Wild Economy

“Economy” = Resources>>Innovation>>Production>>Excess Reserves (“Capital”)>>Entrepreneur>>Markets

“In Alaska, during the first gold rush, one winter was particularly rough and a famine ensued. To survive, people only had sardine cans, and a lively market took place in this rare commodity. One fellow bought himself a can of sardines at an extraordinary price, but was surprised to find, upon opening the box, that the sardines were rotten.  He went back to complain, but was told by the can’s previous owner: “but those weren’t eating sardines, they were trading sardines!”

– Louis-Vincent Gave, Too Different for Comfort, 2013.¹  

“A market…does not consist of the steel, shoes, or cotton, or canned food that flows through it….it is the structure through which such goods and services are routed…it is not simply an economic structure…[but] a way of organizing people, a way of thinking, an ethos, and a shared set of expectations…The market is thus as much a psychological structure as an economic reality. And its effects far transcend economics.”

– Alvin Toffler, The Third Wave, 1980.²

“Birth charts tell us decades in advance when new generations of consumers will move through predictable spending cycles…If you remember nothing else, remember this: sex drives our economy – and that’s probably why economists have never figured it out, and probably never will!?”

Harry Dent, The Roaring 2000s, 1998.³

Like Ecology, Sex-Demographics, and Tech, Wild Globalization re-considers the problem of “value“ – not just “What is something “worth” in a market? But how do we know it? How do we accept something’s value? We suspect it’s more than just “economic” but perhaps even more importantly it’s “cultural.”   

WG will explore the possibility that the problem of value comes before or is precedent to economics – modern economics went astray when it lost sight of this ‘fundamental mystery”: “But, adds Marx, “the whole mystery of the form of values lies hidden even in the most elementary form, and its analysis is our fundamental difficulty.”⁴

Longer Take… 

“If the physical world is so uncertain, so difficult to know precisely, then how much more uncertain and unknowable must be the world of money? Finance is a black box covered by a veil.  Not only are the inner workings hidden, but the inputs are also obscured, by bad economic data, conflicting news reports, or outright deception.  What coefficient of correction should I apply to a broker’s self-serving stock tip?  And then there is the most confounding factor of all, anticipation.  A stock price rises not because of good news from the company, but because the brightening outlook for the stock means investors anticipate it will rise further, and so they buy. Anticipation is a feature unique to economics. It is psychology, individual and mass – even harder to fathom than the paradoxes of quantum mechanics. Anticipation is the stuff of dreams and vapors.”

Benoit Mandelbrot and Richard Hudson, The (Mis)Behavior of Markets, 2004.⁵

“Value” speaks in fact as WG’s primary concern. Value is the “primal” background and elusive “residual” of the human evolutionary order. WG wonders if wild value isn’t about “sardines in a famine,” or Mandelbrot’s “anticipation,” or what Toffler refers to as “not simply an economic structure…but a way of organizing people…of thinking, an ethos…”?   

In this context WG will talk about “economics” and offer an alternative approach. It will argue that economy emerges from “nature’s” own survival strategies – “scarce resources” to “innovation” to “excess production and reserves” to “virtual capital,” to “entrepreneurs” and “markets.”:  

• Human survival triggers “the management of scarce resources” – competing with other players.” ⁶ 
• Scarcity triggers innovation (e.g., the “atlatl” – see Wild Technology).
• Innovation improves hunting and gathering which then produces excess reserves.⁷ 
• Excess reserves (food, fuels) gives rise to excess “virtualized reserves”…or “capital.”
• Central governance concentrates capital (e.g, plant-seed, land) and innovates debt credit systems.
• Consumers emerge from Exchange Markets and Entrepreneurs.
• Innovation-Evolution energizes this process we call “Economy.” 

Led especially by Marx, modern quantitative economics has over-stressed, even bullied, “capital” (what WG instead refers to as “excess virtualized reserves”) and has often lost sight of, or proportionate valuation of, the other stages-steps-layers of the total economic process – lost sight in fact even to have named the whole thing “capitalism” when in fact we could just as easily name it “scarcity management”…or “survival innovation”…or…”producton-competition-market!” etc. Rather, economy is also a black box, a continuous, incessant, disruptive-creative, phenomenon, with all of the various and variable stages leveraging and shaping the whole. And, at the same time, every stage overlaps and gives hard-to-measure momentum to the other stages. Capital’s mass derives from the pain of scarcity and the power of the survival-innovation response which produces excess reserves, so in one light capital is really the “after-thought,” the “residual.” Each stage contributes its own immense vitality – and at any point in economy’s evolution any one element – scarcity…innovation…reserve capital…entrepreneurs…markets…consumers – can appear to dominate. But how can we really know which stage is actually most powerful at any given moment? And, hold your capital pocket-books (!), our 21st century growth version is in fact accelerating, it’s happening faster and faster, with increasing momentum.

