The front page article of today’s Sunday Review section of the Times bears the title: “The Perils of Perfection.” In the article, the author laments that: “Silicon Valley’s technophilic gurus and futurists have embarked on a quest to develop the ultimate patch to the nasty bugs of humanity.”

I’m always amazed that Luddites such as the author (Jacques Ellul, John Ralston Saul, Ted Kaczynski, etc.) always, always serve up the exact same tripe: that problems make us human, inconsistency makes us human, that too much perfection leads to totalitarian states. And just like Ellul, Saul, and Kaczynski, the article’s author runs quickly to hyperbole and Godwin’s Law: “… imperfection might be the price to pay for a half-functioning democracy. There is, after all, little partisanship in North Korea.”

Point one: I cannot even conceive of the backstabbing politics going on every day in Pyongyang – little partisanship in North Korea? In such a political hellhole, it is every man for himself. The author cannot be more wrong.

Point two: How many problems (that Silicon Valley engineers are working on) rob us of our humanity every day? Disease, disaster, delay – the list is endless. These problems make us human? Please.

Point three: Does the author truly have such faith in technology that he thinks the really hard problems are going to be solved so soon? If so, I have news for you: your faith is much stronger than any Silicon Valley engineer’s. (I should know, I am one.)

Toward the end of the article, the author names his bogeyman: “The ideology of solutionism.” Well, I tend to think that wading in and working on people’s problems is an immeasurably better “ideology” than Luddism.

And the most powerful tool that Silicon Valley wields is capitalism.

I was reading through the August 13 & 20 issue of the New Yorker last week, and became highly engrossed in a particularly well-written article. It was an article comparing the kitchen operations of The Cheesecake Factory with the state of the practice of medicine in the US. The prose was brilliant, the analysis incisive. I almost never take note of the article writers, so halfway through the article I wondered “Who is this author?”

I should have known: it was Atul Gawande, once again. Since he writes for the New Yorker only once every few months, I always forget that he is a contributing writer. But halfway through his articles, something about his writing lights up my brain, and I say to myself “This is great writing, who is this author?” It’s a weird feeling.

In this specific article, Atul goes inside the kitchens of The Cheesecake Factory to answer the basic question: “I wondered how they pulled it off.” “The chain serves more than eighty million people per year. I pictured frozen bags of beet salad shipped from Mexico, buckets of precooked pasts and production-line hummus, fish from a box. And yet nothing smacked of mass production. … I asked one of the Cheesecake Factory’s line cooks how much of the food was premade. He told me that everything’s pretty much made from scratch …”

Atul goes on to find that a keystone of the chain’s success is the kitchen manager: “A kitchen manager is stationed at the counter where the food comes off the line, and he rates the food on a scale of one to ten.” The kitchen manager also checks the portion sizes, the plating, and the timing. One would think the line cooks would resent the micromanagement, but: “The managers had all risen through the ranks. This earned them a certain amount of respect.”

Atul also mentions the computerized inventory systems, computerized menu and recipe systems, and so forth. And then he concludes that the entire Cheesecake Factory system: managers, computer systems, inventory control – are precisely tuned to generate world-class results. World-class results are The Cheesecake Factory’s raison d’etre.

Atul then compares this to the dismal state of the practice in medicine. Since ancient times, doctors have “generally been paid for what we do, whatever happens. The consequence is the system we have, with plenty of individual transactions – procedures, tests, specialist consultations – and uncertain attention to how the patient ultimately fares.” In the article, Atul mentions doctors that are veterans, self-styled experts at what they do, but who regularly achieve mediocre results.

And this is why I most like Atul’s writing: his focus on results. As a doctor, he understands that his profession kills people. He can count the number of botched treatments, the damaged lives. He measures the results, and he works to highlight and to fix the problems. He doesn’t approach his profession as an “expert,” with his mind made up – he understands that the results can, and should, teach him his practice.

During the last few weeks, I have seen “experts” writing about many topics: “Oh how awful high-frequency trading is,” or “How awful that hospital systems make such profits,” or “How awful that robots are putting people out of work.” Of course, these so-called experts have not spent years actually working in the professions that they decry, learning about how these industries achieve results. They lack real-life experience with producing world-class results, with entrepreneurship, with capitalism itself.

Lord, deliver us from experts.

