There is a certain kind of British conversation that takes place in a quiet room with two cups of tea going cold on the table, the kind where one man tells another that the country he was born in has been gutted from the inside, that the elections he votes in are theatre, that the pension he has been paying into is collateral for a debt nobody intends to repay, and the other man, who already half-believed it, sits there and feels the last of his civic optimism leave the room like steam off the tea. That conversation has been happening more often lately. It is happening in pubs in Bedford, in coffee shops in Manchester, on blogs where comments are read, & in the spare bedrooms of people in their fifties who have stopped sleeping properly and have begun reading books their fathers would have called crank literature………all this is habbening because the official explanations no longer fit the visible facts.
The visible facts are these. The British state cannot build a hospital/railway/tunnel/power station on time or on budget. It cannot guard its own borders. It cannot keep the lights on without buying gas from people who hate it. It cannot prosecute the obvious crimes committed in the open against children in its northern towns. It cannot house its own citizens, who now hand over more than half their take-home pay for a flat they will never own, and it cannot stop importing several hundred thousand new claimants on those flats every year. Yet at the same time the FTSE hits record highs, the people running these failures retire to estates and consultancies, and the national broadcaster spends its breath emoting about pronouns. Two stories cannot both be true. Either the people in charge are the most consistently incompetent ruling class in modern European history, or the failure is the point. Once you accept the second possibility, a great many things start to make sense at once, and the quality of your sleep suffers accordingly.
What follows is the case for the second possibility. It is a case made by people who have spent thirty-five years inside the engine room and emerged convinced that the engine was built to do exactly what it is doing. It is not a comfortable case. The popular framing, encouraged by whichever feed your algorithm has been training, would have it that the villains are the Joos, or the Muslims, or the Lizards, or whichever team your particular grievance has been schooled to hate. The case here is something different. It is a case about money, and about the small number of institutions that get to create it from nothing, and about what those institutions do with three centuries of compounding advantage.
The pound sterling was born of a private loan. In 1694 a Scottish itinerant entrepreneur William Paterson lent the King of England one point two million pounds at a perpetual rate of interest, and in exchange the King granted Paterson and his syndicate a monopoly on issuing the new national currency. From that day to this, every pound in circulation has begun its life as somebody’s debt. The mathematics of this arrangement contain a problem the inventors understood and the public still does not. If the principal is created when the loan is made, the interest is not. The interest must come from a future loan, made by someone else, and that loan in turn carries its own interest, which must come from a third loan, and so on into the far distance & future. This is the engineering specification of a Ponzi scheme, written into the foundation document of British finance and exported, by gunboat and by treaty, to every country that now uses a central bank. Yes, the Brits are guilty of the original sin. It has always been us. Every single central bank in existence has been so founded.
The consequences are not subtle. A monetary system that requires perpetual new debt to service old debt requires, at every level, a population willing to keep borrowing. The consumer is treated as a yield-bearing asset, drained at thirty per cent on his credit card and at four hundred per cent on his payday loan. The small business is cut off from cheap credit because cheap credit is reserved for the entities closest to the central bank, and the small business is left to pay the same rate as the consumer or to die. The corporation that sits at the top of the pyramid borrows at near zero, buys the assets the consumer is too indebted to buy, and rents them back to him. The government takes the rest of the debt onto its own books and presents the bill to the next generation, which has not been born yet and cannot vote. This is not capitalism. The word has been used so loosely for so long that it has lost the power to describe anything at all, but if capitalism means anything coherent it means a system in which capital is privately owned, freely priced, and earned through providing something other people want. Under that definition Britain has not had capitalism in any of our lifetimes. What Britain has, and what America has, and what every member of the post-war Western order has, is socialism for the institutions that can borrow at the central bank rate, and a brutal Hobbesian struggle for everything below them. The bank that mismanages a trillion pounds gets bailed out at midnight on a Sunday by a treasury minister who used to work for it. The plumber whose van breaks down in February goes bankrupt in March. Both outcomes are described by the same Chancellor, in the same speech, as the natural workings of the free market.
The result is what economists who still wish to be invited to agreeable North London supper parties call the K-shaped economy. The top arm of the K rises because its inhabitants own the assets that monetary inflation pumps up. The bottom arm of the K descends because its inhabitants pay for those assets in rent, in higher prices, and in the steadily declining purchasing power of a wage that is denominated in the very currency being debased. There is no middle. The shape of the letter forbids it.
The mercantile system that grew out of Paterson’s loan needed somewhere to deploy its borrowed money. England in the late seventeenth century was small, agricultural, and short of useful things to seize. The solution, worked out over the next two centuries by men whose statues still stand in London squares, was to wed the new monetary plumbing to two complementary projects. The first was the Royal Navy, the most expensive military instrument the world had yet seen, paid for by issuing more government debt to the Bank of England, which printed the money to buy it. The second was the British East India Company, a private corporation chartered to convert the Navy’s geopolitical reach into private commercial dominion. The Company addicted China to opium and built HSBC on the proceeds. It looted India of its accumulated gold, broke its textile industry, whilst engineering famines that killed numbers most British schoolchildren are never taught about. It planted a banking system in every port it touched, and through that banking system it ensured that the surplus production of half the world flowed back to London and serviced the original debt.
