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A Book with Legs Podcast - Episode Summary
Episode Title
James Grant - Friends Until The End
Podcast Overview Host: Cole Smead Guest: James Grant Podcast Description: A Book with Legs, hosted by Smead Capital Management, delves into value investing through discussions with authors who have influenced the Smead investment approach. The focus is on the intersection of literature and investing, appealing to curious-minded individuals.
Episode Description In this episode, Cole Smead interviews James Grant about his book, *Friends Until the End: Edmund Burke and Charles Fox in the Age of Revolution*. The discussion centers around the friendship and political careers of two prominent British politicians, Edmund Burke and Charles Fox, during a transformative period in history. They also reflect on contemporary economic issues.
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Key Themes and Discussions
- Literary Heritage and Education
- Importance of Literature: Grant discusses how Burke and Fox were products of a literary education, which shaped their thoughts and political ideologies.
- Decline of Literary Culture: Both host and guest express concern over the contemporary decline in literary engagement and classical education.
- Biographical Backgrounds
- Edmund Burke:
- Born in Dublin to a lawyer, Burke experienced the subjugation of Irish by the English.
- Attended Trinity College and later moved to London to pursue political ambitions.
- Developed a strong sense of justice and mercy, evident from his early activism.
- Charles Fox:
- A privileged aristocrat, significantly indulged by his father.
- Known for his charm and charisma, Fox embodied the excesses of his class but eventually became a man of the people.
- Political Ideologies and Conflicts
- Burke's Philosophy:
- Advocated for a balanced approach to governance, valuing tradition and the Constitution.
- Criticized the cruelty of the penal system and defended marginalized individuals, showcasing his deep sense of justice.
- Fox's Evolution:
- Initially a snob but later became an advocate for political liberty and reform.
- His friendship with Burke was pivotal in his transformation from a privileged youth to a respected statesman.
- Key Historical Events and Their Impact
- Parliamentary Politics:
- The podcast touches on various critical debates, such as the regulation of trade, taxation, and the rights of creditors.
- The dynamic between Burke and Fox is explored against the backdrop of significant historical events like the American Revolution and the French Revolution.
- John Wilkes:
- An influential figure in the political landscape, he stood for freedom of expression and became a friend to both Burke and Fox.
- His tumultuous relationship with Parliament highlighted the struggles for civil liberties during the era.
- The Fall of Their Coalition
- The East India Bill Debate:
- The coalition between Burke and Fox deteriorated following the failure of the East India Bill, leading to political struggles.
- Burke's impassioned defense of Fox during this time exemplified their strong bond despite eventual political fractures.
- The Role of the Monarchy:
- Burke’s defense of the monarchy contrasted with Fox's views, leading to profound disagreements, particularly during the debate over the Regency during King George's mental decline.
- Contemporary Economic Perspectives
- Discussion on Current Economic Policies:
- Toward the end of the episode, Grant discusses modern economic challenges, including Federal Reserve policies, inflation, and potential credit crises.
- He highlights the historical parallels with past financial crises and warns of the risks inherent in speculative markets.
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Key Takeaways
- Friendship Dynamics: The friendship between Burke and Fox illustrates how political alliances can be both profound and fragile, shaped by ideological shifts and historical events.
- Historical Lessons: Their stories provide insights into the complexities of political life and the enduring relevance of classical thought in contemporary discourse.
- Economic Reflections: The conversation transitions to modern economic challenges, underscoring the cyclical nature of financial markets and the importance of prudential governance.
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This episode of *A Book with Legs* delves deeply into the lives of two significant historical figures while drawing parallels to modern economic and political issues, ultimately demonstrating the timeless nature of literature, friendship, and the quest for justice in governance.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:02You're listening to A Book With Legs, a podcast presented by Smeed Capital Management. At Smead Capital Management, we advise investors who play the long game. You can learn more at SmeadCap.com or by calling your financial advisor.
0:21Welcome to A Book With Legs podcast. I'm Cole Smead, CEO and Portfolio Manager here at Smead Capital Management. At our firm, we are readers and we believe in the power of books to help shape informed investors. In this podcast, we speak to great authors about their writings. The late, great Charlie Munger prescribed using multiple mental models and analysis. We analyze their work through the lens of business, markets, and people. In this episode, we will discuss a unique history of two members of parliament in the mid to late 18th century that as we entered the age of reason and therefore also revolution.
0:58Jim Grant is joining us to discuss his book, Friends Until the End. Edmund Burke and Charles Fox in the Age of Revolution. A little background for our listeners on Jim, and some of you would know this, but for those of you that are younger, Jim started his journalist career in 1972. He joined Barron's Magazine in 1975. More famously, he began publishing Grant's Interest Rate Observer in 1983, which he continues today. I would just note that he is a prolific author with at least 10 titles that I could count, but I'm sure Jim's going to tell us that I didn't get that right count. These include titles like Minding Mr.
1:33Market, and his more recent classic in my mind is Badgett, which he published a few years ago. Jim, thanks for joining me today. Oh, you're very welcome, Colin. Nice to be here. So I got a sense of this late in the book, but as I was kind of going through this, you like history, you like the markets, you have those similarities with people like myself, but what particularly caused you to get into this story and tell the story of these two friends? Well, I think it was mainly for the words they spoke and the things they stood for and the way they stood for them. They were extraordinarily literate people.
2:16I understand that today nobody reads books. We're in the age of so-called oralism. Yep. Sounds like we're all going to the dentist all the time, doesn't it? We're flossing continuously. But this was a time in which education was predominantly about literature. And it was about the Greek and Latin and Shakespeare and Milton and people like Fox and Burke could quote these authors by the yard as the expression went. And the time they didn't spend in classes on the sociology of the National Football League or of, let's see, of American history from 1996 to the present. But not having to do that, they immersed themselves in great books and great words and great authors.
3:21And it showed. To be sure, they were rather deficient in what we would call the STEM branch of knowledge. But it was not for lack of brain power nor curiosity about mathematics. but rather it was because of what was considered a great education was almost exclusively a literary education. And that's to the benefit of anyone who loves language and who gets the privilege of reading their words. Agree. I don't have this in my notes, Jim, just so you know, but I like the idea you're hitting on because ultimately, and we'll go into the book here in a second, But I think you're obviously arguing that at some level we've lost that literary touch or what used to be considered nowadays is referred to as a classical education, right?