Wednesday morning, Knight Capital Group launched a new trading algorithm on Wall Street and lost 440 million dollars of their clients’ (and their own) money in thirty minutes. The headlines in the New York Times are as one expects: “Trading Program Ran Amok,” “A Financial Plan For the Truly Fed Up,” “Frankenstein Takes Over The Market,” and so forth. The articles and commentary proceed to decry the “rapid-fire” nature of programmed trading, also citing other market computer stumbles in recent months: the failure of NASDAQ computers on the day of the Facebook IPO, and the recent heavy losses at JP Morgan.

These alarmist responses to algorithmic trading do the citizenry a disfavor because they foster basic misunderstanding of economics. The articles in the New York Times may be merely a populist ploy to sell more newspapers, but if they are truly misunderstandings, they are understandable ones: economics is complex. Economics is complex because human societies are complex.

But economics involves some very basic, fundamental human actions: production; trade; choice. And all of these actions rely on algorithms. Certainly production, from time immemorial, has been driven by algorithms: the ancient Egyptians created a calendar to alert them in time for planting; they created pumps and trenches to channel the Nile floods; they created hierarchies to manage water distribution.

The Egyptians are but one example: all the tools and algorithms created throughout human history to leverage land and labor more effectively are the capital of capitalism. The capital of economics.

So when writers in the New York Times state that “The machines are now in charge,” they are a bit late to the party. Millennia late, even. Because the algorithms have always been here. They’re called Capital.

Algorithmic trading? Welcome to capitalism, version one million.

I like the name of this hosting website (freecapitalists.org), although I’m unsure that anyone would recognize free capitalism even if it bit him.

I say this after perusing the first section of today’s New York Times. (Living in Silicon Valley, I receive the “national edition.”) Here is a selection of headlines: “The Drug War Shifts to Africa, Hub for Cartels”; “At 40, Steering a Vast Machine of G.O.P. Money”; “U.S, Stymied at U.N., Works to Oust Assad”; “China’s Communist Elders Take Backroom Intrigue to the Beach”; “U.S. Cutting Military Aid to Rwanda”; “Literary Festival in Italy Gives Voice to Authors and Residents in Fight Against the Mafia”; “In New Exhibit, Disney Lends Its Star Power to Reagan, and Vice Versa”; “For Coast Guard Patrol North of Alaska, Much to Learn in a Remote New Place”; and the list goes on.

After reading these headlines, one gathers that free capitalism is a mere fantasy in our 21st-century world of state capitalism. Is there any hope for respite from the unholy alliance between money and the state?

The first headline mentioned above leads an article about Mr. William R. Brownfield, an assistant secretary of state, and his architecture of new, “commando-style” anti-drug strategies in Africa. A quote from Mr. Brownfield: “We have to be doing operational stuff right now because things are actually happening right now.” Another quote from the article comes from Mr. Jeffrey P. Beeden, the chief of the D.E.A.’s Europe, Asia, and Africa section: “[Africa]‘s a place that we need to get ahead of – we’re already behind the curve in some ways, and we need to catch up.”

The language of these drug warriors is illuminating: “We have to be doing,” “We need to catch up.” This is the language of desperation, of lack of control. One almost expects to hear: “Hurry, hurry, I need my fix.” Obviously, the drug users are not the only addicts of this war. In fact, the real victims, the users, are never mentioned in the entire twenty-three paragraph article.

Many believe the solution to the drug war is just to stop fighting – to let the market work. But a market that enslaves its customers is no free market. I fervently hope that twenty-first century technology and medicine can start eliminating addictions, and so make the market for all addictive substances truly free. And if one eliminates substance addiction, then one stops the drug war, right?

Unfortunately, no. Vastly more money is spent by the U.S. government for interdiction than for elimination of addiction. This is because drug warriors such as Mr. Brownfield and Mr. Beeden are also addicted – to the war itself, to the power it brings them, to the attention it brings them, to its violence, to its speed.

As the above headlines attest, if there is to be hope for free capitalism, the addiction to power is the addiction that needs to be eliminated.

One of my all-time favorite TV shows is the BBC’s “Chef!” with Lenny Henry. Episode 4 of season 1 (“The Big Cheese”) is almost perfect: unpasteurized Stilton, Rachmaninoff, Albert Roux, and of course amazingly witty repartee.