Curiously, if we listen carefully to Toffler, value chases and is chased by ethos, so, for example, by a concern for what is “fairly priced” – when we buy or appraise a home for sale we don’t just say “market value” we say “fair market value.”  

Under WG’s critique we will notice how anything can become a marketable product for sale on a market –a can of rotten sardines, an ear of corn, a pig, a barrel of oil, the elephant tranquilizer fentanyl, human beings – yes, the history of “civilization” is of course deeply, wickedly and permanently stained by human slavery. Animal trafficking and atrocities also figure in. In globalization’s current edition, human and animal commoditization and trafficking continue to be burgeoning industries. And growing. Robustly.  

How does a market place a value on a human being? Are we concerned with that? Do we place another kind of value on an “illegally” traded human child and if so, what motivates that sense of value? Is that what we think we mean by an ethical concern?       

Wild Globalization’s read of the value problem emerges from its re-thinking of a human innovation-intelligence evolutionary order. From human evolution we can observe two new and simultaneously appearing survival strategies: on the one hand, a new order of material or cosmological value which leads to SCIENCE; and, on the same, singular surface, a new order of metaphysical value which leads to ETHOS. These are the gathered and hunted schemas that fill our past and will carry the water of our future.  

Examples of “Wild Value” 

Industry and Manufacturing: “For a real grasp of economics, skip the books and lectures.  Get into the garment trade. In 1945, my father tried to restart the clothing business he had before the war. …The rubble of war lay all around…warm clothing was scarce. So my father…bought cheap, rough wool cloth…cut it into patterns…The business did well enough. But then my father died; tastes changed…suddenly my father’s inventory had little value…merchants came to buy the stock, but my mother refused all offers…Finally, I took matters into my own hands and…sold it off…I got some extra cash for the family and a lively appreciation of that classic economic concept, value.” Benoit Mandelbrot & Richard Hudson⁸  

Monetary Exchange Chaos: ”Evidence abounds of abnormal foreign-exchange markets.  A Citigroup study in 2002 found unpleasantly sharp price swings in several currencies – dollar, euro, yen, pound, peso, zloty, even the Brazilian real.  On one day, the dollar vaulted over the yen by 3.78 percent.  That is 5.1 standard deviations, or 5.1σ, from the average.  If exchange rates were Gaussian [following “normal” standard deviation] that would be expected to happen once a century.   But the biggest fall was a heart-stopping 7.92 percent, or 10.7σ.  The normal odds of that:  Not if Citigroup had been trading dollars and yen every day since the Big Bang 15 billion years ago should it have happened, not once.” Benoit Mandelbrot & Richard Hudson ⁹   

Stock Index Valuation: “…Wild randomness is uncomfortable. …Suppose you are asked to calculate the average size of companies in the software industry.  So you go down a list, counting the firms, adding up their reported revenues, and dividing one number into the other to get a simple average.  But how long should the list be?  Just the top fifty publicly traded firms?  Every company in an industry directory?  Every firm that files a tax return and says it is in software?  Impossible to say:  Each time you lengthen the list and add more, smaller firms, your calculated average drops.  And what about Microsoft?  It is the colossus of the industry, dwarfing every other firm.  Try to survey the industry:  If you include Microsoft in the sample, it grotesquely inflates what the survey suggests the “typical” company value is.  But if you exclude it, you ignore the most important company in the industry.  In short, the distribution of company size is wild – Wild West, in the view of Microsoft critics.” Benoit Mandelbrot & Richard Hudson¹⁰   

Blockchain “Belief”: “The blockchain, Mr. Srinivasan continues, “is a religion that works.”  Here’s why:  “If you take 10,000 people and put them in a circle and they close their eyes hard and say, ‘Let this plane fly,’ it’s not going to fly.  But if they close their eyes hard and say, ‘Let this thing have value,’ and they all value it, they’ve suddenly got a price for it.”  They will exchange things of economic value among themselves and the external world can interact with them.  “In the same way that once you’ve got enough people, you’ve got a nation, you’ve also got a currency. So, beliabnoref is actually something you can now materialize into currency.” –Balaji S. Srinivasan¹¹ 

Capital, Labor, & Technology Value: “…technology (unlike capital and labor) cannot be observed or measured directly, so it must be the residual (or “Solow residual”) after the contributions of the other two factors to “total factor productivity” and to overall economic growth have been taken into account.’* The term “residual,” however, is quite misleading.  Whereas 12 per cent of the doubling of American productivity growth between 1909 and 1949 can be explained by the expansion of capital per worker, the residual or total factor productivity accounted for the other 88 percent increase.  Some Residual!  As Sachs and Larrain have commented, the residual “is really a measure of our ignorance.” –Robert Gilpin¹²  