4:12You read the classics and you are educated at a higher level in the classics. And then from that beginning of Western thought, which with these gentlemen really had what would be thought of as that today, you then go out and you build your models for the rest of life, whether it be politics, business, or, you know, ruling a land. Yes. There was plenty of specialized knowledge of ale. Burke became a very, very accomplished amateur farmer. Okay. And so that was kind of a STEM-y thing to do. And Fox drank a lot and played cards. Well, that's not literature. It was very bro-y, as they say, right? Yeah.
4:52Yeah. And so, but the books they read stood by them and with them and indeed dwelled within them their whole lives. And I found that terrifically inspiring. You know, I, myself, I never had one moment of Latin instruction, little Greek instruction. You know, I was a very serious high school and indeed junior high, elementary school musician. I played French horn and practiced a lot. But I regret not having had that grounding. But certainly that grounding was well nigh universal among the class of people who became politicians. Sure. And so one of the reasons I write the books that I do, I write kind of half and half, you know, half non, well, the kind of books that you will not find a Q-sip or a ticker in.
5:56Yeah. That's about half of the 10 you mentioned. And I do it because in a way I'm a refugee from this age of limited vocabulary and truly uninspired rhetoric. I can name a politician at a very high place in this country who seems to like six words under his belt. I wrote about John Adams during the Clinton term when the moral collapse of America seemed upon us. I said, get me out of this. So I got out of it at night's weekends on the 4th of July by reading all about John Adams. I wrote a biography of Adams. He became a lifelong friend. And in a way, I think the Burks and Fox project was a little bit of a bit of temporal escapism.
7:01You know, when you write about a different age, you get to see the present very differently. And you get to imagine the future perhaps a little bit differently. Well, I agree. And speaking of Munger, Munger touched on what you're speaking to, which is he talked about, like, I never met Ben Franklin. and I never met many of these people, but I know Ben Franklin, and I got to know him very well through stories about him and his own writing. And I think about that a lot. So to your point, I walk away thinking, like, I know Edmund Burke, and I know Charles Fox, and I know Lord North, and I know these characters of history through your writing.
7:40So let me start out with this. Let's just start with Edmund Burke. Teach us about his upbringing and his family story. Yeah. Well, Edmund Burke was born in Dublin. The year was not quite certain. I don't have the date. I'd say 1729, maybe. His father was a lawyer. And Burke grew up in the Ireland that was subjugated by the English overlords. and these laws that had been imposed upon the Irish at the time of Oliver Cromwell were still in the books. Not all of them were enforced but too many of them were and Burke got a very, very full taste of governmental impression just by living as an Irishman in Dublin.
8:35And he finally, when he came of age after attending Trinity College and of course excelling there, he decided to come north to London to make his fortune. So he was not totally estranged from England or English thought or English politics, but he certainly knew firsthand what it was like to be under somebody's thumb. And Fox was entirely the opposite. Fox was the most cosseted, most indulged, most prized possession of an aristocratic family you could imagine. Try as he might, he could do no wrong. Yeah, and he had everything you'd want as a child at the time. Yeah, except a father who would not pay, virtually pay him to go out and sin.
9:27Here, kid, here's 1 ,500 pounds in gold. go to drink yourself to death. So Fox was an extraordinary prodigy, as was Burke. But Fox was a prodigy in all things, in drinking, in horse playing, in gambling, in the ancient tongues, in modern Italian poetry, in whoring. You say that like it's a sport. Like fencing or jousting. Yeah. Yeah. Right. Well, it's true. And he amazed and kind of appalled the people in Paris that watched him go about his business of being a young dissolute. You know, why does he do this? So his father just loved him to death. And he expressed his love by indulging Charles in some of the worst habits you could pick up as a young man.
10:35So one was kind of a middle-class, striving person who wanted to do something great. He wasn't quite sure. That was Burke. and the other was the most indulged son of an English aristocrat you could conjure. And so it's rather extraordinary the two of them came together. Burke was a professed Christian. He believed with all his heart that Jesus was a divine figure. And Fox, Fox only went to church when he was a wedding or something. Sure. We probably scampered out early. So most improbable pairing socially and - Spiritually. Yeah, spiritually, yeah. So early on, I think this is a foreshadow of later events in their, at least in Burke's life.
11:32You mentioned while he was in school, this idea of like the protector of the helpless or the idea of mercy becomes a big idea in his life. You mentioned the Black Dog Prison while he was at school. Can you briefly tell that as kind of a picture of who Burke was going to become more of? Yes. Well, the Black Dog Prison was a notorious lockup in Dublin. And the kids at the Trinity College were, they had a famously disciplined, led famously disciplined lives of scholarship Monday through Saturday. But that didn't stop them on Saturday from tearing up the town. And Burke, oddly enough, were the future founder of modern conservative thought, joined in one of these frolics one night in kind of an attack on this prison, which, of course, failed in its attempt to release the good bad guys.
12:42But it foreshadowed, Cole, just as you say, it foreshadows Burke's lifelong determination and dedication to the idea of justice. You know, he underwent enormous personal vilification while he was in parliament to defend, on one occasion, to defend convicted, you know, they call them bugger. Homosexuality was outlawed. Sure. Sure. And two were caught in the act and they were brought to the public stocks. One was stoned to death there. And this upset Burke deeply and he protested it publicly. and he was attacked publicly in snide letters to the editor of a newspaper in London suggesting that if Burke was so keenly interested in these sods, perhaps it meant that Burke himself was married to a woman only for show.
14:01That was the sense of the letter. Sure. It was a front. So he sued the author of this thing and got minimal damage and gave them away, I guess. but he did these things not because there was anything in it for him, but justice. Sure. I so admired him for it. Well, so let me ask you a question on that because when I was in that section of the book, I was trying to ask myself, thinking through Burke, is did Burke have – I didn't get the sense from Burke what he said and what you wrote about him is that he wasn't saying like, oh, I'm all for sodomy, okay? It was the inhumanity of the punishment, particularly the public capital punishment that was witnessed where you mentioned that they're taking out the public and normally they're throwing produce or stuff like that.