Lenny Henry plays Gareth Blackstock, Chef de Cuisine of Le Chateau Anglais. The underlying storyline of season 1 is the impending bankruptcy of the restaurant, and the resulting need for the Blackstocks to purchase the restaurant to preserve Gareth’s job.

Of course, the Blackstocks don’t have sufficient capital to buy the restaurant, so they see a loan officer. Since nothing is more important to Gareth than his cooking, he despises having to admit that it is up to a bank to decide whether he should continue as chef. Gareth thus harangues the officer about how he, Gareth, is the important one in the deal since he is the one “at the coal face” while the loan officer merely “lollygags” in his “tilt and swivel.”

After Gareth’s wife calms him down (by threatening divorce), Gareth finally admits that the deal requires two sides: the “unreasonable” side taking risks, and the “reasonable” side that must weigh the risks objectively.

And thus the point of this blog post: at a time when banks are being vilified by all sides – and they do deserve much vilification (LIBOR, mortgage crises, the Great Recession) – they also deserve some credit for controlling inflation. When governments betray the public trust by printing literally trillions of dollars, someone has to assume the reasonable side and weigh the risks. By (finally!) controlling their loan activity, the banks are protecting the dollar from the massive onslaught of government presses.

In an age of automated production, marketing blitzes, and paper money, a market cannot function for long without ever more discerning consumers. The banks are finally playing that role.

As I have mentioned a few times in my last several posts, for the past eighteen months I have been touring the set of Britannica’s Great Books that a friend gave to me.  Among the many classic works of history and literature are included some of the classic works of science: Newton’s Principia, Darwin’s Origin of Species, and a score of others.

Reading and thinking over the greatest books of the Western world start to give one the insight that some of the greatest scientists of all time understood time itself in a fundamental way.  And they transformed whole fields of science by showing that the comprehension of time changes everything.  Newtonian mechanics is based on time as the independent variable.  Darwin saw mutation and selection working through the epochs.  Einstein saw that time changes with velocity.  And so forth.

So in the great books, one sees a greater and greater rift developing as field after field of science breaks free from the static, authoritative, bureaucratic thought of the Roman empire and the Roman church.  Throughout history, one can track the progress of the upstart scientists as they finally must turn away from the voice of authority, the voice of the scholastic, the hegemony of conservatism.

And so it is with Mises.  Mises’s fundamental comprehension of the role of time transforms economics.  Mises as the true liberal scientist finally must overthrow the narrow, static myths of the conservative authorities of both the right and the left.  From the regression theorem to the diachronic effects of inflation, from interest as the time preference for money to the Austrian theory of the business cycle, again and again Mises opens the eyes of his readers to the true nature of time in economics.

And what is capital, if not the storage of resources that can be moved
through time and space?  If the entrepreneur is not allowed to move
capital through time and space, to apply it at the exact point of
space-time where it has the most utility, then we all become that much
poorer.

Thus while lesser economists lounge on the beaches with their static analyses and graphs of the equilibrium between supply and demand, Mises launches into the ocean of a truly dynamic economics.  The evenly rotating economy that is the (unwitting) basis of all central planning is completely destroyed by Mises’s understanding of the nature of entrepreneurial action over time.  Static economics is worse than no economics at all, and Mises knows it.

I am always amazed at the massive difference between Keynes and Mises – one of the most important being that of their differing emphases on time.  Keynes is the great champion of the Present: “In the long run, we are all dead.”  Mises is the champion of the Future: “At the outset of every step forward on the road to a more plentiful existence is saving.”

Now one always weighs present satisfaction against future satisfaction when one makes decisions about what (and if) to consume.  So the Present is always battling against the Future.  The Future is always struggling to be born.

But when Keynesians cause massive deficit spending, fiat money, inflation, social insurance, medicare, rising college costs, government schools, lack of jobs, wars (in which the young die), etc., one gets the distinct impression that they are working hard to throw our children under the bus.

So it is Mises’s clear emphasis on capital and saving, his emphasis on the Future, that automatically makes him the great “Champion of Children.”  Mises emphasizes that stored capital makes for a “more plentiful existence” in the Future.

Everyone has great empathy for children that are developmentally disabled.  But when our children are shackled by massive Keynesian debt, who can argue that they have been economically disabled?  Capital is the freedom to grow, is the freedom for our children to grow in the future.

