A well-known China basher who in 2001 already published a book entitled The Coming Collapse of China, dead-ahead of China’s rapid growth and development opined a few years ago, that China achieved its current trade surplus with the United States through “lying, cheating, and stealing.” When I discussed these claims with my friend Adrian Day he suggested that: “Other countries - Japan, Singapore and South Korea - were all accused of intellectual property theft in the past. Of course, it’s not only Asian countries. One of my favorite stories is of Charles Dickens, following his very successful tour of the United States, complaining about the long queues of people wanting him to autograph pirated copies of his books from which he received no royalties.”
To a large degree I subscribe to the view of the “father of Russian socialism,” writer Alexander Ivanovich Herzen (1812 – 1870) who opined that, “Human development is a form of chronological unfairness, since late-comers are able to profit by the labors of their predecessors without paying the same price.”
In 1789, a 21-year-old Englishman, Samuel Slater (1768–1835), boarded a ship for America. At age ten, he had begun working at a cotton mill that had just been opened by Jedediah Strutt using the water frame that had been pioneered by Richard Arkwright (1732–1792) at the nearby Cromford Mill, Derbyshire. Arkwright’s achievement was to combine power, machinery, semi-skilled labour and the new raw material of cotton to create mass-produced yarn. His organisational skills earned him the accolade “Father of the Modern Industrial Factory System”, notably through the methods developed in his mill at Cromford.
By the time Samuel Slater sailed for America, he had gained an extremely thorough knowledge of the secrets of Arkwright’s success - not only that account had to be taken of varying fibre lengths, but also how Arkwright’s carding, drawing, and roving machines worked. By then, he also had a decade of experience of working with all the elements as a continuous production system.
Slater was also aware of the Americans’ interest in developing similar machines, and of the fact that British laws prohibited the export of industrial designs. He therefore memorised as much as he could before he departed for New York in 1789. Upon landing in New York, Slater soon learned of a textile manufacturer in Providence, Rhode Island named Moses Brown who had been trying to replicate the English mechanized cotton-spinning process without success. Slater wrote to him and Brown brought Slater in as a partner.
Working only from memory, Slater not only recreated Arkwright’s machine, but he made improvements of his own. Within a year, in December, 1790, America had its first water-powered cotton spinning mill.
In the US, President Andrew Jackson (1767–1845) called Samuel Slater “The Father of American Manufactures.” In his hometown in Derbyshire, however, Slater became known as “Slater the Traitor”. Arnold Pacey, a leading historian about technology, opines in his Technology in World Civilization (1990) that,
“One puzzle which challenges anyone who attempts to study the development of technology over the whole world is that every now and then, similar inventions appear in different parts of the world almost simultaneously (for instance the spinning wheel), or at different dates but with no obvious connection (printing first in China, and six centuries later in Europe). Sometimes these are genuinely independent inventions. Sometimes there is clear evidence of information spreading from one place to another (as was the case with paper-making). But quite often, the most important factor was that the achievement of one society stimulated people elsewhere to make different but related inventions.”
Consider the invention of the steam engine, which truly changed the world in the 19th century. Who invented the steam engine?
Was it Hero of Alexandria (10 AD - 70 AD), Ismail al-Jazari (1136 – 1206 AD), Spanish Jeromino de Ayanz y Beaumont (1553 – 1613), who patented his invention of the first steam-powered water pump for draining mines, Thomas Savery (1650 – 1715), who is considered the inventor of the first commercially used steam powered device, a steam pump that used steam pressure operating directly on the water or Thomas Newcomen (1664 – 1729), whose first commercially successful engine that could transmit continuous power to a machine, or James Watt (1736 – 1819), who made a critical improvement in 1764, by removing spent steam to a separate vessel for condensation, greatly improving the amount of work obtained per unit of fuel consumed?
I do not wish to give my readers the impression that the Chinese are particularly ethical and honest when it comes to the transfer of technologies. No, the Chinese became what they are by copying the Washington D.C. establishment’s outstanding skills at “lying, cheating, and stealing.” [There is something very fishy about the recent Paul Pelosi saga.] In this sense, the well-known China basher made an insightful observation, which we should never forget.
I wanted to point out once again the colossal incompetence of central banks around the world. With inflation running at between 7% and 12% and with interest rates remaining far below the rate of price increases we should contemplate a scenario similar to the 1970s when with interruptions inflation and interest rates rose. When comparing the current time to the 1970s, I need to point out to some important differences. In the early 1970s, assets were relatively inexpensive compared to the current period. Debt levels were relatively low. The global financial market was relatively small compared to the global economy. Now, the opposite is true. Gold, oil and other commodities were extremely depressed (this is not the case today). Compared to assets, wages were relatively high. And to be fair to the US Fed, it increased interest rates with inflation. [At the time central bankers were more honest than they are today.] Already in 1969, the ten-year Treasury yield reached over 9% and in 1974, close to 13%. But even with these punitive interest rates inflation kept on accelerating. How could we now expect inflation to cool down when central banks today are already talking about slowing down the rate at which they intend to increase rates????
Many readers have asked me about the Hong Kong Stock market.
I consider the Hong Kong bear market from the January 2018 peak to satisfy all of the conditions for the formation of an important low in the near future. The conditions for a major low include time (almost 5-year bear market), depth (down 55% from 2018 peak), sentiment (extremely negative), foreign selling, universal negative foreign media reports by envious socialist/communist journalists, an exodus of expatriates, etc. In a perfect world for bear markets, the Hang Seng Index (currently at 14,687) would bottom out at between 10,000 and 15,000.
I wish my readers a wonderful festive season
Kind regards
Yours sincerely
Marc Faber
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