Review – The Art of Execution (@harriman, #investing)

The Art of Execution: How the world’s best investors get it wrong and still make millions (buy on

by Lee Freeman-Shor, published 2015

A “valueprax” review always serves two purposes: to inform the reader, and to remind the writer. Find more reviews by visiting the Virtual Library.

Note: I received a promotional copy of this book from the publisher in exchange for sharing my thoughts AFTER reading it.

Professor Failure

What can we learn from failure? Aside from the fact that there’s an entire industry of business literature fetishizing the idea that it has much to teach us (as a kind of doppelgänger to the decades of success literature that took a person or business’s success as given and tried to look backward for an unmistakeable pattern that could’ve predicted it) I’m personally skeptical of what failure might teach. Life is complex and there is often little to separate the failure and the success but timing and luck in certain endeavors.

So, I approached Freeman-Shors book with some trepidation as the subtitle of the book suggests this is a study of failure. Au contraire, what we have here is actually a psychological or behavioral study, somewhat in the vein of Benjamin “you are your own worst enemy in investing” Graham, which studies not failure per se, but rather how investors respond differently to failure and thereby either seal their fate or redeem themselves.

A Behavioral Typology

The book recounts the investment results of several different groups of portfolio managers who were categorized, ex post facto, into various groups based upon how they reacted to adverse market conditions for stocks they invested in. The Rabbits rode most of their failed investments down to near-zero before bailing out and taking the loss. The Assassins had a prescribed set of rules for terminating a losing position (either a % stop-loss, or a maximum time duration spent in the investment such as a year or a quarter). The Hunters kept powder dry and determined ahead of time to buy more shares on a pullback (ie, planned dollar-cost averaging).

While I am suspicious of backward-looking rule fitting, I do think the author’s logic makes sense. What it boils down to is having a plan ahead of time for how you’d react to failure. The Rabbits biggest mistake is they had none whatsoever, while the Assassins managed to protect themselves from total drawdowns but perhaps missed opportunities to profit on volatility rebounds. The author seems most impressed with the Hunters, who habitually started at a less than 100% commitment of funds to a planned position and then added to their investment at lower prices when the market gave them an opportunity to do so.

Freeman-Shor’s point is that when the price falls on your investment you need to decide that something material has changed in the story or facts and you sell, or else you need to be ready to buy more (because if it was a good buy at $10, it’s a great buy at $5, etc.) but you can not just hang tight. That isn’t an investment strategy. This is why I put this book in the Benjamin Graham fold, the message is all about being rational ahead of time about how you’d react to the volatility of the market which is for all intents and purposes a given of the investing landscape.

Learning From Success, Too

The author goes over a couple other behavioral typologies, Raiders and Connoisseurs. I won’t spoil the whole book, it suffices to say that this section is worth studying as well because it can be just as nerve-wracking to try to figure out whether to take some profit or let a winner ride when you have one. Freeman-Shor gives some more thoughts based on his empirical observations of other money managers who have worked for him on when it’s best to do one or the other.

More helpfully, he summarizes the book with a winner’s and loser’s checklist.

The Winner’s Checklist includes:

  1. Best ideas only
  2. Position size matters
  3. Be greedy when winning
  4. Materially adapt when losing
  5. Only invest in liquid stocks

The last bit is probably most vital for a fund manager with redeemable capital.

The Loser’s Checklist includes:

  1. Invest in lots of ideas
  2. Invest a small amount in each idea
  3. Take small profits
  4. Stay in an investment idea and refuse to adapt when wrong
  5. Do not consider liquidity

Free e-Book With Purchase!

It is hard for me to decide in my own mind if this book is a 3.5 or a 4 on a 5-point scale. I think of a 5 as a classic, to be read over and over again, gleaning something new each time. This would be a book like Security Analysis or The Intelligent Investor. A 4 is a good book with a lot of value and a high likelihood of being referenced in the future, but not something I expect to get a new appreciation for each and every time I read it. A 3 is a book that may have been enjoyable overall and provided some new ideas but was overall not as interesting or recommendable.

While I enjoyed this book and did gain some insight from it, and I think the editorial choices in the book were bold, it’s closer to a 3 in my mind than a 4 just in terms of the writing and the ideas. I’ve found a lot of the content in other venues and might’ve rated it higher on my epiphany scale if this was one of the first investment books I ever read.

