivalent of the inflows of funds to all the advanced countries in the last decades of the twentieth century was the story of New World silver, which initially appeared as a source of immense strategic power.
       He also notes:
Economic and political power tend to go hand in hand in a world that is insecure and at the same time places a high value on security and growth. Such concentrations of power can be self-sustaining when they attract not only capital resources, but also the human resources (primarily through skilled immigration) that allow exceptional productivity growth to continue. When and if they close themselves off to sources of innovation -- as Golden Age Spain did -- the process of relative decline becomes much faster. Since the isolationist impulse is a major strand in the American political tradition, it is impossible to close off this possibility; in fact, its likelihood increases as the economic and financial situation deteriorates.
       In the late twentieth century there was a rapid expansion of international finance -- a globalization of finance that left the world more interconnected (and countries, firms, and individuals increasingly mutually dependent). But James sees globalization not as an inexorable trend, but rather as cyclical, and tries to impress the fact that: "Financial crises are the catalyst for turning the globalization cycle". So, certainly, catastrophically in 1931 -- and so also in current times (whereby it remains unclear how far this cycle will turn). (And, written in 2009, this book does not, for example, even address more recent Euro-zone worries, led by the spring 2010 Greek drama, though these would fit easily enough into this narrative.)
       In a world where, as James notes, credit default swaps account for more than the entire global GDP (as they did in 2008) -- and derivatives for far, far more -- the financial world (and the politicians) had fooled themselves into believing risk had been spread so far that it posed no risk at all; in fact, the over-leveraged and inter-connected system proved particularly vulnerable to domino-style failure. (It's hilarious to read (through the tears ...) when James quotes, for example, Alan Greenspan claiming in 1998 that all these "complex hybrid financial products" had led to: "a far more efficient financial system".) The reaction, then -- once the dominos start falling --, is often one away from globalization and international cooperation, even as that offers the best opportunity to set things right again.
       James notes:
     The question of achieving monetary stability and stability of values has been a permanent, and in reality unsolved, obsession.
       A century ago the gold standard looked like the bedrock on which to rely; more recently it was argued efficient markets and carefully guided policy could maintain stability. As events from 2007 onward show, however, economists and policy-makers don't have such a firm grasp of things. Solutions are not easy to come by, especially as trust is hard to win back, especially over greater distances. New technologies (and new financial instruments) offer great opportunities, but without transparency can easily become the smoke-and-mirrors show of the kind that destroys all confidence; indeed, in some respects it's a wonder that the financial world is able to keep spinning its wheels, despite all its recent failures (the entirely unacceptable market swing of 6 May 2010 (see, for example, the Wikipedia entry) is just one small example of a market that does not function as it should and must (first and foremost: in some way rationally)).
       The Creation and Destruction of Value offers a nice, readable overview of the current financial crises (up to 2009 -- things have gotten even more dramatic since then) and some historical counterparts, and it offers a useful reminder that globalization is (particularly) vulnerable to financial crises, even as moves away from it (regulatory and political) undermine the very ambitions practically all have (for stability and growth, in particular).

- M.A.Orthofer, 10 May 2010

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The Creation and Destruction of Value: Reviews: Harold James: Other books of interest under review:

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About the Author:

       Harold James was born in 1956. He teaches at Princeton University.

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© 2010 the complete review

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