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by Roger Bourke White Jr., copyright August 2012
Prostitution may be mankind's oldest profession, but commerce surly started only days later, and has had just as conflicted a relation in human communities. On the one hand people love the benefits of trading, on the other they envy the wealth acquisition of successful traders, and they deeply fear personally becoming the butt of sharp trading practices and fraud. The story of Jesus casting out the money lenders is an example of a community's populist response when it perceives that a small group of the community is profiting too much from commerce.
Fast forward to the 21st century and this issue of how much a person should make, how they should make their money, how they should spend it, and how much the community should share in this spending decision (taxes, infrastructure and entitlements), is still a white-hot one within every community on earth.
When an issue has been on everyone's mind for thousands of generations, the brain will develop instinctive thinking about it. But commerce is not easy for instinctive thinking because there are so many ways it can work well. Instinctive thinking likes to support a handful of right answers, but commerce has always succeeded in many ways. Commerce remains mostly an analytic thinking process.
But instincts have developed, and what follows is an observation of some of the instincts that affect how commerce is conducted in a community.
Commerce started as barter with strangers. In the Neolithic Village lifestyle contact with strangers was rare so the Us versus Them thinking was strong -- it's more OK to cheap-shot strangers than family and close neighbors. As a result Stone Age and Agricultural Age commerce was a risky undertaking and it usually had a lot of well-armed security mixed in -- caravans had guards, trading ships had marines, trading places were fortified. And the bartering process itself was caveat emptor -- let the buyer beware -- a merchant had to be on his toes.
As a result those who indulged in a lot of inter-village trading were exceptional in their thinking. They had to navigate this "alien environment" often and well, and few in the community did this often.
The result is that for much of commerce's history merchants have been considered a little-to-a-lot outside of the mainstream community. When times were good this difference was tolerated, when times got scary merchants could become witch-hunt targets along with other village "outsiders"... but with a difference. Because they used it in day-to-day operations, merchants were surrounded by a lot of "muscle" while the average "witch" was not -- no question who got sacrificed for angry god appeasing first!
But if times got bad enough, the merchants did get on the appeasement list, and even in calmer times when community laws were passed they could be the butt of them.
Another merchant characteristic was that they tended to be free thinkers. They traveled more, they had to deal with alien situations more often, and they did not gain a lot from being conformists. Their world was gray from day one, and new ideas could bring new opportunities so they listened more openly.
And, they dealt a lot with money (as soon as that concept was invented), so it was not surprising that finance was spawned from commerce and the two have always stayed closely tied.
The question of "who should get what" has been with mankind since well before mankind was the homo sapiens species -- most kinds of animals have dominance disputes about who should get what, and even plants do so in subtle ways.
In Neolithic Village environments the total amount of "goodies" to have disputes over was small. Because Neolithic humans lived a semi-nomadic lifestyle the total goody count was pretty much only what could be eaten from day-to-day and carried from one village site to the next when the good times ran out at a particular location. As a result goodies were a small part of the lifestyle and communal sharing arrangements worked well. This environment is what human instinctive thinking is well designed to work with.
But Agriculture Age lifestyle was a huge game changer in this area -- if people are living their whole lives in one or just a handful of places, the goody count can rise astronomically, and who gets what becomes a much bigger issue. We're talking permanent farms and cities now, something quite different from semi-nomadic villages. Mankind's thinking is beginning to adapt to this, but the adaptation is far from complete.
The strong instinct that Neolithic Village thinking supports is "fairness". When people make their choices based on "what is fair" and "helping the poor" they are using their thinking that is well adapted to the Neolithic Village environment. In that environment this concept of communal sharing helped the village survive better. And sometimes this thinking works well in the Industrial/Information Age environment, but not always.
But work well or not, it is a powerful concept. And if people have many choices available to them because they are prosperous, and they "let their heart be their guide" when they are choosing, fairness will be a big factor.
Fairness and commerce often butt heads. Commerce is not about being fair, it's about winning in an exchange. The other guy can win, too, and should if you're going to go more trading rounds in the future, but fairness is not a big part of the thinking mix.
Fairness thinking also includes a lot of prescriptive, conformity thinking, "There is one right way to handle this situation and we all should handle it the same way. That is fair." This too grates against commercial thinking because a merchant gets used to dealing with many situations and handling each in a different way. Once again, a shades-of-gray environment compared to the black-and-white of the fairness environment.
All of the above have been constants for hundreds of generations. These have been givens of the commercial environment since the dawn of history. But living on earth is full of surprises, and the Industrial/Information Age pulled a brand new rabbit out of the living-on-earth hat.