But something that really blew me away is that the publisher, Harriman House, seems to have figured out that people who buy paper books definitely appreciate having an e-Book copy for various reasons and decided to include a copy for free download (DRM-free!!) in the jacket of the book. This is huge. I read my copy on a recent cross-country flight and was really agonizing about which books from my reading stack wouldn’t make the trip for carry-on space reasons and then realized I could take this one with me on my iPad and preserve the space for something else. That’s a big value so I am going with a 4 as a result.


Review – Death By Meeting (@patricklencioni, #meetings, #business)

Death by Meeting: A Leadership Fable About Solving The Most Painful Problem In Business (buy on

by Patrick Lencioni, published 2004

A “valueprax” review always serves two purposes: to inform the reader, and to remind the writer.

The Model

Meetings are boring because they lack drama. Leaders must look for legitimate reasons to provoke and uncover relevant, constructive ideological conflict.

Meetings are ineffective because they lack contextual structure. We need to have multiple types of meetings and clearly distinguish between the various purposes, formats and timing of those meetings.

Meetings should start with the injection of drama in the first ten minutes so participants appreciate what is at stake. For example, illustrate the dangers of making a bad decision, highlight a looming competitive threat or appeal to commitment to a higher mission or vision for the organization.

Then, the meeting leader should mine for conflict whenever disagreement is present. It is better to hash the issue out and let everyone say what is on their mind then to let resentment and personal politics build. And it will require “real-time permission” from the meeting leader to make it work. Conflict must be affirmed as normal and desirable to increase the likelihood it occurs.

The Four Meeting Types

There are four different meeting types to be used based on content:

  1. The Daily Check-In, aka the “huddle”, a standing meeting no more than 5 mins in length; each participant reports on what they’re working on or need help with that day
  2. The Weekly Tactical, weekly/bi-weekly, 45-90 mins in length; Lightning Round, go around the table and report on 2-3 priorities for the week in 60 secs or less per person; move to Progress Review, including a report of KPIs, 4-6 per person, 5 mins total; Real-Time Agenda, this grows out of the Lighting Round and Progress Review portions, an agenda for discussion should focus on critical issues raised in these first 15 minutes; the overall goal is to resolve issues and reinforce clarity
  3. The Monthly Strategic, every 2-4 weeks, minimum of 2 hours per topic; discuss a few critical issues that affect the business fundamentally; need to occur regularly to serve as a timely “parking lot” for critical issues raised in the Weekly Tactical
  4. The Quarterly Off-Site Review, meets quarterly and offsite to focus on big picture strategic issues; 1-2 days; includes time for a team assessment; personnel review, identifying stars and poor performers; competitive and industry review to spot trends; most important objective is to build team unity

Sneaker Time

“Sneaker Time” is what is created by a lack of effective meetings and structure. Anything that can not be communicated (or is not communicated) in a group meeting means walking around the office for one-on-one visits. Given there are multiple people on the average team, this time burden involved in communicating can quickly zap teams of their vitality and effectiveness. A great organization can not afford sneaker time and therefore it can not afford to not make its meetings great.

Notes – The Organized Executive (@bhbcs, #organization, #leadership, #timemanagement)

I recently had the good fortune to listen to Bruce Breier, a time management and organization guru, give a presentation on “The Organized Executive” at my monthly Vistage group meeting. What follows are notes from his handouts and the discussion that I considered valuable. Bruce is a professional consultant and can be reached by e-mail. He’s located in La Jolla, CA.

“What’s your biggest time management challenge these days?”

The best place to start in improving one’s time management and organizational practices is to consider a simple needs assessment. Which of these are you missing or need help with?

  1. a methodology for building and managing your annual business plan
  2. an organized program for your direct-reports that define goals, metrics and strategy
  3. a master task list to track commitments and to-do items
  4. a consistent daily and weekly planning system
  5. scheduled private work time (PWT) each day to accomplish priorities
  6. reducing unjustified interruptions to your workflow throughout the week
  7. method for delegating tasks for on-time delivery through the efforts of others
  8. effective and efficient meetings within the business
  9. a system for organizing and managing the email environment
  10. an uncluttered office and work area

Try printing this list and seeing which items you are missing. Then observe your direct reports and do the same for them (or ask them to complete the needs assessment on their own and share the results with you). You will quickly identify the high priority items missing from your time and workflow management system. Start with the most critical item first, then work through the remainders in order.