14:54And someone throws a rock and kills this person over sodomy at the time. Okay. And my read on your writing was that it wasn't the act of sin that they committed in Burke's mind. it was the punishment and the inhumanity of it. Correct. Yeah, he disavowed any defense of sodomy. He bought into that particular prejudice embedded in English law. But there was nothing about him that would tolerate cruelty. Sure. And again, he rose to the defense of the man who never knew, knowing full well what would cost him in public reputation. Although I dare say more thoughtful people, more sensitive people rather liked him more for it.
15:55But certainly the vast public would be inclined to nudge each other with their elbows. Well, speaking of, in the things that were left unsaid, Fox also had a stain on his family, and the stain on his family goes back to the person who let him get away with everything, which was obviously his father. You talked a lot about how it was publicly believed that his father, who became Lord Holland, stole from the king throughout his time in service. Yeah. Well, this requires a bit of background. And for any financially-minded, investment-minded people, this will come as a most extraordinary chapter in public finance.
16:40There was an office called the Office of the Paymaster of the Forces. And the Office of the Paymaster of the Forces was charged with receiving public money with which to pay the salaries of the troops and the sailors. And the money was his until such time as he needed it to make payroll. Money was his and he could speculate with it. You could invest with the Bank of England, a good three or 4%, or you could speculate in common stocks or anything else you want to do with it.
17:22And it helped, it didn't hurt certainly, that the Office of the Paymaster was also a place where you could get some inside information on what the government was going to do, whether peace negotiations would be fruitful or not. and Lord Holland played this like a fiddle and became extremely rich. So people looked at these hundreds of thousands of pounds sterling. This was big money. This is more than Donald Trump. It's as much as Donald Trump had made in crypto. Sure. Almost. Are you saying there's grift going on right now, Jim? I didn't say that. Yeah. No, it's the same. Well, they share, the two of them share, that it was utterly out in the open.
18:09It was perfectly legal. And I guess that with respect to the president today and his crypto adventures, I'm not sure what the courts will finally decide or how the juridical record will be written. But in Fox's time, certainly what he did was... And although it never passed the smell test, and the senior Pitt, PITT, the great commoner, was at one point the paymaster. He declined to use the funds this way. He would not invest them or speculate with them. Sure. They stayed locked up in the Bank of England. And I guess I'm digressing a little bit, but Burke came into the same office. And wouldn't you know it, Burke passed a reform that cut him out of the big money.
19:06Burke was broke his whole life. Fox was broke his whole life. Fox lived from bankruptcy to bankruptcy. Burke's affairs were not much better, but he never actually had to face the indignity of having a sheriff come and stack his furniture outside of his house in Mayfair. Well, the other thing that came up throughout this story, I mean, we're talking about people that need money who are in politics. I mean, it seemed like there wasn't a single person in politics that had any money that didn't have a gambling debt or some kind of debt being held by someone that they have patronage to, including, as you point out, the king.
19:46The incentives were very perverse in parliament at the time because of people's debts. Yeah. Well, the king was not – the king had a huge allowance. Yep. The civilist. Well, yes. And he – it's like the joke about – I forgive the tone of this joke that makes this rounds during final phases of bull market. I gave my wife an unlimited budget and she exceeded it. Sure. Yeah. Okay. That's the – The king didn't have an infinite budget, but he did exceed it. And he had to go or have his proxies go begging parliament to top up his considerable income. But the way it worked in parliament was that you didn't earn a single shilling out of parliament unless you held public office.
20:53So Burke and Fox both were on the outside looking in. They were both lifetime, well, a few very minor exceptions. They were both in the opposition for their careers. so they made no money from it and that put them as you say it put them at the mercy of their creditors yeah and um and uh and edmund burke um uh you know was was in the debt of um of his uh great mentor whose name just now cole escapes me will fill me in trouble with writing a book is that you write it and then that oh and there's a lot of names i mean you're talking about 50 years of names. 50 years, well, 50 years later, they publish it.
21:37Hi, I'm Cole Smead, CEO and Portfolio Manager here at Smead Capital Management and host of this podcast. If you enjoy this podcast, I'd like to invite you to check out SmeadCap.com. At our firm, we are stock market investors. We advise investors who play the long game with a discipline that has proven success over long periods of time. Learn more about our funds at SmeadCap.com. Past performance is not indicative of future results. Investing involves risks, including loss of principle. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges, and expenses.
22:13Read and consider it carefully before investing. Smead funds distributed by Smead funds distributors, LLC, not affiliated. The other thing too, that you illuminate is at the time, I think it was about a third of the seats of parliament were not even contested where someone just say, hey, that's who's going to represent that area because that was the process at the time versus there were other contested seats. So for example, like Westminster was a contested seat and you tell some of the stories of that. Let me pivot a little bit because one of the main debates that seems to come up time and time again throughout this book for Burke or I'll call it Burke and Fox with Parliament is the idea of regulating commerce versus taxation.
22:56um you know the stamp act you know was an example of this you know why was that such a main debate do we just tax things and i think of this in the american context we've taken things like sports gambling and said hey let's legalize it because we can tax it we used to regulate it how is that a fair way of thinking about some of the debates that the you know the british government had at the time i'm not sure there's a trade-off between regulation and taxing you know i what do they taxed. They taxed, well, the colonies famously, they taxed tea. They taxed, there were excise taxes in Britain. Very controversial.
23:33Yep. Hateful even. Some tax collector would come and walk into your orchard and count the apples and you would be done for that. Sure. Very biblical, by the way. Sounds very biblical. It does, yeah. And no income tax, naturally. Well, let's pivot to John Wilkes because he was also another lightning bolt, I would say, in British politics and in the cultural history at the time. Can you teach our listeners about John Wilkes and why he became so important in the Burke Fox story? Yes. Well, John Wilkes was a well-born ne 'er-do-well. His principal physical characteristic was extreme ugliness. And nonetheless, a ladies' man, he would say that I can talk my face off in 10 minutes.
24:33Just give me 10 minutes. Yeah, charm. But Wilkes was exceptionally intelligent. He was one of these fabled readers and writers and conversationalists. He was politically the arch enemy of the great dictionary author Samuel Johnson. But the two of them would sometimes get together and put aside their differences, political differences, and just talk about literature. It was something they both loved. But Wilkes was the very human symbol, and he was kind of the avatar of what we would regard as political liberty in a time of very, very aristocratic notions of who might vote. Sure. And the criteria for that very limited question of the politics that would allow them to vote.
