Knowledge was always hand in hand with power. Still is, but recently there seems to be an unusually high value, higher than most concrete things, like land. The last 10 years of the financial market shows us a bit of this shift.
In the beginning…
… there was land. The old empires, from Sumer to Mongols, had a big fixation on land. The more the better. It was quite obvious, more land always means more food, slaves and tax payers. During that period, though, much was achieved on science. Astronomy, mathematics and philosophy were the biggest advances from that age, and they had a lot to do with power, as all good kings had their own good scientists around.
But there was something missing on that connection… The scientist had the power to give advices but the kings had the power to ignore them. Astronomy was entangled with astrology, chemistry with alchemy, biology with religion… The true scientist didn’t have any power whatsoever, as kings always liked best those that would say everything would be all right.
Land is not enough (aka. knowledge goes dead)
After the first period of land-setting, when all kings and landlords had their share, it was obvious that they needed a new coin to get richer. With the collapse of the trade network during the (so called) dark ages, new forms of power came to surface. Faith was by far the greatest. The catholic church (and lots of sub-divisions of it) became the most powerful entity world has known so far. This power comes from the opposite of knowledge, unfortunately, and many scientists lost their lives fighting against it.
Other things were also highly valuable, like gold and gems, vassals and slaves, soldiers and castles. And they had lots of them. With the discovery of the new world, there was a new boost for land, but the old emperors were smart already and knew that it was only a matter of time to consume all that land.
It was actually easier to work it around, when the Spanish found an unbelievable amount of gold on Central America. Most colonialists started to ripping off their colonies of whatever they could find, and knowledge, science or wisdom is hardly ever associated with power in that period.
People have brains, after all
Renaissance fighting bravely the dark ages (for science, at least), came the age of enlightenment, when science had, once again, its role on power. Descartes, Newton and many others were not only digressing, but defining the intrinsic mechanisms of the universe. Later on, Darwin would set the final course for life, and Adam Smith and Karl Marx would define the next centuries in politics and economy.
Those thinkers had a huge power in their hands, they were shaping how we understand life, the universe and everything, but yet concrete values were still concrete. Money was more valuable than ever, fact, but land was still a stable market. Trade routes, consumers and the food market was still at the top of most governments.
Image is everything…
When we get to the 20th century that things start to get fuzzy. The consumer market turned into the most important thing in the world. More than land, trade routes and food, consumers would buy anything. If they don’t need it, you can advertise as fundamental to their existence and they will buy it. Advertisement surpassed even faith in matters of power. It doesn’t matter your religion, skin colour, place of birth, as long as you keep buying. See the fantastic Story of Stuff to know more about it.
Nevertheless, science didn’t stop being important to power. The atomic bomb and the impressive developments on computing is a clear outcome of that. It was so important that the image of the scientist changed from the weird guy in the dark room to the visionary guy on wheelchairs. The computer nerd image changed from the long-bearded-large-glasses weirdo to the charming multi-billionaire on his private cruiser.
People are now trying to become smarter for some time in order to reach this grail, a clear demonstration of this power.
But with this power also comes corruption. Like in the old days, pure science is a rare myth. Governments will always prefer to invest in science that has a solid return in money.
The last 10 years and the image of knowledge
Even though Wall Street assured the world that the crisis of 1929 would never happen again, banks lending more than they should made a new crisis this year. Other crisis happened in the late 90’s and early 2000. The problem this time is the image of knowledge.
In the late 90’s, the trust on the power of the internet (a technological and scientific concept) was so great that many old investors got greedy enough to spend millions on crap or non-existent projects. The usual risk is invest in 10 to get 1 good return, but in this case the return was close to nothing. The image was everything.
A Harvard PhD’s paper was enough to release half-million investments. Closer to the dot-com bubble‘s climax, even smart kids would get their funding anyway, leading to the collapse of the whole internet and technological market.
Speaking of image, what better case than Enron’s? They sold the image of electricity, gas and even broadband! Today we call this vapour-ware, and they managed to make billions only on that. Fooling the government, all major banks in the world and consumers.
Short selling was again the cause of the new financial crisis. Blamed also for the 1929 crisis, it consist in selling something you will have in the near future, as in, selling before you buy. Two things can happen wrong with that:
- Chain of short-selling: when you sell to someone who will sell to another person (again and again) before you even bought it in the first place. It’s not hard to see that this is a recipe to disaster. This was responsible for the 1929 and the current crisis.
- Not buying at all: As soon as you get the money you don’t actually have to buy the thing anyway. You just pretend to have it and delay the delivery. You can also borrow from someone else and give it to the other, in a circular dependency and never (ever) having to actually buy anything at all. Enron and the internet bubble were cases like this.
What’s the knowledge’s role on that?
Simple: Knowledge is difficult to acquire and accumulate. It’s also quite often difficult to test and assure consistency throughout all the scientific domain. As with every single program written, it’s impossible not to have bugs. There is no such thing as a perfectly safe system.
Nobel prizes were won defining “the rules” of short-selling. When such beautiful differential equations are demonstrated by famous professors and the whole economic community laureates this very idea with a Nobel prize, it’s quite difficult to be sceptical about it.
The pen is mightier than the sword, knowledge is mightier than land. Houses lost their real value and began spiralling to imaginary prices. Banks hoping for increasing prices forgot that it was all a dream and lent more money than they had, and it all ended in this.
Quants, locked in their hedge-funds offices, with pens and computers, dictates the future of the market. They change the way we, non-investors, buy houses to live and raise families.
In turn, computer nerds define the way people buy clothes and books, search for knowledge and talk to their granny and grand-children. All this technology and science is shaping the world of tomorrow. It’s defining how we think, who we are and how our children will be.
Do your part!
If you have this power, do your part. If you’re a quant, do it with responsibility. If you’re a programmer, think about the future. Think about the world tomorrow, not just your pocket today. Freedom is more important than money. Education, health and security is more important than the financial market. Think on the planet, think green!
Above all, please be sensible. There is no win-win situations, someone (or ultimately Earth) will always loose. And the more you gain, the more they (or it) will loose.