Building the system

An effective time and workflow management system is a system. That seems redundant but it’s worth repeating– all the elements must work holistically. You task management system should work with your calendar system; your communication system (email, phone and live meetings) should work with your goals and annual plan process. The idea is to create consistency between all the elements to drive a focused effort in the direction of greatest personal and organizational priorities. As an executive, you can not afford to use a system that operates any other way.

After performing your needs assessment, you can consider the following recommendations as solutions to the gaps in your organizational process. Remember, these elements all work together so make sure you understand how, if you don’t have a gap in a particular area, maintaining your current system in that area will serve to complement these recommendations:

  1. use a sequential checklist to develop, finalize and regularly manage the business plan for the fiscal year
  2. establish “success descriptions” for each position on your staff, defining priority goals, metrics and the organizational strategy to achieve excellence for the fiscal year
  3. utilize a master task list system for your role and populate it with to-do items, attaching due dates or deadlines to all tasks
  4. establish a recurring appointment for weekly planning on your calendar, a day and time to get ready for the following workweek; utilize the “bookends” concept, allowing a 15-30 minute start up period each morning and a 15-30 minute wrap up period each afternoon
  5. schedule 5-10 hours per week of Private Work Time (PWT) to accomplish daily and weekly priorities; pre-determine how this time will be spent during your morning book end
  6. establish a written policy for diagnosing all interuptions for urgency prior to causing or accepting them and communicate it to all members of your team; lead by example by respecting other people’s time accordingly
  7. delegate through acutely clear language in terms of what the desired outcome looks like and when it must be accomplished by; proofread for clarity, accuracy and tone before sending electronically
  8. commit to a standard protocol for meetings (such as the structure outline in “Death by Meeting“) and establish a zero tolerance policy for meetings that do not comply
  9. purge inbox and sent items folders of all inactive messages and institute the “Active Only” or “Inbox Zero” method
  10. allocate time to completely purge and organize your physical workspace, establish a filing system for active and inactive documents

Putting It All Together

Now that you’ve performed a needs assessment and considered specific recommendations for improving your organizational practices, what follows are guidelines for implementing each recommendation successfully.

The Business Plan Model

The BPM begins with an executive summary of the the business in terms of where it has been and where it is going and what needs to be accomplished in the next year to get there. This is followed by the vision statement, which outlines the guiding principle of the organization’s actions (such as “To be the highest quality provider of fresh seafood groceries”). The business plan should include a strategic assessment (SWOT analysis) and an outline of the top 3-5 fiscal year priorities. Who will be in charge of these priorities and accomplishing them is the goal leader identification component, followed by the strategy for accomplishing each. Key Success Indicators provide agreed upon metrics for measuring progress toward the achievement of each prioritity. The team should also develop graphical scoreboards to aid in “at a glance” study of performance to help the team know if it is winning or losing and how much time is left to get the job done. Finally, the team divides the strategy into 90-day plans and meets monthly to review the effort to date.

The Success Description

This is a one page business plan for each position on the team (the executive needs this for the direct-reports on his staff, but they in turn should develop them for each position on their departmental teams). The idea is to make it clear what everyone’s responsibility is to help achieve the annual business plan outlined above, so these descriptions need to reference the items developed in the business plan to produce clarity of vision and harmony of effort. Each position should have three top priorities and an organizational strategy for success as well as unique KPIs. Like the annual business plan, 1-3 graphical scoreboards for each position help each “player” to tell if they’re winning or losing and how much time they have to turn the game around. Reviews should be conducted, utilizing the graphical scoreboards, monthly.

The Master Task List

The MTL is simple to employ. First, select a method for managing the MTL, such as a notebook and pen, online software like Evernote or even an Excel spreadsheet. Next, fully populate the list with ALL tasks and to-dos. Every document sitting on your desk or in your email or residing on other assorted task lists should be translated into an actionable activity and placed on the MTL. The most critical step is to assign a due date or deadline for every task, ie, “Deliver inventory analysis report to inventory manager by Tues, July 1st”. A task without a due date can not be prioritized and is unlikely to be accomplished. Once each task has a due date, sort the list by priority, earliest due dates first. Scan the list periodically to make sure you are aware of intermediate steps necessary to accomplish long-dated items– you can also consider creating intermediate, sort-term tasks and due dates for such items to make sure you don’t miss a deadline far in the future because you forgot to prepare essential steps ahead of time. Items which come due repeatedly should be on a calendar and set up as an “appointment” rather than as part of the MTL; they can be added to a daily priority task list during morning planning as necessary.