25:51So Wilkes ran under the slogan Wilkes and Liberty. That was what he stood for. That's what people chowled when they saw this, right? And Wilkes was elected to parliament, and he stood for things that the king didn't like, that the government didn't like, and they voted him. Parliament voted him out. Sure. And the people voted him back in. And that repeated this process many, many times until Wilkes finally succeeded in getting himself back in. And in the meantime, Wilkes formed a friendship with, of all people, Edmund Burke. And Burke kind of helped him in serratifist ways with getting settled.
26:40Wilkes had become, by this time, at one point, had become a fugitive from justice. And he made himself scarce by taking the Channel Ferry. and when he came back, Burke helped him to hide out. Sure, because at the time, if I remember correctly, the publication was the North Britain. That was a very controversial publication and so I think you were telling in your story that King George and his lieutenants and consiglieres would sit around reading the North Britain. They were like subscribers to the publication and they were just waiting for them to cross the line legally in the publication. And you talked a lot about how the 45th edition was so important because it's finally the time that they crossed the line and the king went after them.
27:36Yes. And so, yeah, Wilkes stood for the freedom of the press, among other freedoms. And at that time, you didn't have to step very far out of line to be judged guilty of libel and slander. And now that they came down, the authorities did on Wilkes' printer. Yep. Because Wilkes did not sign his own work. and there was a great to-do about the North Britain and about the idea of the freedom of expression. And Wilkes was on the side of the angels as we would judge it. So Burke at the time called the government despotic were his words according to what you wrote. And then I have a quote from Fox. Fox said the house was, quote, and speaking of the House of Commons, was, quote, the only revealers of the national mind, the only judges of what ought to be the sentiments of the kingdom, end quote.
28:47I mean, this is the part of the story where I'm reading this and I'm saying these gentlemen are fusing their friendship through their political views. Is that a fair point in this Wilkes moment in the story for them? Well, yes. You know, Burke Fox was at one point the most obnoxious nepo baby with respect to class distinction and snobbery. He believed, there was an expression in American corporate finance around the turn of the 20th century, one of the railroad titans, and said, the only duty of the stockholders is to collect their dividends. And what Fox anticipated this big shot in saying was, in effect, the only duty of the public is to do as we tell them to do through the legislative process of the House of Commons.
29:53We speak for them. And they would be wise to heed us and to stop advising us on a course of action. Sure. Yeah. That was Fox's view. That was never Burke's view. Yeah. But Fox was an insufferable young prig in the early days of his public career. Sure. Which made, of course, his subsequent conversion to a man of the people all the more astonishing to people who knew him way back when. Sure. He made a complete turn in politics. On that idea, we'll obviously talk about the East India Company later. But at the time you were discussing this, what did you have as a shareholder of the East India Company in Wrights?
30:49and you use a term which is obviously comes from like Lombard Street and many other writings on the subject matter. But what was the idea of stock jobbing at that time? Stock jobbing was the derogatory term for speculation. And there were no laws against insider trading. It might have been condemned on the grounds of taste. Did it pass a smell test? Nope. Not then, not now. Sure. But you could, I think, if I'm not mistaken, you could not be prosecuted for it. Sure. So stock jobbing was about the manipulation. It was, again, a term used to describe the inside world of speculation pertaining in the middle of the 18th century.
31:40And that inside world would run stocks up, run stocks down, would do rug pulls, would play games with options, options traded in Amsterdam. Sure. It doesn't sound very different, does it? No, not at all. Well, and also you point out that while the speculating is going on, there's people – there's a lot of discussion in your book over how they're trying to change the regulation of companies like the East India Company throughout these gentlemen's career when it comes to things like the insolvency or not, the shareholder rights, et cetera. But while this is going on, members of parliament are speculating in the East India Company.
32:21So there's no rules. You can borrow money. You can speculate while you debate this in parliament. Yeah. The stockholders were not without some recourse. I mean, they did elect the board of directors. They met once or twice a year, the stockholders did.
32:40But just as you say, the insiders held the whip hand. And the incentives were not as they might have been for the best outcome. Sure. But they work for the insiders. They work for the insiders to a degree. But mismanagement ultimately redounds against the interests of everybody.
33:15And I think the best illustration of the misaligned incentives prevailing at that time was the compensation system for the young people who went to India to make their fortunes working for the East India Company. and they were called writers. And they would make this passage by sea and that was like nine months. Nine months! And they would get off into this most un-English biosphere featuring strange smells and decaying vegetable matter and heat, oppressive. Humidity, like Washington, D.C., but even more, okay. And then they would go to work for the company, except they wouldn't go to work for the company exactly, because the company paid a pittance.
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34:20Instead, they would set up for business themselves. They would trade for themselves. Yep. And if they survived, and some of them did, some of them survived from the violence that prevailed then, and also from the disease that was ever-present, and so the ones who survived and who succeeded in building up individual businesses went back to England fabulously, Mitch. Yeah. And but notice that the stockholders did not really reap the fruits of the enterprise and the success of these young people. The young people reaped the success of their own efforts. Sure. Well, it reminds me back in the 2010s of oil executives who got private interests in wells that their companies were drilling, right?
35:16Who's going to get wealthy from that? Well, whoever is collecting money without having to take any risk, to your point. Yes. Well, the writers took plenty of risk, but they didn't share much of their well-earned money with the stockholders. Sure. So another part that I think was – we start to really see a contrast, Burke's disagreement with the liberty of conscience. So this came up with the church. Effectively, the king and thus parliament asked this question of do the priests have to assign to what I think was called – what was it? 49 articles or 39 articles I want to say? 39 articles of faith, yeah.
35:57Correct. And it was – they were being kind of pressed to this. And so this was a debate among the House, and Burke disagreed with it on the grounds that that's a human thing to have a conscience, and you have to be able to act on your conscience. And at the same time, there was another very constitutional debate coming up, which was the Marriage Act tied to the royal family in that I think the king could decree that you had to be 21 or older, and he had some control over the marriages. these were all real just constitutional issues that were coming to the forefront in what I will call the age of reason, if that's fair.
