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Perhaps the most important lesson, which I have learned from Mises, was a lesson located outside economics itself. What Mises taught us in his writings, in his lectures, in his seminars, and in perhaps everything he said, was that economics—yes, and I mean sound economics, Austrian economics—is primordially, crucially important. Economics is not an intellectual game. Economics is deadly serious. The very future of mankind —of civilization—depends, in Mises’ view, upon widespread understanding of, and respect for, the principles of economics.

This is a lesson, which is located almost entirely outside economics proper. But all Mises’ work depended ultimately upon this tenet. Almost invariably, a scientist is motivated by values not strictly part of the science itself. The lust for fame, for material rewards—even the pure love of truth—these goals may possibly be fulfilled by scientific success, but are themselves not identified by science as worthwhile goals. What drove Mises, what accounted for his passionate dedication, his ability to calmly ignore the sneers of, and the isolation imposed by academic contemporaries, was his conviction that the survival of mankind depends on the development and dissemination of Austrian economics…

Austrian economics is not simply a matter of intellectual problem solving, like a challenging crossword puzzle, but literally a matter of the life or death of the human race.

–Israel M. Kirzner, Society for the Development of Austrian Economics Lifetime Achievement Award Acceptance Speech, 2006

Dear Lifeboat Foundation family & friends,

This 243-page thesis and this 16-page executive summary deliver a tenable, game-theoretical solution to this complex global dilemma:

Our narrative tables evolutionarily stable strategy for the problem of sustainable economic development on earth and other earth-like planets. In order to accomplish the task at hand with so few words, we hit the ground running with an exploration of Bertrand Russell’s conjecture that economic power is a derivative function of military power. Next we contextualize the formidable obstacle presented of teleological thinking. Third, we introduce Truly Non-cooperative Games – axioms and complimentary negotiation models developed to analyze a myriad of politico-economic problems, including the problem of sustainable economic development. Here we present The Principle of Relative Insularity, a unified theory of value which unites economics, astrophysics, and biology. Finally, we offer a synthetic narrative in which we explore several crucial logical implications that follow from our findings.

Those interested in background details and/or a deeper exploration of the logical implications that follow from this theoretical development may wish to pursue a few pages of an comprehensive, creative, and thoroughly exhaustive letter of introduction to this abridged synthesis: The Principles of Economics & Evolution: A Survival Guide for the Inhabitants of Small Islands, Including the Inhabitants of the Small Island of Earth.

Those interested in considering how this game-theoretical solution informs “evolutionarily stable” investment strategy may also wish to take in a brief overview of my PhD research: On the Problem of Modern Portfolio Theory: In Search of a Timeless & Universal Investment Perspective.

Please feel free to post all thoughts, comments, criticisms, and suggestions.

Thanks for reading!

Sincerely,

Matt Funk, FLS, BSc, MA, MFA, PhD Candidate, University of Malta, Department of Banking & Finance

PS: The author would like to thank the Lifeboat Foundation, Linnean Society of London, Property and Environment Research Center, Society for Range Management, Professors Kurial, Nagarajan, Baldacchino, Fielding, Falzon (University of Malta), Lockwood (University of Wyoming), MacKinnon (Memorial University), Sloan (Lancaster University), McKenna (Notre Dame), Schlicht (Ludwig-Maximilians- Universität München) and his dedicated team at MPRA, author & astronomer Jeff Kanipe, Dr Willard S. Boyle, Dr John Harris, fellow students, family, and friends for their priceless guidance, support, and encouragement. He also sends out a very special thanks to Professors Frey (Universität Zürich), Selten (Universität Bonn), and Nash (Princeton University) for their originality, independence, and inspiration.

A (Relatively) Brief Introduction to The Principles of Economics & Evolution: A Survival Guide for the Inhabitants of Small Islands, Including the Inhabitants of the Small Island of Earth

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(NOTE: Selecting the “Switch to White” button on the upper right-hand corner of the screen may ease reading this text).