New tasks should be “downloaded” from sources (email, notepads/meeting logs, conversations with others, etc.) daily, deadlined and re-sorted. Another good practice is to have a “parking lot” on your MTL that tasks can be added to ad hoc throughout the day, then re-sorted at the end of the day for future work. As an executive, request MTLs for ALL managers and check-in on their MTLs occasionally for organizational awareness.

Weekly Planning

Private Work Time (PWT) is essential for every organized, effective executive. This is time in which the individual is inaccessible to anyone else and can focus resolutely on their own work and priorities. Select the day of the week and the time of that day and then make it a recurring appointment on your calendar. Develop a realistic task list to get accomplished during each PWT period during that day’s morning start-up. To allow availability for PWT, confirm meetings for the following week by Friday afternoon and then do not schedule new meetings and activities during the week that weren’t confirmed the week previous, otherwise you can quickly overschedule all “available” gaps on your calendar and leave no time for PWT. Utilize acutely clear delegation to keep yourself uninterrupted and your organization moving while you are in the zone.

Workday Bookends

Workday bookends are the way to synchronize activity between the MTL and actual daily workflow. Begin with the Morning Start-up: scan email for urgent messages, define today’s priority tasks (3-5) and prepare notes and research for scheduled meetings. Time permitting conduct email correspondence as necessary. At the end of the day, leave scheduled time for the Daily Wrap-up: download new tasks to the MTL, file/toss new paper documents, preview tomorrow’s schedule, engage in acutely clear delegation as needed and finish with clean-up email correspondence. Establishing this “spool up/spool down” rhythm to your day is critical to getting control over your time and workflow. The time spent in preparing and debriefing will save much more time lost to interruptions, lack of focus, confusion of priority, etc.

Private Work Time (PWT)

One of the most powerful and most overlooked concepts in every organized executive’s arsenal. Key considerations are how much time per day to devote to PWT? All at once or split it up? What specific time(s)? When will you begin using PWT and when will you schedule it? The concept is pretty self-explanatory. Think of it as a “meeting with yourself”, put it on your calendar and don’t allow interruptions just as you wouldn’t allow interruptions in a meeting with staff, vendors or customers.

Interruptions Management

Interruptions confuse prioritize, ruin focus and create a culture of crisis and anxiety for everyone. It’s critical that everyone in the organization be offered the opportunity to work without interruption as much as possible during the day. An interruptions management system is the solution. First, develop a policy about interruptions in terms of urgency and importance– what kind of interruptions, if any, are acceptable to make (ie, “The building is burning down” or “A key customer is on the line and threatening to end his contract”). Every interruption must be able to be classified as important according to a pre-determined standard, and urgent in terms of not being able to be handled any other time than NOW. Develop a procedure for communicating interruptions and issue a directive to all team members instructing them on how to handle interruptions going forward. There may be different policies based on departmental versus organizational needs (ie, “You may interrupt the sales manager with a customer pricing request; you may not interrupt the CEO with a customer pricing request.”) Request compliance from all team members and monitor for effectiveness monthly.

Acutely Clear Delegation

Acutely Clear Delegation means delegating with instructions that leave no ambiguity or room for creativity in terms of the quality of output or the return time necessary. ACD must explain, specifically WHAT is to be accomplished by WHEN. Attention should be given to the receiver of the instruction in terms of their level of sophistication and communication preferences (ie, don’t send an email to someone who is known for failing to check it). If being sent electronically, proofread. The most important part of ACD is the timing component– if the person receiving the delegated task does not think it can be accomplished in that time frame, they need to immediately communicate with the delegator and explain the obstacles to completing the task on time and requesting a new deadline that is realistic. Finally, the person delegating must “Delegate and Trust”– they have to have faith that the person responsible will take ownership and see it through. Failure to do so should result in a coaching session on commitment to accountability. Repeat failure may be grounds for reviewing the employment agreement. An organized executive does not have time to micro-manage delegated tasks.