36:39Yeah. Let's take two of those at one at a time. First of all, the debate over the oaths one took of the 39 articles of faith. Now, to gain admission to Oxford or Cambridge, you had to attest to your belief in the 39 articles of religion. Okay. And most of the kids, not unlike, they didn't know. It's like, can you name 39? No, they couldn't do 39. Sure. Could you mention maybe six of them? No, I don't really know. But you believe in them, right? Yes, sir. So that was the way you got through that. And so the question was, before the House, was, should we abolish this requirement, the attestation to the truth of these principles of religion of the Church of England?
37:42and Burke said no we should not abolish it nor we should amend it nor should we listen to the priests who would rather not have to themselves attest to it because the priests are working for the church which is an arm of the state and they should just do what they're told in that respect they should accept that they are on the payroll of the government on the king's payroll yeah and um and somebody would say well why don't we just have them attest to the bible this is where it gets interesting yeah and and burke and burke said the bible is the most miscellaneous book in the world interesting the most miscellaneous especially for a devout christian to say that well no but yes but it's it's open it up it's this extraordinary book all sorts of stuff yes you believe it all you mean you can you is it all relevant to the okay So, Burke said no.
38:40So, that was Burke's line. Fox said, you know, I don't, no, that's apologetic. He was not one to attest to such things. So, I was gonna say, Fox didn't really believe in the morality or simplicity of anything. Well, yeah, I'm not sure about simplicity, but he had a different set of morals than many of his age. So the Marriage Act allowed the king to say yea or nay to the opposed union of two members of the royal family. and all of its multiplicity, all sorts of cousins and branches that went off from the royal family. And the king would have had, as the years go by, as the branches got married, multiplied, and that the king would have a say over like 30 % of the barriers in the kingdom.
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40:29Read and consider it carefully before investing. Smead Funds distributed by Smead Funds Distributors, LLC, not affiliated. This was a very important issue to Fox because his father was a commoner and he married into the aristocracy, into the royal family. He married to the nobility. Yep. And the king didn't like it and the king chastised Lord Holland as he came to be known for this act of presumption. and Lord Holland fought back and sponsored laws against the Royal Marriage Act and then Charles Fox inherited all of his father's prejudices and all of his enemies and he too took up the cause of abolishing the Marriage Act and that was one of the sources of the great conflict between Fox and the king.
41:27Another being that Fox became the tutor to the king's son in the fine arts of living well. Living well without regard to many of the structures in the New Testament. Yep, yep. Or the old for that matter. And I think even down to on that, if I remember correctly, Fox's girlfriend was a performer but also a prostitute who the prince took housing with at times as well. Correct. Maria was her name, I want to say? Is that correct? She was Mrs. Armistead. Okay, that's right, yeah. Yeah, and people wonder whether there actually was a Mr. Armistead. But she was a charmer. She was very intelligent. And yet there wasn't much open to a woman at the time in her career.
42:26If you weren't married and wanted to work, if you wanted to have a life outside of domestic employment, you're not going to go to school and become a physician. So Mrs. Armistead became a courtesan. Sure. The only fans of that era. Yeah. And so fast forward to, of course, the end of Fox's life. And he was, this time, he was a minister in charge of negotiations with France during one of the periods of the French, the Anglo-French wars, during the times of the Napoleonic Wars. And he and Mrs. Armistead, by then, were married, secretly married, because she made an honest woman of her. They went to Paris during one of the lulls in the war.
43:23It was a peaceful lull. And they went to Paris, and Fox was a great Francophile. He loved the French. He loved the language, and they seemed to love him. And he and Mrs. Armistead had dinner one night with Talleyrand, Fox's counterpart in the French diplomatic apparatus. And Talleyrand himself had married a courtesan. So they're sitting on a, I imagine them sitting on a settee, the Talleyrands and the Foxes and the ladies sat together. And I think I quote somebody saying, they had some very interesting conversations about the people they knew. So on Fox, by – I think this was 1779 in your book.
44:08He's such a prolific orator that you comment on the women that are showing up to parliament to hear him speak. Was this just his oration? Was this his speech? Or was it just kind of the full package of this Nepo baby, probably somewhat debonair? You know, he obviously took courtesans and he was a great speechwriter and speaker. Was it kind of like the full package of Fox that caused these women to show up? Yes. Later in his life, somebody made a disparaging remark about Fox in the presence of Fox's then political enemy. It was the younger Pitt, William Pitt the Younger. And Pitt said, ah, you have never seen him inside the magic circle, which I think meant
45:00is a rare gift for speech within the House of Commons. Yeah. But Fox was this extraordinarily magnetic figure. We have joked probably more than we should have about his shortcomings. Sure. Although he's not going to sue us. You know, it's fine. Yeah, libel's fine nowadays, right? Yeah. For him, at least. Distance disinfects all sorts of things. But Fox was, in some matters, exceptionally powerfully principled and fearless in defending those principles. He was a great enemy of the slave trade, and he regarded the abolition of that trade, in which he held a significant role as the only thing that mattered to him in his parliamentary career.
45:50Sure. When you mention in the book, and this gets into the Pitt period, but Wilberforce has mentioned in your book, and there's a great story and book about Wilberforce out there, who obviously he's known as being really the person that ended slavery in the British Empire. Yes. I'm not sure how to divide credit for the abolition of the slave trade. I know that Fox, I think, held a... I'm not sure if he had a majority interest or a minority interest in that particular enterprise, but if you look through the records, I think you agree that his part was very significant. Sure. The other issue that they debated was, Again, these are all like what I consider things that we take matter of fact nowadays.
46:39But I mean parliament had to debate how to treat debts. So again, perverse incentives. It's 1776 and the House of Commons is debating insolvent debtors and they're trying to figure out what's the level of debt that should be considered forgivable in a way. and this is being debated among people that have many outstanding debts. Yes. There's probably the most certain way to make sure that a debtor cannot repay his debts is to lock him up in prison. Yet that was the standard procedure. It was thought to be black letter law, solid, well-grounded in history and reason. But so the prisons were full of people who couldn't pay their debts, nor could they ever hope to pay their debts, except for the intercession of their friends.