Let's talk about this new and alien concept!
Neolithic Village mankind lives in a world of limited resources. The limits come quickly and they are harsh: food to gather gets all gathered, a season changes, mysterious calamity such as plague strikes, less mysteriously, neighbors can strike to steal or get vengeance.
So human thinking expects limits. This means that the concept of "growing the resource pie" through increasing productivity is alien. In Neolithic Village you may discover a new pie, but to actually create one, a big one, is something for the heavenly afterlife, not real-world reality. Agriculture changes this a tiny bit, with hard work you can clear a field and farm it, but you can only make one new field on a particular plot of land -- the pie still has harsh limits.
The game changer is Industrial Age technology. Increasing productivity increases the resource pie (as I will call it in this essay). The hope for a bigger and better pie was expressed indirectly as early as the late 1700's by William Godwin, the Marquis de Condorcet and Jean-Jacques Rousseau (and scoffed at in that same time frame by Thomas Malthus). In their time these people were talking about possibilities. But all through the 1800's more and more pieces of that pie-growing possibility showed up -- railroads and mechanized textiles being two icons of the period. This was the time in which the "Protestant Work Ethic" started to match real world possibilities.
In the 1920's the first big real world game changer came into existence. It was mass production, effectively developed first in the US and then exploited around the world. Its icon was Henry Ford and the Model T automobile. (Interestingly, in his promotion style Ford played the fairness card prominently. He famously paid his assembly line workers above average wage and stated that Model T buyers, "Could have any color they wanted, as long as it was black.")
This miracle of mass production was marveled at by writers and thinkers of the first half of the 20th century. It was the miracle that the size of the pie could change! They wrote a lot about what this change would mean to human living. (As an ironic example of the power of adaptation in human thinking, in the early 21st century we take this miracle completely for granted.)
But instinct thinking is not based on humans' 20th and 21st century experiences, so it hasn't caught up, and it is still pretty sure there are harsh limits. This instinct that there must be limits puts a lot of oomph into the 21st century ecology movements, in particular movements such as Peak Oil and the Club of Rome reports, "We must beware! In spite of how good things look now, things will run out!"
In sum, this growing of the resource pie that Industrial and Information Age technologies makes possible is alien to human instinct thinking.
Now let's look at some ramifications of how this mix of instinctive thinking and new possibilities affects commerce.
Those who engage in commerce often cry out for a "laissez-faire" environment -- one in which transactions between private parties are free from tariffs, government subsidies, and enforced monopolies, with only enough government regulations sufficient to protect property rights against theft and aggression.
No community has ever granted this to its commerce people. The Curse of Being Important and instinctive thinking fears mentioned above combine to always produce lots of government involvement in how commerce is conducted. But from time-to-time and place-to-place there are differences in how the involvement is enacted. And these differences have produced dramatic differences in the lifestyles of the communities.
Many of these differences are the heart of history:
o Ancient Egypt compared to Ancient Greece
o Medieval Western Europe compared to Renaissance Italy
o Asia and Africa compared to 19th century Western Europe
o Soviet Russia compared to United States during the Cold War
In these examples the first mentioned held fairness as more important in the community legal and moral framework and the second mentioned respected commerce more. In spite of their brilliance in the historical record, in all these cases the balance shifted with time and the frameworks became more similar. Instinctive thinking is powerful and these times were "Golden Ages" for the second mentioned.
Update: This 13 Oct 12 NY Times book review, The Self-Destruction of the 1 Percent by Chrystia Freeland, reviews the book “Why Nations Fail: The Origins of Power, Prosperity, and Poverty,” by Daron Acemoglu and James A. Robinson. In the article it describes in fair detail how the Golden Age of Venice in the early 1300's came and went. The thesis is that the plutocrats of Venice cut off their own continued growth by over-controlling the disruptive economy that was at the heart of their growing prosperous in the first place -- the "winners" made up a list of winners, and gave that list legal teeth.
I like this article's analysis, but think their thesis is half the answer, not the whole answer. The other half of the answer is that the average Venetian city dweller was also getting more prosperous and more optimistic as this Golden Age went on. Their response to this increase in wealth was to "want their fair share". I think what closed off the prosperity was that the plutocrats offered the average citizen their fair share in the form of a "bread and circuses" entitlement state if they would support the plutocrats in stabilizing the system... and that average citizen bought in. That is what allowed the closure to happen.