Ecology Value: “The bad news began at 5:12AM on Wednesday, April 18, 1906, when the northernmost 296 miles of the San Andreas Fault, from the California town of Hollister to Cape Mendocino, where the fault disappears into the Pacific Ocean, ruptured.  The shaking lasted 55 seconds in what was ultimately an 8.3-magnitude earthquake.  The eastern side of the fault had moved to the southeast by 24 feet. …In San Francisco, the earthquake was bad but the fires that resulted from broken gas lines were worse, because the quake had also broken the water mains. After firefighters pumped the sewers dry…With no water to fight the fires…soldiers used dynamite to collapse buildings into heaps of rubble that they hoped would serve as firebreaks.  More often, the explosions started new fires. …Though almost none of San Francisco was insured against earthquake, the vast majority of it was insured against fire. …So citizens with houses that had been heavily damaged by the quake, but spared the fires, set their own homes ablaze. More than 27,500 buildings covering 500 square blocks…the financial center of the American West, was gone.…approximately half of all fire insurance policies in San Francisco were still issued by British companies and the quake hit the British hard. …London-based insurers began loading gold on ships…Thirty million dollars of gold was sent in April, with more sent during the summer and $35 million sent in September alone….equal to 14% of Britain’s total stockpile. …Operating under the gold standard, this sudden outflow of gold from London was such a massive shock to the British financial system that the governors of the Bank of England did the only thing they knew to do:  they raised the interest rate they were willing to pay those who left their gold on deposit… Every stock market crash has an external catalyst at its heart.  These external catalysts – some are acts of nature, such as the 1906 earthquake; some are geopolitical, as in 1987 and 2010; some are political, as in 2008; and some are criminal, as in 1929 – are not sufficient themselves to start a crash, though they are necessary. …Not only was the San Francisco earthquake of 1906 the catalyst for what became known as the Panic of 1907, but the analogy between earthquake and stock market crash is particularly apt.  Some geologists point out that the beginning of a major earthquake, the nucleation, is identical to that of a minor tremor, but the sliding of the one tectonic plate against another stops quickly in a minor tremor as friction overcomes tension.  In a major earthquake, the sliding doesn’t stop until all the coiled tension has been released; an earthquake is a tremor that doesn’t stop.  Similarly, as stocks decline in value during a correction, investors begin to recognize value and step in to buy at a discount; greed overcomes fear. During a crash, unique forces align. The decline doesn’t stop as these forces overwhelm the ability to know what value is.” –Scott Nations¹³   

• 1 Louis-Vincent Gave, Too Different for Comfort, GaveKal Research, 2013, p. 61.
• 2 Toffler, Alvin, The Third Wave, New York: William Morrow and Company, Inc., 1980, p. 302.
• 3 Harry Dent, The Roaring 2000s, 1998.
• 4 Goux, Jean-Joseph, Symbolic Economics: After Marx and Freud, trans. Jennifer Curtiss Gage, Ithaca NY: Cornell U. Press, 1990, p. 32; quoting Marx, Capital.
• 5 Benoit Mandelbrot and Richard Hudson, The (Mis)Behavior of Markets, New York:  Basic Books, 2004., p. 28
• 6 The brilliant American economist, Thomas Sowell, says it like this: “Economics is the study of the use of scare resources which have alternative uses… What does “scarce” mean? It means that what everybody wants ads up to more than there is.” (Thomas Sowell, Basic Economics, Philadelphia, Basic Books, 2011, 4th Edition, 3)
• 7 WG includes labor but reads it as a secondary economic order – an obvious presence but a secondary result of primal scarcity and the subsequent evolutionary response, innovation.
• 8 Benoit Mandelbrot, & Richard L. Hudson, The (Mis) Behaviour of Markets, New York: Basic Books, 2004, 225-226.
• 9 Ibid, p. 97.
• 10 Ibid, pp. 36-41.
• 11 Balaji S. Srinivasan, interview by Tunku Varadarajan, WSJ, 9-23-2017, Opinion, A11.
• 12 Robert Gilpin, Global Political Economy: Understanding the International Economic Order, Princeton & Oxford: Princeton University Press, 2001, p. 111; *Gilpin is referencing Joseph Stiglitz, “Comments: Some Retrospective view on Growth Theory,” in Peter Diamond, Ed., Growth/Productivity/Unemployment: Essays to Celebrate Bob Solow’s Birthday, Cambridge: MIT Press, 1990, 556, and also **Sachs and Larrain, Macroeconomics in the Global Economy, Sachs, Jeffrey D., Larrain, Felipe B., Macroeconomics In The Global Economy, Englewood Cliffs, New Jersey: Prentice Hall, 1993, ISBN 0-13-102252-0, p. 556.
• 13 Scott Nations, A History of the United States in Five Crashes: Stock Market Meltdowns that Defined a Nation, New York: Harper Collins, 2017, pp. 16-19, my emphasis.