The appropriate choice between business and public enterprise is determined by the interaction between a financial time horizon and the product or project’s economic life. The prevailing interest rate defines a precise credit time horizon which is a temporal outer bound for commercial enterprise. Projects which need longer to break even cannot be funded by business alone. Long-term projects face uncertainty and attempts to control it by means of rigid contracts lead to inferior outcomes. A ‘franchise’ overcomes the temporal boundary. Protection from uncertainty is provided by social and government agencies. Investment ‘manias’ set aside time horizons and can leave a legacy of real assets. Public–private partnerships for infrastructure development are a franchise intended to overcome credit time horizons. They were embraced by New Labour, but have given rise to inefficiency and corruption and are currently in decline. The time-horizon model undermines the standard argument for market superiority. It turns Hayek on his head: it is financial markets that require certainty, whereas social and public agencies manage in its absence.

Petty corruption breaks the rules, grand corruption writes the rules, cronyism basks in virtue. 1980s globalisation incited a corruption eruption in the periphery which spilled over back into the core in the 1990s. The United States narrowed its notion of corruption, which now engulfs politics, finance, law enforcement, and the Supreme Court. In Europe, an integrity revolution in the nineteenth century established impartial governance. It began under the ancien régime, and replaced patronage with expertise. Its ideal type of a Weberian bureaucracy, an elite corps of expert and honest administrators, was established in north-western Europe by 1870, and underpinned the capacity for war and constructive state action. Its efficiency was based on expert, impartial, and trustworthy competence. Official elites came into conflict with the forces of modernity, with democracy and the market. Their success led to over-extension, and the dilution of bureaucracy exposed it to its enemies.

Of several ways to provide for old age, the best is to be rich. Pay-as-you-go (PAYGO) pensions are funded by taxation and do not need to lock in the future. British and American safety net pensions remain very low. American economists (Friedman, Feldstein) pushed to privatise pensions, disregarding risk and high costs. Deindustrialisation undermined solid corporate and public sector pensions. Pre-invested private pensions only work for the better off. Popular resistance has preserved PAYGO. Pre-funded pensions, touted as best, fail because pension consumption cannot be hoarded. Headline yields are halved by transaction costs. Stock markets are too small to support social transfers, and PAYGO is an order of magnitude cheaper. Its real return is often higher than stockmarkets. Financialisation of old age is an exploitative deceit. PAYGO is informal, flexible, and robust.

Homes last for a century but have to be paid for sooner. Nineteenth-century buy-to-let rental was pervasive and depended on rolling credit. Interest rates and local taxes push it into a terminal slump even before 1914. Socially responsible and philanthropic housing was not affordable. After WW1 government policies, and not-for-profit finance extended both public housing and homeownership. German-speaking Europe and Scandinavia achieved secure rental and stable house prices. US government saved borrowers during Great Depression with guaranteed mortgage finance and continues to support house purchase. Home ownership is a privileged asset, but one-third remain excluded. Easy credit post-1980 inflated house prices caused financial collapse, widespread evictions, and unaffordable housing. Is prosperity an illusion? Housing is the largest consumer expenditure and its cost rises faster than incomes. Rising land values initially reduced inequality and then increased it. Home ownership underpinned democracy, and both are now in crisis.

Government’s task is to achieve the common good. If it takes a long time markets will not do it: banks do not lend beyond the payback time horizon. For better and worse, government acts as the risk taker of last resort. Laissez-faire arose out of the Victorian fossil fuel windfall. But rich societies see beyond the private horizons of business. After WW1 they set to safeguard security by means of infrastructure, healthcare, education, housing, and social insurance. Government authority, alone or in partnership with business, is prone to corruption. The antidote is an independent, expert, and honest civil service. In 1980 politics moved in the opposite direction, imposing business norms and seeking to impose a corporate model on government activity. An opportunistic public–private partnership is no match for pressing social challenges, nor is the academic delusion of self-sufficient free markets. In the face of private impatience, government acts as a commitment agent for society.

Climate change is a time horizon problem. Economics proposes a carbon tax and leaving the rest to the market. Tax levels are calculated by combining an economic growth model with climate projections. Such models predict very little economic impact, at odds with the alarmist projections of climate science. Economic methodology and selective evidence combine to induce complacency. This was endorsed by a Nobel Prize for William Nordhaus, its leading exponent. Complacency was challenged within economics for not being predicted by extrapolation, disregarding future generations, and modelling the risks incorrectly. Economics bears some responsibility for the problem it tries to solve. It ignores non-rational forms of denial, and falls victim to them itself. With no guidance from economics on how to address climate change, the actual approach chosen is central government precommitment, in line with our own time-horizon model.

In economics the labour force comes out of nowhere. Under capitalism children are still produced at home. Under slavery they were reared for profit. Children were reared collectively in kibbutzim and boarding schools. In industrialising Britain child labour paid for itself. Affluent societies rely on communal education. Even private schools are not-for-profit. The slogan of school choice was invented for racial segregation. Its appeal is social separation. For politicians and wealthy backers the charter school/free school/academy model is ideological money-laundering and opportunities for enrichment. Despite three decades of effort school choice has failed. Universities derive their economic support from student fees financed by government loans. This encourages expensive facilities, at the expense of students and staff. Student loans have become a lifelong burden exacerbating inequality. Bringing children to maturity relies on family altruism and public education. Other methods have failed.

In the United States a democratic impulse, multiple jurisdictions, and varied populations have facilitated corruption. Party machines relied on captive immigrant votes. Elected judges have corrupted the courts all the way to the top. Minority rule and voter suppression are rampant. Expert professionals take advantage of lay clients in finance, auditing, and healthcare. In healthcare doctors are venal and everybody cheats. A trilemma of democracy, governance, and markets cannot be resolved. In Britain, the neoliberal ascendancy relegated bureaucracy in favour of commercial cunning. Performance incentives replaced long-term government careers. Business and bureaucracy intermingle. Public service is hollowed out, diminished, outsourced, and privatised. There is little public benefit and no audit. Politicians and senior civil servants have been implicated in deep corruption. The Reagan–Thatcher revolution failed the public and has worked well for the rich.

Economics takes the view from the present. But as people become affluent, they care more for the future, which is what government provides for. In the twentieth century, government has grown faster than the economy, and even Conservative governments have failed to wind it down. The reason is that markets take the short view and cannot provide for the future on their own. Before the nineteenth century, interest was seen as usury, rent as parasitical, and profit as exploitation. In response, the neoclassical economics of the 1870s came to the defence of privilege: property was legitimate, interest and profit were the cost of patience, the reward for capitalist energy and enterprise. Markets were the natural order, government and taxes parasitical. Since the 1980s governments have embraced markets as enterprising, innovative, efficient, superior. But privatisation, deregulation, and outsourcing have not fulfilled their promise. Government has not gone away. An outline of the book concludes.

Viewed from space in August 1914, the earth was a shimmering blue globe, clad in a mantle of saltwater. From that height, the war that had just broken out was contained in two slender bands, neither of them visible, the one running through Belgium and France, the other through the Eastern boundaries of Germany and Austro-Hungary. On the ground, for the combatants, the grey sea was a lifeline, either for their side or for the other. The problem was how to keep it open, or how to shut it down. Historians are divided about the role of the sea. Paul Kennedy regards it as a sideshow. For Norman Friedman, however, “The First World War was above all a maritime war, not in the sense that most of the action was at sea, but rather in the sense that maritime realities shaped it.” We concur. Once a quick decision on land eluded the combatants, the sea loomed increasingly larger, until, in the final two years, its massive, inert presence determined the outcome.