Standard Meeting Protocol

A well-run meeting involves several elements. The first is to note at the beginning of the meeting the cost of the meeting in terms of the time value of money or the money value of a goal to be communicated and achieved after the meeting, or the strategic value to competition in failing to meet on this issue. This sets a meaningful context for meeting participants to appreciate the seriousness need for focus and attention. Any items requiring preparation in advance by meeting attendees should be made known by the meeting leader. The meeting must start on time and end on time so that everyone can plan their day around it and not develop resentment about meetings creating interruptions or unplanned challenges for their other activities that day. Meetings require active participation by all participants– if there is nothing for them to do, they shouldn’t be there. All participants should take notes so they have their own records and if there is an official secretary for the meeting, notes should be collected and distributed after the meeting is over. All meetings should end with an “Acutely Clear Ending”, ie, “Person X will accomplish Task Y by Time Z following the conclusion of this meeting” so everyone knows what must be done before the next meeting. For more meeting structure and concepts, consider the review of “Death by Meeting“.

Email Management

The first task to get control of email is to decide on the Active Only or Inbox Zero method. Active Only means your inbox only contains items you’re actively addressing– all others are trashed, archived or added to a task list for future follow-up. Inbox Zero is a slightly more extreme version of this approach where all emails requiring follow-up are created as tasks on the MTL and everything else is archived when read or trashed if it is pure junk. In this situation, no items are left in the email inbox once the inbox has been scanned and sorted. Once a method is chosen, purge/file/task all inbox messages accordingly. If your email software is capable of it, sort your email inbox by oldest on top– it’s easy to get distracted by the “First In, First Out” email management method and ignore aging items received earlier. Always proofread emails before sending, particularly when delegating tasks that you expect follow-up on from others. Hold all emails that are not crucial right now. Finally, utilize the workday bookends concept to catch up on non-critical email correspondence.

Office Organization

Begin with a total office purge. Accumulate all items on desktops or work surfaces, filing drawers, etc. into one stack. Create a new filing system in filing drawers based on anticipated or most logical filing categories for your workflow or business needs. Then, go through your pile and choose to either File/Archive in your new filing system for later reference, Task for an item requiring follow-up (then trash once Tasked) or Trash for anything that does not require follow-up and is no longer relevant or valuable. For items requiring archiving, consider scanning a copy into your computer and maintaining your filing system electronically instead. On your desk, set up chronological desk trays for incoming media. To maintain your office organization system, institute a “File/Act on/Delegate/Shred” process at your Daily Wrap-up. You should come to and leave from a spotless office/desktop everyday.

Additional Resources and Further Reading

Here is a list of books for the “Organized Executive” recommended by Bruce Breier for further study:

Other Notes
Here are other notes I took during the discussion which help give further context and detail to Bruce’s system:

  • Start your day with a daily plan numbering top 3 priorities for the day; do this in the first 15 mins after arrival
  • Friday is the best day of the week to plan for the following week, 15-30 mins of uninterrupted time around 3/330pm
  • “What gets scheduled, gets done.” Schedule “PWT” (Private Work Time), 1-2hrs, 1-2x per day on your calendar where you are unavailable, inaccessible and uninterruptable to focus on your primary tasks; this is your executive privilege and you should make full use of it
  • A task, project or goal without a deadline or due date is a philosophical statement; use a master task list sorted by due date to keep yourself organized and productive
  • “Good is the enemy of great”, we must be selective to be excellent
  • Never let anyone sit down in your office until you know what they want
  • 5 necessary characteristics of those who work for you: initiative, self-reliance, commitment, accountability and empowerment
  • You need a written policy about how to handle disruptions: all disruptions must be prioritized for urgency and answer in the affirmative the question, “Does this need to be addressed RIGHT NOW?”
  • Maslow, human beings are deficiency-motivated, ie, avoidance of fear or pain; hard to make change happen until a person experiences enough fear or pain without it
  • Goal-setting approach for annual business plan: 1 goal each related to customer service, business development, financial performance, staff effectiveness and operational efficiency
  • By Friday afternoon of the present week, next weeks meeting calendar should be finalized, all new requests can be made for the following week; this prevents you from filling your calendar with meetings in “open slots” and never having time to get work done; also ensures you can be prepared for all meetings with plenty of time
  • Delegation depends on trust; trust requires your direct reports be “CMO”, Competent, Motivated and Organized; if your manager is not competent, you can train them; if they are not motivated, you can coach them; if they are not organized, you can help them build systems; if they are unresponsive, you may need to find someone else to get the job done
  • Successful leadership entails continually accomplishing pre-determined priorities primarily through the efforts of others
  • You don’t keep up with what you delegate to others, you delegate and trust. If you can’t trust, you have a problem and need to work on that
  • Let your leadership team run your annual plan, and your annual plan run your business; run your daily plan, and let your daily plan run your day
  • Schedule monthly reviews with your direct reports to see where tweaks need to be made