47:42And, you know, Burke argued against this ridiculous, as we see it now, state of affairs. And I can't now recall just what Fox said in Parliament about it. But Fox was frequently insolvent. You know, as I mentioned before, sometimes his furniture was stacked outside his residence in Mayfair. And the sheriff had come to take his last chattels. You could not be locked up in prison for debt as long as you were a member of parliament. And parliament was in session. Sure. It's kind of like insider trading among the government. today. Who said there was insider trading in the government? Yeah. But Wilkes was made sure to be...
48:36He wanted an election to parliament because he was then kind of invisible to the long arm of the law in some respects. So being in parliament did have its benefits quite apart from the monetary one, which was actually not a benefit at all, being absent. So Henry Lawrence is captured off of, I think, Newfoundland with documents that incriminate the US government with the Dutch. He's brought back to England to be thrown in the tower, if my memory serves me correctly. Burke's in contact with Franklin, because in the background of all this, there's obviously the war in the Americas going on, which is eventually lost, but there's this tension of really King George and how he's dealt with that and how parliament wants to kind of walk the path forward, which was very expensive.
49:29Franklin was a popular figure at the time, even in England. He was known as a philosopher and a thinker. And by the classical education, he's really the father of modern, the modern classical education at what's now UPenn. How was Franklin viewed in the public or how would you view, How would Burke or Fox look at Franklin? Well, Burke was friends with Franklin. They corresponded, I think, had held each other in great high regard. Samuel Johnson said, Kola said to Burke that his dream of mind is perpetual. That's Johnson talking about Burke. And certainly the same could be said of Franklin. He was always, he was never not thinking.
50:16He was, and the two of them made common cause with respect to the American Revolution. They were both interested in ending it, both interested in America becoming a self-governing nation. And Burke befriended Lawrence in the Tower, again, risking charges of engaging in treason. And people said that if you're in correspondence with Franklin, this leader of the rebellion, that makes you a party to the treason, to the rebellion. And Burke shook that off and denied it and denounced it. But it illustrates the many, many instances in which Burke was prepared to risk his public reputation and risk more than that.
51:07During the Gordon riots, I guess 1780, when London was burning with the riots of the anti-Catholic. Yeah, the Protestants came out. Yeah. And so Burke was not a Catholic, although he was regarded virtually as one by his political enemies because he was Irish. And they called him a Jacobite. Yeah. and Burke walked out into the mob and said, here I am. Let me explain. Tell me where I'm wrong. Yeah. Yeah. So let's pivot a little bit because, you know, we're kind of getting to the final scene in some respects. So there is a coalition. The coalition was North and Fox kind of effectively running the House of Commons.
52:02The East India bill comes – or what they call the India bill comes up. Very tenuous. Really costs that political coalition everything and it falls apart. The king wanted it that way in some respects. So that's partly why it fell apart. In all respects. In all respects. Yeah, he gamed the system to make sure it did fall apart. So then this idea of impeaching Hastings comes up. He comes back to England and Warren Hastings is in effect put on trial. And this is quite a moment for these gentlemen because there is all this money stuff, right? Was he stealing? Was he using his position improperly? Did he cause war?
52:50You know, kind of constitutional issues. And then there's also the kind of human issue. I think Thomas Peirce, in your writing, he called Hastings' work un-British, which my take was he was saying it's inhumane, it's ungentlemanly, it's not noble. Is that a way of thinking about how some of Parliament viewed Hastings' dealings among humanity? Yeah. Not playing fair, I guess is what he meant, too. let's go to the India business, the parliamentary business first, just for a moment. This shows the friendship of Burke and Fox at high water. This is the moment. We're going to go from high water to low water quickly, though.
53:40Yeah. But Burke gives a speech that, to this day, never fails to, when I reread it, it sends shivers up and down my spine. Okay. Burke is on his feet in the House of Commons. And he is defending his friend Fox. He is defending a bill that would reform the governance of the British East Indian Company and lift the despotism of that company off the backs of the Indian people as they, Burke and Fox, regarded it. And at one point he says the following. He says, I'm reading this now, it is in the nature and constitution of things that calumny and abuse are essential parts of triumph. Now, that's he's saying that Fox is willing to suffer the calumny and abuse that are essential parts of triumph.
54:38And this has relevance to investing. Sure. It has relevance to investing because there's an expression that Grant has adopted of his own. We didn't coin it, but we know somebody who did, and we have repeated it, and that is that successful investing is about having everybody agree with you later. Well, I think we call it the willingness to suffer. That's roughly what he's touching on. Right.
55:05So Fox gets up and defends this East India reform bill. and in so doing
55:18speaks this encomium to his great friend Fox and the bill is defeated it passes the House of Commons it's defeated the Lord because the king has virtually bribed the House of Lords to defeat it so the coalition of improbable coalition of But North and Fox dissolves. And once again, the two pals are tossed into the netherworld of opposition. And so I guess they were never quite so close after that. Sure. Well, because the next constitutional issue that came up was King George is not well. He is what seems to be losing his mind and going through a series of events that cause people to say the king is not going to be able to act as a king would.
56:20And so the debate comes up of his son, the prince, as a regent while the king is still alive. So he's not king. He is just the acting regent on behalf of the crown. and this causes a schism in Burke and Fox because you have Fox believing much like Burke used to that the king is despotic and Burke yet in this time and Jim I need your take on this because this blows my mind it's almost like I felt he was saying in my life there is something traditional about the crown that has always kept a sense of morality and sensibility and timelessness, and therefore it is needed in our lives. That was like my read between the lines on Burke, but was against much of what he said in his younger times as a younger man.
57:15Well, I would say, Cole, that Burke was pretty consistent in believing that the British Constitution was perfect as it was. And there was no cause, no reason, no justification for tampering. Burke was, we know him now as the father of modern conservatism, and some of us revere him for that. But he was, in his own time, he was rather a reformer. He wanted to reform this paymaster of the forces business. He wanted to reform the way people were treated in the stocks rather than - Sure. Well, it's very Hayekian in that there's a liberalism, and I know that word's been very perverted in the modern sense, but that's what Burke was.
58:09It's a liberalism that at one time seems progressive and another time seems conservative, if that's fair. Yes. And so Burke was reformed except with respect to the Constitution. And people would come and say, we need a parliament that is more responsive to the will of the people. No, no. It's fine as is. This great organic thing of wonder and beauty we have is it's a pact between the dead and the living and the yet unborn. you don't just go fiddling with it for some perceived short-term improvement. You know, it was, don't, don't. And people couldn't quite figure that. They couldn't figure either why Burke was supporting the American Revolution, yet he came to resist as a complete act of nihilism, the French Revolution.