The advantage of including this second, populist, half to the above equation is that it can explain why all these Golden Ages seem to end consistently and end by declining into a mediocrity that supports a rigid hierarchical social structure -- instead of supporting more exciting growth, the community transforms into happy to "get by" with what it already has.
Yet another interesting point brought up in the article is that the Venetians could see this problem coming on, they were writing about it, but they couldn't stop it. This was also the case for Cleveland as it suffered from the Midwest disease (as I write about here).
New styles of enterprise thrive where new styles of thinking are tolerated. When a person pulls up roots from their home community and travels to a place where they have to learn new ways of doing things, they have taken a giant step towards tolerating new thinking styles.
Mix in the brand new ability of Industrial Age technologies to grow the pie and you have one pillar for why America and other "immigrant nations" became the "developed nations" of the 1900's. These were communities that had a steady steam of incoming people who were first willing to tolerate new ideas, and then willing to take risks to exploit them. And they were living in communities that were not filled with instinct-thinking presciptionists... well, not too many anyway, the instinct was still there, and it was vigorously expressed, but it was not acted upon as vigorously as it was back in the "home country" where these people came from.
In the 18-1900's the anti-commercial instinct flowered as the feeling that entrepreneurial-based growth wasn't fair. There have been periodic anti-change movements such as the Luddites who were violently opposed to mechanized looms replacing human weavers in 19th century England. But being pro-fair has proved a much more enduring concept than anti-change. Socialist, Communist and Unionist movements have at their heart being more fair about how goods are distributed.
And average community thinking has been caught in the middle.
o On the one hand, the benefits of growing the pie are immense. It was pie growing that let Western European nations become the colonialists of the rest of the world during the 1800's.
o On the other is the outrage of continued poverty mixed with this growing wealth. The Charles Dickens stories vision of seeing wealthy commerce makers having to step over sick and starving children as they walked down the newly-built avenues.
This is an issue that see-saws communities and the governments that run them. We have yet to find a happy medium.
The essence of business financing is, "Trust me... but be very careful when you do." It is about giving resources to another person on the promise that even more resources will come back in the future.
One of the things the Agricultural Age lifestyles and beyond have done is dramatically to expand the ways this trusting can be done. In Neolithic times there were only barter goods to hand over and oaths to get in exchange for them. Fast forward to the Information Age and we are now developing methods to pay for goods and services with mobile phones. Every decade brings new ways to cooperate, and with those come new ways to finance.
The attraction of finance is the potential to get more in the future. The fear of finance is the potential for failure or fraud to reduce that future return to little or nothing. The good intention of regulations is to reduce the prospects for failure and fraud. Sadly, because finance changes so constantly and quickly, it's difficult for regulations to keep up. Like investing itself, there is a lot of confidence built into the regulatory framework, it is far from a certain thing.
Commerce and finance have been around a long time. But they are outliers to the average human experience. As a result they often run counter to human instinctive thinking. In particular, they cross against the concepts of prescriptive conformity and communal fairness that served well in the Neolithic Village environment, and bring up deep fears of being cheated that Us versus Them thinking sustains.
And the Industrial and Information Age have brought something brand new to human existence on Earth -- the constantly growing resource pie that comes with the steadily increasing productivity.
Given all of the above it's not strange that humans have a hard time figuring out how to make commerce and finance work smoothly. But doing so is very important to improving our existence on earth, so we should keep working hard at it. This means teaching ourselves to use a lot of analytic thinking when we are dealing with commerce and finance.
-- The End --
Note: This essay was inspired by a 28 Jul 12 Economist article, Les misérables: Europe not only has a euro crisis, it also has a growth crisis. That is because of its chronic failure to encourage ambitious entrepreneurs. This article compares the environment for startup business entrepreneurs in Europe with other parts of the world.
Update: The tussle between the opportunity and the fear goes on and on. This 7 Sep 12 WSJ Intelligent Investor article, Want to Buy a Private Stock? by Jason Zweig, talks about how regulations are about to change on who private offerings can be marketed to. The changes seem to be the result of the same sort of schizophrenic thinking that characterizes much investment regulation: should we open opportunity or protect?
Update: This 7 Sep 12 Mail Online article, Millionaire U.S. businessman pumps huge sums into the idyllic English village he lives in but he is still not liked by local 'nimbys' by Martin Robinson, is a good description of the culture clash that often happens when an entrepreneurial type starts splashing money around in a backwater area. The people who are living there like the area because it is a backwater, so they often have complaints about the changes this enterprising type wants to make.
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