“Who are you?” A simple question sometimes requires a complex answer. When a Homeric hero is asked who he is.., his answer consists of more than just his name; he provides a list of his ancestors. The history of his family is an essential constituent of his identity. When the city of Aphrodisias… decided to honor a prominent citizen with a public funeral…, the decree in his honor identified him in the following manner:

Hermogenes, son of Hephaistion, the so-called Theodotos, one of the first and most illustrious citizens, a man who has as his ancestors men among the greatest and among those who built together the community and have lived in virtue, love of glory, many promises of benefactions, and the most beautiful deeds for the fatherland; a man who has been himself good and virtuous, a lover of the fatherland, a constructor, a benefactor of the polis, and a savior.
– Angelos Chaniotis, In Search of an Identity: European Discourses and Ancient Paradigms, 2010

I realize many may not have the time to read all of this post — let alone the treatise it introduces — so for those with just a few minutes to spare, consider abandoning the remainder of this introduction and spending a few moments with a brief narrative which distills the very essence of the problem at hand: On the Origin of Mass Extinctions: Darwin’s Nontrivial Error.

But for those with the time and inclinations for long and windy paths through the woods, please allow me to introduce myself: I was born and raised in Kentland, Indiana, a few blocks from the train station where my great-great grandfather, Barney Funk, arrived from Germany, on Christmas day of 1859. I completed a BSc in Entrepreneurship and an MFA in film at USC, and an MA in Island Studies at UPEI. I am a naturalist, Fellow of The Linnean Society of London, PhD candidate in economics at the University of Malta, hunter & fisherman, NRA member, protective father, and devoted husband with a long, long line of illustrious ancestors, a loving mother & father, extraordinary brothers & sister, wonderful wife, beautiful son & daughter, courageous cousins, and fantastic aunts, uncles, in-laws, colleagues, and fabulous friends!

Thus my answer to the simple question, “Who are you?” requires a somewhat complex answer as well.

But time is short and I am well-positioned to simplify because all of the hats I wear fall under a single umbrella: I am a friend of the Lifeboat Foundation (where I am honoured to serve on the Human Trajectories, Economics, Finance, and Diplomacy Advisory Boards), a foundation “dedicated to encouraging scientific advancements while helping humanity survive existential risks.”

Almost everything I do – including the roles, associations, and relationships noted above, supports this mission.

It’s been nearly a year since Eric generously publish Principles of Economics & Evolution: A Survival Guide for the Inhabitants of Small Islands, Including the Inhabitants of the Small Island of Earth, and since that time I have been fortunate to receive many interesting and insightful emails packed full of comments and questions; thus I would like to take this opportunity to introduce this work – which represents three years of research.

Those interested in taking the plunge and downloading the file above may note that this discourse

tables an evolutionarily stable strategy for the problem of sustainable economic development – on islands and island-like planets (such as Earth), alike, and thus this treatise yields, in essence, a long-term survival guide for the inhabitants of Earth.

Thus you may expect a rather long, complex discourse.

This is indeed what you may find – a 121 page synthesis, including this 1,233 page Digital Supplement.

As Nassim Nicholas Taleb remarked in Fooled by Randomness:

I do not dispute that arguments should be simplified to their maximum potential; but people often confuse complex ideas that cannot be simplified into a media-friendly statement as symptomatic of a confused mind. MBAs learn the concept of clarity and simplicity—the five-minute manager take on things. The concept may apply to the business plan for a fertilizer plant, but not to highly probabilistic arguments—which is the reason I have anecdotal evidence in my business that MBAs tend to blow up in financial markets, as they are trained to simplify matters a couple of steps beyond their requirement.

But there is indeed a short-cut — in fact, there are at least two short-cuts.

First, perhaps the most direct pleasant approach to the summit is a condensed, 237 page thesis: On the Problem of Sustainable Economic Development: A Game-Theoretical Solution.

But for those pressed for time and/or those merely interested in sampling a few short, foundational works (perhaps to see if you’re interested in following me down the rabbit hole), the entire theoretical content of this 1,354-page report (report + digital supplement) may be gleamed from 5 of the 23 works included within the digital supplement. These working papers and publications are also freely available from the links below – I’ll briefly relate how these key puzzle pieces fit together:

The first publication offers a 13-page over-view of our “problem situation”: On the Origin of Mass Extinctions: Darwin’s Nontrivial Error.