Notes – How To Master A New Skill

A note to self that I found elsewhere:

Anytime you are acquiring a new skill, remember the best path for doing something new or different looks like this:

  1. Find someone who is good at it.
  2. Watch that person do it.
  3. Get that person to talk about how they do it.
  4. Practice doing it yourself with his or her guidance.
  5. Ask the person to give you feedback.
  6. Practice doing it on your own.
  7. Seek feedback until you’ve mastered it.

Book Blog – “Economics: A User’s Guide” Part 2 (#economics, #history, @Cambridge_Uni)

Economics: A User’s Guide, by Ha-Joon Chang, published 2014 (Buy from

A contrarian’s view of the history of capitalism?

In the second chapter, HJC attempts to demonstrate how capitalism has changed from the time of Adam Smith and his “The Wealth of Nations”, to the present global economy, with the implication being that our understanding of economics should change along with the tide of history. HJC claims that both “economic actors” (those who engage in economic activities) and “economic institutions” (the rules regarding how production and other economic activities are organized) have changed. Further, HJC defines “capitalism” as,

an economy in which production is organized in pursuit of profit, rather than for own consumption (as in subsistence farming, where you grow your own food) or for political obligations (as in feudal societies or socialist economics, where political authorities, respectively aristocrats and the central planning authority, tell you what to produce)

Already, an Austrian economist would pick several points of contention. The first is the idea that “economic actors” could be anyone other than individuals. HJC is going to argue that various collective organizations and identities such as labor unions, corporations and governments are “economic actors” but the Austrian economist, laboring under methodological individualism, would be quick to point out that while individuals composing these groups may identify with and be psychologically motivated by their affiliation with such a group, it is ultimately the individuals themselves who act (both in choosing such an identity, and in making decisions under such an identity or as a representative of such an identity) which is an important epistemological distinction for clarifying the meaning of economic observations.

The second point would be to clarify the definition of capitalism itself. While HJC simplifies capitalism as an economy in search of profit, there is much more to the definition and the way capitalism differs from alternatives (such as feudal economies and socialism) that it is worth exploring the nuances in depth.

Capitalism is distinguished most of all by the fact that the means of production are privately owned. This means a person gets to be a capitalist one of two ways– by saving part of one’s income and thereby creating additional capital with which to invest, or by being loaned or otherwise granted capital by people willing to bet on the entrepreneurial talents of such a person at which point they can prove or disprove their ability. In capitalism, capital is “mobile”– it moves from person to person over time, always accumulating in the hands of those who are most capable with it, that is, in the hands of those who are most talented at realizing profit by efficiently serving consumer demands. It tends to leave the possession of those who waste it or fail to steward it well, and enter the hands of those who not only prize it but can do something valuable with it.

The theoretical alternative to capitalism is socialism, or public ownership of the means of production. Leaving aside the questionable nature of the concept of “public ownership”, socialism relies on some kind of political decision-making apparatus to not only determine who should be the public mandatories in charge of directing the means of production, but also to intuit the “public good” insofar as it is a goal that can be aimed at with the central production plan. In socialism, one can not become a director of the economy without being selected for such a role by the political authority. And it is inconceivable that one could “accumulate capital” by saving because the political authority would control consumption patterns and determine how much of the productive output each individual receives, maintaining control of any excess (savings) to deploy as it sees fit.

