This Book Will Transform How You Think About Capitalism 📖📚📈🏦
Revisiting "The Genius of the Beast" by Howard Bloom
Friends-of-the-show will be familiar with my love for Howard Bloom’s 2011 book The Genius of the Beast, which I regularly bring up in conversation with my guests (including in tomorrow’s episode with techno-optimist and memelord extraordinaire Roon.)
Given how frequently I recommend this book, I thought I’d update and share a Twitter thread I wrote on why I think it’s such a great piece of work.1
I. Why Capitalism?
All emergence in complex, adaptive systems comes from below, not above.
Howard Bloom offers a radically different vision of capitalism.
For Bloom, capitalism is a system that, unlike pretty much all other political and economic ideologies, *actually delivers* solutions to the most participants in the market:
“But here’s a basic fact of the Western way of life, hard as we may find it to conceive: Capitalism offers more things to believe in than any system that has ever come before. Nearly every faith, from Christianity and Buddhism to Islam and Marxism, promises to raise the poor and the oppressed. But only capitalism delivers what these ideologies and religions profess. Capitalism lifts the poor and helps them live their dreams.”
But why has capitalism succeeded where others have failed?
Perhaps, the secret sauce is that all emergence in complex, adaptive systems comes from below, not above.
Many of capitalism’s competing systems often rely on ‘wise people’ making decisions for others. But the historical record is fairly definitive that these command and control systems, as well as simply not working, are based on the flawed assumption that we can determine a priori *who* is wise and whose intentions are true and noble. History teaches that's a bad bet. As H. L. Mencken said, “The urge to save humanity is almost always a false-face for the urge to rule it.”
Bloom argues persuasively that the reason capitalism works so well is *because* there are few external ‘worthies’ with the power to compel people to do as they bid, but rather an enormously complex system that tends to, through trial and error, get to the things people actually want.
II. Let’s Get Emotional
We like to think that our preferences are a product of cool logic: a carefully balanced series of rational choices producing a single duly weighted outcome.
We’re wrong.
But what *do* people actually want?
Truth is, we rarely know what we want before we get it.
As my friend and OSV Advisory Council member Rory Sutherland points out: "the single greatest strength of free markets is their ability to generate innovative things whose popularity makes no sense."
We like to think that our preferences are a product of cool logic: a carefully balanced series of rational choices producing a single duly weighted outcome.
We’re wrong.
As Rory says, "the human mind does not run on logic any more than a horse runs on petrol."
Bloom makes the point that what markets *truly* run on is our desires and emotions:
“But to compete we need to bring our sleeping brains to full arousal. Which brings us to an irony: to energize the industrious and analytic potential of our minds, we need to find and engage our feelings. Sensing our own desires, irritations, and fantasies can help us understand the unexpressed emotions of our fellow human beings. Strange as it sounds, understanding our emotions— our passions and our depressions— can help us give others what they need before they even know they want it. It can help us create entirely new human powers— new technologies, new services, and new industries. Emotion is one key to creating new jobs, to raising incomes, to goosing the gross domestic product, to extending the escalator of upward mobility, to giving us satisfaction, and to giving us new meaning in life.”
This makes sense.
I have a degree in Economics (no help with the various businesses I've started). When I was studying, a new school of thought was emerging because of the utter failures of the econometric models of the 50s and 60s.
The radical notions of these new young turks?
Markets weren't emotionless automatons run flawlessly by robots.
They were, in fact, run by emotionally driven people who sometimes make decisions based on, you guessed it, their own lives, preferences, and emotions.
The theory went further: not only were markets run by emotionally driven, flawed humans, but when you CHANGED a big economic rule, people actually CHANGED the way they behaved.
Oddly, the name of this brand new economic theory was "rational expectations" in that its proponents posited that people behave rationally (we'll return to this) based on their previous experiences and the information available to them. They argued that, unlike the theories they sought to replace, a big change in something like tax rates would lead fairly immediately to people changing their behavior, investments, and other economic activities.
Duh.
Obvious as it may seem now, at the time, this was revolutionary. Earlier models had assumed that our old behavior was constant, meaning that we were deemed as NPCs who would keep doing EXACTLY the same things we did before the policy poobahs doubled taxes. (🤦🏻♂️)
Of course, the new theory was correct; people changed their behaviors based on the NEW policies, sometimes drastically.
However, the economists simply assumed the changed behavior would be driven totally by rationality.2
Even at the time, I saw the flaw in this assumption and was given quite a nasty glare by the professor when I asked if these theoreticians had ever met an *actual human being.*
While they were right about the changed behavior, they didn't contemplate that many of the changes would be made for emotional, not rational, reasons.