Obviously, not all capital consumption is caused by government; short-sighted corporations also consume massive amounts of capital, especially when they lay waste to our environment.  But there exist harsh market disincentives for this behavior.

Unfortunately the forced consumption caused by government is not so controllable.  Every day, a plebiscite occurs in the marketplace; one can change government only every few years.  And as the years tick by, the forced consumption becomes locked in.  Many times, at the point of a weapon.

Any baboon can emphasize the Present; in fact, all baboons do.  It takes a man, a leader, to envision a better future and to lead the masses to it.  Any animal can eat its young; it takes a man to build and to protect the future of our children.  It takes a champion.

As I said a couple blog entries ago, a friend of mine gave me the full set of Encyclopedia Brittanica’s Great Books last year.  The editors of the series mention that they did not allow any twentieth-century works, as the works were too recent (as of the 1950s) to evaluate as “Great Books.”

Over the last year, I have often thought that several of Mises’s works could be appended to the set as some of the greatest twentieth-century work; at first glance, Mises seems to be a culmination of twenty-five centuries of great writing.  Certainly Mises knows government better than Plato or Hobbes; Mises knows economics better than Smith and Marx, and so on.

But then I started reading Dante … and it hit me how Roman Dante is.  The two pillars that Dante stands on are obviously the empire (Virgil) and the church.  Every page is filled with Roman dogma, Roman poetry, the Roman worldview.

And then I started considering some of my favorites in the entire set of the Great Books: Plutarch, Gibbon, Milton, Cervantes, … they’re all Roman!  And even some of my least favorite: Ptolemy, Augustine, Aquinas, … they’re Roman, too!  Wow: the Great Books are profoundly, fundamentally Roman; the Great Books are Roman Books, Roman Thought.

Now the point about thinking like a Roman is that your worldview is dominated by (a static) hierarchy, with its peak at the center.  You have a fixed (static!) point of authority.  The Roman system is all about hierarchy – one looks to Father God, or the Founder (Aeneas), or il Papa for solutions.  (And certainly Father God doesn’t change!)

And even some of the Greeks are Roman in that way: in Plato’s Republic, Socrates himself looks to a king for solutions.  (Of course, that king is supposed to be Socrates himself – never mind looking to the center: Socrates though of himself as the center!)

So when one starts to blame Washington or some more local government for the allegedly poor state of education in America, one needs to take a huge step back and consider that all Western education is steeped in twenty-five hundred years of centralized, hierarchical thought.  For over two millenia, all solutions have been sought from “up the hierarchy,” from some central authority.  That’s important enough to repeat: no one thinks for himself; all solutions come from authority.

I would even argue that the US doesn’t have a central bank only because JP Morgan wanted one; the US has a central bank also because all Westerners have been taught to kowtow to centralized authority for millenia.  Literally millenia!

This is also why the national monuments are Roman temples – it is the highest praise to be deemed the center of the universe.

Thus how profoundly different Austrian thought is.  Mises dares to be decentralized, dynamic in his thought.  Mises dares to blaze a different trail, to defy convention and tradition.  Mises weaves a radically new worldview of changing prices, dynamic entrepreneurs, markets full of economic agents.  Everyone makes choices.

And so I hope that as technology progresses, the twenty-first century becomes a century of decentralized, Austrian thought.  There are signs of hope: everyone now knows that computer technology has hit the central processing wall; computers are now gaining speed only by becoming ever more decentralized.  The internet is decentralized.  The major media are no longer seen as authoritative.  Millions of participants in MMORPGs are starting to grapple with (simulated) economic problems.  Private industry is getting into space.  And so forth.

And of course, the growing presence of the Mises Institute itself argues for a changing worldview.  But the change will take time – one doesn’t overturn 2500 years of great writing overnight.

I started working at NVIDIA nine months ago, so Moore’s Law is a daily theme in my head of late.  And given my interest in economics, I sometimes wonder whether Moore’s Law will ever have a measurable impact on economics.  Certainly, if computers and robots start doing a majority of the “manual labor” in the world economy, then Moore’s Law may start to have an impact.

So I started thinking: what if productivity doubled every eighteen months?  Of course, this question is qualitatively different (massively so!) from the prior paragraph.  But what if?  What would economics look like?