59:13What was that about? But I think a little closer reading of Burke's position shows you that there was more consistency than it seems apparent on the surface. Well, I was going to say part of their schism in the French Revolution was Burke's writing on Marie Antoinette. You discussed her as a very kind of particular figure even for Burke. Well, you're referring to one of the more notorious passages in Reflections on the Revolution of France. Correct. So Burke extols Marie Antoinette and he describes her in terms that are almost erotic. You know, there she was, this sylph, this figure of extraordinary grace.
1:00:10And I'm not doing justice as I could ever hope to do with Burke's work. But one of the readers Burke had for his book returned it to him and said, do not print that. They'll laugh you out of the House of Commons. And many tried and many did. It was over the top. Yeah. Well, it was too much esteem for a political environment that it's one thing to keep the monarchy. It's another thing to condone a revolution or say the revolution shouldn't have happened. And I also want to give you a lot of honor in that you talked about how the profligacy of the government was a dominant feature of the French Revolution, regardless of the, I'll call it the political virtues that also were being espoused in that.
1:01:03The fiscal roots of the, apart from John Cochran, the fiscal roots of the French Revolution, we'll call it. Hey, I want to give a big shout out to everyone who's been working so hard on this show. You know, we recently hit the top 10 in investing podcasts on Apple Podcasts, and even number one in the business category in several countries. As you may know, this show is brought to you by Smead Capital Management. Smead Capital Management understands how frustrating and illogical the stock market can be. If you're searching for funds with a proven track record, give the Smead funds a look. Or better yet, reach out at SmeadCap.com.
1:01:38And don't forget to mention, you're a fan of the podcast. Past performance is not indicative of future results. Investing involves risks, including loss of principle. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges, and expenses. Read and consider it carefully before investing. Smead Funds Distributed by Smead Funds Distributors, LLC, not affiliated. All right. So I would be remiss if I didn't bring up my last question because obviously you are the editor and publisher of Grant's Interest Rate Observer. So I have to ask you as we talk about like that to end on the French Revolution, what What is your take on the economy?
1:02:24And I'll call it the Fed policy course, Jim, because the course seems to have changed quite a bit over the last 120 days, 180 days, let's just call it. And it seems there's a course we're on. How do you see that playing along with the economy? And then the last thing I'll ask you on this subject matter that you can comment on separately is just where you see us in the final stages of a mania. But first on the economy and the Fed, how do you see this game playing out over the next couple of years? Well, the administration, or more particularly the White House, or still more particularly Donald Trump himself, wants to subjugate the Fed to his own will.
1:03:07It's half succeeding. He wants a low rate of interest. He wants a very, very low funds rate. He wants that because he wants the economy to run hot. He wants asset prices high. He wants midterm elections to go his way. He is a real estate speculator by trading and promoter by trading. He's a debtor, but he's a net debtor for most of his life. I think now with his crypto scams, he has come into the world of being cash flow positive. It must be a wonderful thing for him to be that creditor now. but so so real quick question on that because I agree where do you see like so if we're on this policy to lower short term rates which there's no one who would debate that right now do you think we go to something like two and a half 275 no you no don't misunderstand me that's what he wants okay right so what do you think he'll get then well well it depends doesn't it depends a little bit on the rate of inflation And that's rather the wild card.
1:04:14It is the ultimate – Jim, it's the ultimate wild card. And I agree because the knock-on question would be where that lands, so lands the 10-year. Is that fair? Well, the 10-year isn't exactly the slave of the funds rate. But let's say, for example, that Stephen Moran, who is Donald Trump's voice on the FOMC, gets his way and we have a 2 % funds rate. all right and we are printing at not three percent cpi but we're putting it three and a half percent sure it gets worse okay so well by the way most people in fairness jim most people think the inflation game's over i mean i think markets are debating that but there's a lot of people there's half the market that's on the side of inflation's not going to be a real thing going forward and another half that says it is and therefore we land at four percent right well Well, there's always that, isn't there?
1:05:08That's why we have markets. Okay, so for what it's worth, I'm a believer that inflation will persist rather than vanish. But if the Fed is going to push down rates regardless, and if the inflation rate is going to tick up, not down, you might see what we call a bearish steepening of the yield curve, in which the long bond in the 10-year, perversely, or not so perversely, I guess, go up in the face of falling short term money rates. Sure. Okay, so that's one thing to - So call like 455 as the lower rate goes closer to three as an example. Yeah. Okay. Okay, so what does that do? It means, so what does that mean for the stock market?
1:05:55Well, it's hard to know because in the final throes of a great levitation in equities, interest rates simply don't matter. I agree. And I'm with you there. You're preaching to the choir. Let me ask you a question. I don't think they matter to the stock market, but Jim, they matter to the real economy in a way, more than the stock market. So let me just use an example. And I think this is to the Donald Trump point. Let's just say 3 % on the short end of the curve. If you get a bear steepening in the bond market, don't you still want to be a bank in those spreads? But you want to be a bank unless you have exposure to leveraged corporate borrowers that may be unable to service their debts on time and good money.
1:06:45Okay. So there are many trillions of dollars worth of private equity in this economy. There are many trillion,$2 trillion or a little bit less of private credit so-called. There are structures that are predicated on rates that prevailed in 2020 and 2021 still. And rates as they are today have tested the balance sheet strength of those. And you can see the kind of the bursting of rivets, as it were, in these structures, in the prevalence of payment in kind options being exercised to service debts and more borrowing rather than with cash. So I think that the credit tensions in this economy could very well spark a bear market that equities alone would not deliver in the face of rising rates.
1:07:42I think the story to be written is a story in the credit markets rather than the story of the Magnificent Seven. Sure. So let me ask you a follow-on question on that because all really nasty bear markets in the stock market are typically predicated by credit crises. In other words, I'm not saying that you can't have a 40 % bear market in the stock market without it. I'm just saying it's an easier tell if it's a credit-related issue and hence think of like a 2008, 2009. I think of credit being where that causes the greatest liquidity squeeze. that would be, you know, historically I'll use 08 or 09 that was precipitated in things like mortgage products.