We're obviously a mix of rationality and emotion, but many of the things we like and buy like crazy have no discernable rational function. We don’t like them because they are useful; we like them because they are fun and frivolous.
Here's Rory again: "Our very perception of the world is affected by context, which is why the rational attempt to contrive universal, context-free laws for human behaviour may be largely doomed."
It’s about damn time more people realized this, which is why I like this book:
“The Genius of the Beast aims to lay bare the emotional substance in what we’ve mistakenly labeled with a dehumanized vocabulary, the language of clods, lumps, stones, and numbers— the language of “materialism,” “commodification,” “consumerism,” “derivatives,” “utility maximization,” “quarterly profits,” “products,” “markets,” and “supply and demand.” People are the ones who demand. We do it because we desire, we hanker, we hunger, we’re eager, we’re roused. Or we’re deadened, we’re hurt, we’re unsatisfied, we need. Wanting is an emotional thing. Value is emotionality. So is price. And so is profit. Coin is massed attention. Cash is emotional need.”
III. Label With Care
[The market is] a system *designed* by humans to optimize, as best as we can, our wants, needs, hopes, and dreams.
The labels we give things guide how we think about those things.
The antiseptic terms and jargon we use to talk about markets make it hard for us to understand that, like everything in society, the “market” is made up not just of dull and drab methodical pennypinchers, but also of full-blooded, emotional, and passionate people, and everyone in between. It's a system *designed* by humans to optimize, as best as we can, our wants, needs, hopes, and dreams.
Does it fail? Yes, constantly. But Bloom's book points us in the right direction. Instead of thinking of markets as some exogenous, abstract entities that suddenly appeared as if by creatio ex nihilo, we need to start understanding them as human creations designed to provide said humans with things they desire.
By taking Bloom's guidance and expanding the way we *think* about markets, we can make them function better.
Will they be perfect? No. A bit of the creator is always found in his creation, and I've never met a perfect human. But they CAN be improved through error correction and innovation. Bloom makes a solid case for why it's important to expand the scope of our analysis to include the way things actually *are*, rather than simply how we'd *like* them to be:
"Desire is the force behind every exchange, behind every bit of commerce between you and me. Behind every exchange of money. And behind every exchange of information…[lies the goal to] express our needs. Desire is the force behind supply and demand.”
IV. Visions of the Future
To me, it's fairly obvious that a faceless group of bureaucrats picked by politicians wouldn't even be able to imagine an iPhone.
Bloom also argues that free markets are consistent with the way we’ve evolved. They are literally an extension of our biology.
He extends his theme to argue that by studying things in the natural world, we can gain keen insights into our human creations:
“What do slime mold and your credit card have in common? Bionomics is a word first used in the 1880s by insect specialists. It focused on ecology— the study of the relationships of a blister beetle, a mosquito, or a whitefly to its environment. In 1990 Michael L. Rothschild, a Harvard graduate with degrees in law and business, used the term differently. In his Bionomics: Economy as Ecosystem, he proposed that biological models could revolutionize our understanding of economies.”
As we live through the Great Reshuffle, we should be thinking of new ways to think about and improve the systems of our creation.
To me, it's fairly obvious that a faceless group of bureaucrats picked by politicians wouldn't even be able to imagine an iPhone. Nor could they imagine all of the additional innovations it would spawn. They'd likely be guided by the precautionary principle, which almost always leads to stasis.
Free markets are fluid and constantly changing, sometimes for the better, but not always. We're at an inflection point where many of the old models and ways of doing things are collapsing, being replaced by mostly better systems that liberate us as creators by giving us better tools.
It's a perfect time to entertain a radical rethinking of free markets.
Howard Bloom’s book will spark all sorts of new ideas in those who read it, and we now have an intelligence network to combine our thoughts dramatically faster than in the past:
“The key to business success— a vision, a vivid picture of a future waiting to be made. Visions are central to the Western system. They are the keys to capital creation. Visions drove the folks who planned the first stone wall and invented the brick. And visions drove the inventors of the weaving machine and the steam engine, the inventors of the Industrial Revolution. Ultimately vision can drive you and me, too.”
Even the Bible says: "Where there is no vision, the people perish."
Let's not. Let's thrive
Fancy more reading recommendations? Check out The Infinite Loops Canon: 30 books that have shaped the podcast.
Which reminds me of the old joke first mentioned in Economics as a Science by Kenneth E. Boulding: “There is a story that has been going around about a physicist, a chemist, and an economist who were stranded on a desert island with no implements and a can of food. The physicist and the chemist each devised an ingenious mechanism for getting the can open; the economist merely said, ‘Assume we have a can opener’!”