Under capitalism, the very fact that all the means of production are privately owned implies 1.) that the current amount of capital is always “optimum” for present purposes because every individual can freely decide if he’d prefer to save more or save less and 2.) that every exchange increases the total wealth of society because it is voluntarily entered into. This simply isn’t so under socialism. In fact, the Austrians believe it is impossible to succeed in either endeavor because the absence of money prices means that socialist economies suffer calculational chaos when it comes to judging the value of various arrangements and exchange patterns amongst alternatives. That’s a larger topic for a later post, though. For now, it is sufficient to point out the major (but not necessarily all-encompassing) nuances of capitalism not given any heed by HJC’s definition.

The errors of definition and reasoning exhibited by HJC in discussing a wide range of historical changes which have occurred in market economies since Adam Smith’s time provide too many objections to raise in one post. Instead, it is enough to leap to his conclusion and comment further, when he says:

competition among profit-seeking firms may still be the key driving force of capitalism, as in Smith’s scheme. But it is not between small, anonymous firms which, accepting consumer tastes, fight it out by increasing the efficiency in the use of given technology. Today, competition is among huge multinational companies, with the ability not only to influence prices but to redefine technologies in a short span of time (think about the battle between Apple and Samsung) and to manipulate consumer tastes through brand-image building and advertising

Let’s tease this apart.

First, price always has two components– supply, and demand. The number of firms producing a particular good or service, and the ways in which they produce this good or service, influence price on the supply side. The number of consumers eager to purchase the good or service, and their eagerness to purchase this good or service at the expense of other goods and services they could obtain with the same quantity of money, influence the price on the demand side.

The idea that both consumer tastes and technological means of production were “given” at some point in time are to completely misconstrue not only the facts of economic history, but also their significance. All firms, whether in Adam Smith’s era, modern times or somewhere in between make choices not only concerning which markets to compete in but also about which vendors to utilize, what technological recipes to use in production, what quality and quantity to produce of a given good or service and how to market these goods and services to the buying public. It may appear relatively primitive or limited in looking back from today’s economic circumstances to the past, but that doesn’t change the nature of production, competition and consumption itself. None of this was given or fixed. Any firm which might decide to enter or exit a market could influence the price by its increasing or decreasing the overall supply. HJC’s claim is akin to suggesting that prices were either arbitrary, or that markets failed to clear and there was a continual shortage or excess of certain goods and services. It suggests that prices never even changed, after all, how could they if all firms were small and alike and none had any influence? It couldn’t be the consumers changing demands, their tastes were “given” (by whom? for what purpose?). This is a revisionist history without accuracy or merit.

The labeling of branding and advertising as a “manipulation” of consumer tastes is also a cause for concern in clearly understanding the issues. Manipulation has a pejorative sense, that it is somehow illegitimate or involves exploitation or deceit. Branding and advertising both serve useful economic purposes. A brand helps to designate to a customer what kind of quality to expect from a given product or service under that brand (for example, Porsche is reputed as a high-quality brand, whereas Chevy is reputed as a low-quality brand– the fact that different brands exist help car buyers quickly choose between vehicle quality). It might also connote certain features or other characteristics common to a brand identity (using Porsche and Chevy again, Porsche is known as luxurious and performance-inspired, while Chevy is known as “all-American” and economical). In other words, a brand contains information which consumers consider valuable to know about products and services they intend to purchase.

Advertising provides similar informational value. Individuals have certain needs but do not know, omnisciently, what products and services are available to meet their needs. Advertising seeks to communicate to individuals which of their needs can be met by a given product or service. It might also communicate information about how the product or service compares to competing offers. Additionally, advertising might communicate solutions to problems individuals might not even realize they have until they see the advertisement!

This last bit is probably what HJC is aiming at with his description of changes in the economic history of capitalism. But this claim, too, is invalid. There is nothing inherently suspect or illegitimate about a business creating awareness of new needs and new ways of acting that can fulfill those needs as compared to any other influential source (friends, family, introspection, etc.) And businesses can not force individuals to adopt these desires and needs as their own and as valid– that’s something the individual must decide for himself.

The aim of this characterization is to suggest that while competition exists on its face, it isn’t “real” or “legitimate” competition– that individuals are actually faced with a strongly restricted frame of reference about what they want and how they can get it as well as what they must pay to acquire it that is actually constructed by a small group of very large firms. This is a veiled accusation of monopoly and a backdoor argument for government intervention in market places to reassert “consumer sovereignty.”

It is from this erroneous foundation that HJC proceeds to re-tell the “true history of capitalism”, the one he claims most economists don’t want you to know about.