Second is a 21-page game-theoretical development which frames the problem of sustainable economic development in the light of evolution – perhaps 70% of our theoretical content lies here: On the Truly Noncooperative Game of Life on Earth: In Search of the Unity of Nature & Evolutionary Stable Strategy.

Next comes a 113-page gem which attempts to capture the spirit and essence of comparative island studies, a course charted by Alexander von Humboldt and followed by every great naturalist since (of which, more to follow). This is an open letter to the Fellows of the Linnean Society of London, a comparative study of two, diametrically opposed economic development plans, both put into action in that fateful year of 1968 — one on Prince Edward Island, the other on Mustique. This exhaustive work also holds the remainder of the foundation for our complete solution to this global dilemma – and best of all, those fairly well-versed in game theory need not read it all, the core solution may be quickly digested on pages 25–51:
On the Truly Noncooperative Game of Island Life: Introducing a Unified Theory of Value & Evolutionary Stable ‘Island’ Economic Development Strategy.

Fourth comes an optional, 19-page exploration that presents a theoretical development also derived and illuminated through comparative island study (including a mini-discourse on methods). UPEI Island Studies Programme readers with the time and inclination for only one relatively short piece, this may be the one to explore. And, despite the fact that this work supports the theoretical content linked above, it’s optional because there’s nothing new here – in fact, these truths have been well known and meticulously documented for over 1,000 years – but it may prove to be a worthwhile, engaging, and interesting read nonetheless, because these truths have become so unfashionable that they’ve slipped back into relative obscurity: On the Problem of Economic Power: Lessons from the Natural History of the Hawaiian Archipelago.

And finally I’ll highlight another optional, brief communique – although this argument may be hopelessly compressed, here, in 3 pages, is my entire solution:
Truly Non-Cooperative Games: A Unified Theory.

Yes, Lifeboat Foundation family and friends, you may wish to pause to review the abstracts to these core, foundational works, or you may even wish to review them completely and put the puzzle pieces together yourself (the pages linked above total 169 – or a mere 82 pages if you stick to the core excerpt highlighted in my Linnean Letter), but, as the great American novelist Henry Miller remarked:

In this age, which believes that there is a short cut to everything, the greatest lesson to be learned is that the most difficult way is, in the long run, the easiest.

Why?

That’s yet another great, simple question that may require several complex answers, but I’ll give you three:

#1). First and foremost, because explaining is a difficult art.

As Richard Dawkins duly noted:

Explaining is a difficult art. You can explain something so that your reader understands the words; and you can explain something so that the reader feels it in the marrow of his bones. To do the latter, it sometimes isn’t enough to lay the evidence before the reader in a dispassionate way. You have to become an advocate and use the tricks of the advocate’s trade.

Of course much of this depends upon the reader – naturally some readers may find that less (explanation) is more. Others, however, may find benefit from reading even more (more, that is, than my report and the digital supplement). You may find suggested preliminary and complimentary texts in the SELECTED BIBLIOGRAPHY (below). The report itself includes these and many more. In short, the more familiar readers may be with some or all of these works, the less explaining they may require.

#2). No matter how much explaining you do, it’s actually never enough, and, as Abraham Lincoln wisely noted at Gettysburg, the work is never done. For more one this important point, let’s consider the words of Karl Popper:

When we propose a theory, or try to understand a theory, we also propose, or try to understand, its logical implications; that is, all those statements which follow from it. But this… is a hopeless task: there is an infinity of unforeseeable nontrivial statements belonging to the informative content of any theory, and an exactly corresponding infinity of statements belonging to its logical content. We can therefore never know or understand all the implications of any theory, or its full significance.
This, I think, is a surprising result as far as it concerns logical content; though for informative content it turns out to be rather natural…. It shows, among other things, that understanding a theory is always an infinite task, and that theories can in principle be understood better and better. It also shows that, if we wish to understand a theory better, what we have to do first is to discover its logical relation to those existing problems and existing theories which constitute what we may call the ‘problem situation’.
Admittedly, we also try to look ahead: we try to discover new problems raised by our theory. But the task is infinite, and can never be completed.