1:08:24And that was a lot of real economy, banks, et cetera. Do you see the same excess of speculation in those arenas comparatively versus in the speculation of crypto and the stock market and what I'll just call general degeneracy? It's always a little bit different, right? Mm-hmm. And I don't see the regulators are very scrupulous about closing barn doors after the horses have bolted from one cycle to the next. Agree. So where are the next problem areas? And you mentioned some of them. I think crypto is vulnerable. I think my beloved gold bullion, my beloved gold bullion, goes straight up for about three or four heavenly weeks.
1:09:21Yeah. But things that go straight up, do they keep going straight up? No. No. So what else is going straight up? Oh, how about CapEx for data centers? Correct, which means cash is disappearing, Jim. Right, cash disappearing. And what are these data centers delivering with respect to earning power yet? Nothing so far, right? Nothing. What is AI, is a retail product delivering so far? Nothing. Well, except when college is in session and there's demand for AI for plagiarism. That's an original thought. Agreed. That's a growing concern. But there aren't enough students to sustain the large language model build out, just college students stealing from authors.
1:10:12So I don't want to sound like the guy who advises the driver of a broken down Model A to get a horse. But typically, as I read financial history in times of great technological excitement and tumult, that the financial crisis attended upon the overdoing it of the financing precedes the vindication of those ideas in the real economy. So AI will be vindicated in some form and fashion. It could be everything that promoters say it is, but what precedes that, it seems to me, on form, is going to be the comeuppance of those who have borrowed not wisely but too well. And all these great tech companies were great because they were prodigious, dependable deliverers of free cash flow.
1:11:11And now they're all borrowing to the - To the point of losing, they're borrowing because they're running out of cash. I agree. So I've, you know, Jim, to your point, when you're an asset light business, you become an asset intensive business. I haven't seen a good transition in that yet, just so we're on the same page. The other thing that we've looked at, and I'm sure as a history junkie, anything that goes over 1 % of US GDP in CapEx. So like the railroads did in the 1880s, telecoms did it in late 99. And then oil and gas companies did it in 2014. I find really bad CapEx cycle. So that's not a good historical guide.
1:11:51And I think the other thing that kind of I was going to overlay another historical paradigm, the household ownership of equities that the Federal Reserve through their Z1 report publishes, it's the highest ever. And, you know, the S &P from a 10 year forward perspective argues They lose money from these junctures. And so I think – and maybe this is like my biblical context, but maybe I'm in the Burke Grace camp. The people that have taken these speculative risks and made all the money, it's not the three bottom income quintiles. It's the richest people in America today and the most powerful that I think in a biblical symmetry will be punished, to your point, because the reward has been unequal relative to the economy.
1:12:35Yes. I don't think the chastisement, to use another biblical word, will fall upon the backs of the bottom 48%. Bottom 48%, it sounds an awful lot like everybody. It's like every man. If you're right about inflation, I'd want to be collecting a check. But they may not own common stocks, but they will surely feel the loss of purchasing power on the part of the people who have been spending the money. Sure. Agree. Well, that's the wealth effect. They didn't get the upside. They didn't get the wealth effect, but they will participate fully in the downside, I'm afraid. Sure. And my only other guess on that, Jim, and you were there, so you could give a better two cents than me, but it took a couple of years after the dot-com bubble for the wealth effect to finally slosh over into the real economy.
1:13:26And that was, to your point, heightened in places like Seattle and San Francisco and South Bay and obviously Palo Alto versus if you were in Houston, Texas, it wasn't the same thing. Yes. I don't know the timeline exactly of how this very carefully planned exercise in one segmented market. Sure. The levitation of house price. You know, Greenspan and others publicly acknowledged they wanted to get mortgage interest rates down to get the economy moving again. Yeah. to infuse and to instigate more housing activity. Particularly after 9-11. Yeah, which they surely did. She shows you a little bit about the perils of a planned economy.
1:14:33Yeah, I agree. All right, so Jim, outside of your publication that we mentioned, interest rate observer, where else are you active out there that our listeners can follow you or find out about your next books or, or, uh, you know, uh, become a gold bug in maybe. We, um, uh, uh, we publish grants interest rate observer, uh, twice a month as we have for 42 years. And, uh, I don't see how people can't, can't, uh, do without it. You know, I, I, I, I tell my wife, darling, do you realize how many people aren't reading this? I love it. And we're trying to, we understand that not everyone reads as they used to or as perhaps they should.
1:15:19And we are starting a series of live call in your questions podcast with our friends. And you can go on the website and find out about, it's called the Jim and Evan Show. Okay. Jim Evans show, yeah. Awesome. And we're having one in November. The witness is now going to consult his notes here. I think it's with Chris Davis, who's that wonderfully clever and successful mutual fund executive. It's the 12th of November, Wednesday, the 12th of November. So you have to listen to that. Nice. Yeah. I like it. And also a Berkshire board member, might I add. so yeah yes and they uh well he's he's a uh uh and a board member of uh coca-cola company that's that for validation correct um let's see nice guy too yeah jim i i i've i love this book this is a fun read um your book reinforces a powerful principle uh people don't change over time they change overnight i probably they change overnight they change over time and the friendship of Edmund Burke and Charles Fox proves that ideology or a friendship through similar ideas may not always keep friendships.
1:16:38Go out and buy a copy of Friends Until the End today. If you enjoy this podcast, go to Apple, Spotify, YouTube, or wherever you listen to a book with legs. Give us a review. Tell others about the books and great authors like Jim Grant that we have the opportunity to understand and study the world with and through. For our tribe, if you have a great book that you'd like to recommend, email podcast at smeedcap.com. That's podcast at smeedcap.com. You can also send your suggestions to us on X. Our handle is at smeedcap. Thank you for joining us for a book with legs podcast. We look forward to the next episode.
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From the publisher
In this episode, Cole Smead is joined by author James Grant to discuss his book, “Friends Until the End: Edmund Burke and Charles Fox in the Age of Revolution.” The book details the remarkable lives and friendship of British politicians Edmund Burke and Charles Fox, who often united in the pursuit of political causes, despite having wildly different lifestyles and backgrounds. Cole and James’ conversation also touches on their perspectives on today’s economy.