Or to put it another way: What if the total of whatever you owed were cut in half every eighteen months?  How would you behave?  How would your actions change?

Probably most of us would borrow and spend like there were no tomorrow!  I.e., the rational choice would then to become Keynesians overnight.

I think that my point may be that the difference between an Austrian and a Keynesian gets pretty blurry near such a singularity.  Kind of like a black hole starts to make physics (Newtonian, quantum, whatever) pretty blurry.

You say: But that’s not the real world.

And I agree.

But again, this is just a thought experiment about the difference between an Austrian and a Keynesian.  The difference still seems to be with the creditor – if every creditor forgave half of all debts every eighteen months, everyone would be Keynesian.

(Aside: Congress and the Fed could “make this happen” by printing 35% (or so) more “money” every year.  (And, of course, spreading the “money” out much more evenly than just giving it to Wall Street!)  The results would be horrible, of course – everyone would flee the dollar, a crack-up boom would occur, etc.

Unless Moore’s Law starts to effect the economy.  Or something else occurs, like the efforts of Focus Fusion give everyone free, clean energy.

Or, suppose all creditors just take the new dollars because they’re happy enough – everyone has enough food, shelter, clothes, entertainment, etc.  Or the government is powerful enough to make all creditors take the new dollars.

Or some combination of all of the previous statements.

A combination of the previous statements just about results in what we have today – the Fed printing money, everyone getting Social Security, everyone starting to get health benefits, etc.)

What would Mises say about an exponential explosion of productivity?

I haven’t blogged in about a year, mostly because a friend of mine gave me the complete set of the Great Books (from Brittanica).  A gift like that is enough to set one behind for a lifetime, never mind a single year!  It’s also enough to scramble the brain for a while, so I couldn’t write anything worth reading.

So after plowing through a lot of reading I still don’t have much confidence to write statements, so here are some of the questions that I have wrestled with over the last year:

Why are the benefits of capitalism so counter-intuitive?  I.e., why does it take an immense genius like Mises to be clear on the subject?  Why does it take waiting until the twentieth century to be clear on the subject?  Why does it take even bright people a lot of time wrestling with the writings of Mises to finally “get it”?  (Probably because economics is so complex.  It’s almost like we need Mises’s Law: “Economics is immensely more complex than you think, even if you take into account Mises’s Law.”)

When will most people “get it,” if ever?  Will the twenty-first century finally start when more people “get it”?  How many more?  Will Information Technology need to help deflect control of the Healthcare and Financial sectors from government first?  (See the categories in the list of S&P 500 companies.)

Doesn’t pure capitalism create J.P. Morgans?  I.e., if the financially intuitive rise to the top (which I believe Mises implies), and birds of a feather flock together, won’t you get a (very) few Wall Street firms controlling the economy?  Mises.org rails against the immense power of the bankers (for good reason), but isn’t that power aided by pure capitalism?

What is the average person to do in a world economy that is getting exponentially more complex?  Doesn’t the vastly increasing complexity of modern economics just provide many more pitfalls for the average person?  Thus doesn’t pure capitalism (in real life, not in theory), create an uberclass of the financially “astute”?  Sure, the Walton family (thank God for Sam Walton!) controls billions, but Wall Street moves trillions!

What do we do with the STJ’s that aren’t going to be productive in such an increasingly complex economy?  Is democracy just the best tool for keeping (bored) STJ’s in check?  In a democracy, don’t the ESTJ’s just become populist shills for all the ISTJ’s?  And then populist shills + J.P. Morgan = central banks and fiat currency, right?

Isn’t the “greatest human being,” the most caring human being, the most human human being (e.g., President Obama) supposed to be in leadership?  Wouldn’t anyone want President Obama as President, instead of, say, J.P. Morgan?

Don’t the benefits of capitalism include higher population?  Then what happens to the environment?  Aren’t many of the (good!) problems of the modern age (expensive healthcare, unproductive masses, environmental degradation, etc.) results of the exponentially-increasing complexity aided by capitalism?

When, if ever, will the technological complexities afforded by capitalism actually start to solve the problems of the modern age?  Will this be the start of the twenty-first century?  Or even of a major inflection point in history, a Singularity?

How does a brilliant person like Lord Keynes make such an astonishingly stupid statement like: “In the long run, we’re all dead”?