The arrangement worked beautifully for the people who owned shares in it. It worked rather less well for the British nation, which acquired in the process a vast and lethal habit. By the end of the First World War the empire had borrowed more than it could ever repay, the gold had moved across the Atlantic, the navy was effectively obsolete, and the colonies were becoming aware of their role in all this. The corporate class that had ridden Britain’s century of dominance did not go down with the ship. It packed up its skills, its families, and its capital and emigrated to the next host – America. A country with abundant resources, an inferiority complex about European finance, and a constitution that, by 1913, had been amended to permit both an income tax and a privately owned central bank in the same calendar year. Anyone who imagines this was a coincidence has not yet started reading. The American century followed the British template with the precision of a franchise rollout. Two world wars, with the United States entering each one late enough to bankrupt the European belligerents and rich enough to lend them the money to keep fighting. A great depression in the middle, during which the American government confiscated the gold of its own citizens at twenty dollars an ounce and revalued it within months at thirty-five.
With the outcome of WW2 virtually settled, a Bretton Woods conference in 1944 confirmed that the dollar, by then sitting on perhaps three quarters of the world’s monetary gold, was to be installed as the global reserve currency and the value of every other currency be tied to it. An IMF and a World Bank followed , both headquartered in Washington, & both empowered to lend to any developing country that agreed to certain conditions. The conditions, then as now, were two: install a Western-style central bank, and privatise your natural resources. Sign the paperwork and the loan disburses. Refuse and the country discovers that its president has unfortunate tastes, that its army has restive colonels, and that its capital city is full of NGOs distributing leaflets. By 1971 the gold-dollar promise that had underwritten the whole arrangement was a polite fiction, and when the French sent a ship to New York to collect what they were owed in bullion, the answer was no. President Nixon went on television in August of that year and told the world, in a tone of politically practised regret, that the United States would be temporarily suspending convertibility. The temporary measure remains in force five and a half decades later. Every currency on earth is now what economists call a fiat currency, which is a Latinate way of saying that it is worth what its issuer says it is worth and not a penny more.
Here the story tends to lose people, because the popular imagination, fed on cinema, demands a villain with a face. There is no face. There is, instead, a structure, and the structure has a logic that operates regardless of who occupies its chairs. To understand the logic you have to understand who owns what. The largest banks in the world are publicly traded companies. Their shares have to be held by somebody. For most of the twentieth century those shares were held by a diffuse population of pension funds, insurance companies, and individual investors, and no single entity held enough of any major bank to dictate its behaviour. That changed in the early 2000s, with the rise of the passive index fund. An index fund does not pick stocks. It buys all of them in the proportions that match a published index, and it charges its customers almost nothing for the privilege. The mathematics of fees alone guaranteed that index funds would eat the active management industry alive, and they did. By 2025 three firms, BlackRock, Vanguard, and State Street, between them held roughly thirty trillion dollars of assets under management. BlackRock alone held twelve trillion. To put that number in scale, it is larger than the gross domestic product of every country on earth except the United States and China, and it is roughly ten times the GDP of the United Kingdom.
When BlackRock buys a share on behalf of an index fund customer, it holds the share in custody and votes it. That last word is where the real story sits. Every share is a vote at the annual meeting. Every vote elects a board. Every board appoints the executives, sets the strategy, approves the mergers, and decides what the company will refuse to do. BlackRock holds roughly twenty thousand board seats across the publicly listed corporate world. It is the largest single shareholder in most of the companies whose products you used today, including the company that made your phone, the company that runs the platform you read this on, the company that processed your most recent card transaction, the company that brewed your coffee, and the company that will sell you the funeral plot when the time comes. Vanguard and State Street hold most of the rest.
This is not a conspiracy in the sense the word has acquired through decades of bad television. There is no chamber of robed elders. There is, however, a structural pre-eminence so total that the elders are no longer required. If a company wants access to capital, it needs a relationship with the investment bank that will underwrite its bonds. The investment bank’s largest shareholder is one of the three asset managers. The pension fund that holds the company’s bonds is also a customer of one of the three asset managers. The index that decides whether the company belongs in the S&P 500, and therefore whether the trillions of passive flows must buy its shares, is run by a firm whose largest customer is one of the three asset managers. The board of the company contains directors that serve on three other boards, all of which have one of the three asset managers as a top-five shareholder. Nothing has been said. Nothing has been agreed behind closed doors in a room filled with Arturo Fuente Opus X 20th Anniversary cigar smoke. The incentives align themselves, and the executives, who would like to keep their jobs and their share options, behave accordingly. The most visible expression of this alignment in the last decade was the ESG movement, which appeared from nowhere around 2018, dictated for half a decade what every multinational was permitted to say about diet, family, sex, and energy, and then, when the political wind changed, vanished as suddenly as it had arrived. The companies that complied prospered. The companies that resisted found their financing costs mysteriously elevated and their insurance premiums revised. No law had been passed. The asset managers had communicated, through the soft channels available to them, what would be required of the firms whose shares they held in such enormous quantities. The same mechanism is now being repurposed for whatever the next priority happens to be, and it will be repurposed again after that, because the mechanism is permanent and the content is incidental…..
To be continued
© DJM 2026