In fact, when it comes right down to it, my treatise – in fact, my entire body of research, is, in reality, merely an exploration of the “infinity of unforeseeable nontrivial statements belonging to the informative content” of the theory for which Sir Karl Popper is famous: his solution to David Hume’s problem of induction (of which you’ll hear a great deal if you brave the perilous seas of thought in the works introduced and linked herewith).

#3). Okay, this is a tricky one, but here it goes: Fine, a reasonable skeptic may counter, I get it, it’s hard to explain and there’s a lot of explaining to do – but if 100% of the theoretical content may be extracted from less than 200 pages, then doesn’t that mean you could cut about 1,000 pages?

My answer?

Maybe.

But then again, maybe not.

The reality of the situation is this: neither I nor anyone else can say for sure – this is known as the mind-body problem. In essence, given the mind-body problem, not only am I unable to know exactly how to explain something I know, moreover, I’m not even able to know how it is that I know what I know. I’m merely able to guess. Although this brief introduction is not the proper time nor place to explore the contents of this iteration of Pandora’s Box, those interested in a thorough exploration of this particular problem situation would be well-served with F.A. von Hayek’s The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology (1952). But, in short, the bulk of the Digital Supplement and much of the report itself is merely an attempt to combat the mind-body problem – an attempt to put down as much of the history (and methodology) of this theoretical development as possible. As Descartes remarked at the outset of a treatise on scientific method:

This Tract is put forth merely as a history, or, if you will, as a tale, in which, amid some examples worthy of imitation, there will be found, perhaps, as many more which it were advisable not to follow, I hope it will prove useful to some without being hurtful to any, and that my openness will find some favor with all.

Perhaps you may grasp my theoretical development – but perhaps you may grasp it in a matter by which I did not intend for you to grasp it – perhaps I had stumbled upon a truth in another work within my digital supplement that may make it all clear. Or, perhaps I’ve got it all wrong, and perhaps you – by following in my footsteps through the historical course of this theoretical development (faithfully chronicled in the digital supplement) – may be able to help show me my error (and then, of course we may both rejoice); Malthus felt likewise:

If [the author] should succeed in drawing the attention of more able men to what he conceives to be the principal difficulty in… society and should, in consequence, see this difficulty removed, even in theory, he will gladly retract his present opinions and rejoice in a conviction of his error.

Anticipating another point regarding style: This report is very, very unusual insofar as style is concerned. It’s personal, highly opinionated, and indulges artistic license at almost every turn in the road. In fact, you may also find this narrative a touch artistic – yet it’s all true. As Norman Maclean remarked in A River Runs Trough It, “You like to tell true stories, don’t you?’ he asked, and I answered, ‘Yes, I like to tell stories that are true.’”

I like to tell stories that are true, too, and if you like to read them, then this epic journey of discovery may be for you. I speak to this point at length, but, in short, I submit that there is a method to the madness (in fact, the entire report may also be regarded as an unusual discourse on method).

Why have I synthesized this important theoretical development in an artistic narrative? In part, because Bruno Frey (2002) clearly stated why that’s the way it should be.

But I also did so in hopes that it may help readers grasp what it’s really all about; as the great Russian-American novelist Ayn Rand detailed:

Man’s profound need of art lies in the fact that his cognitive faculty is conceptual, i.e., that he acquires knowledge by means of abstractions, and needs the power to bring his widest metaphysical abstractions into his immediate, perceptual awareness. Art fulfills this need: by means of a selective re-creation, it concretizes man’s fundamental view of himself and of existence. It tells man, in effect, which aspects of his experience are to be regarded as essential, significant, important. In this sense, art teaches man how to use his consciousness.

Speaking of scientific method: I have suggested that my curiously creative narrative may offer some insight into the non-existent subject of scientific method — so please download for much more along these lines — but I want to offer an important note, especially for colleagues, friends, students, and faculty at UPEI: I sat in on a lecture last winter where I was surprised to learn that “island studies” had been recently invented by Canada research chair – thus I thought perhaps I should offer a correction and suggest where island studies really began:

Although it is somewhat well known that Darwin and Wallace pieced the theory of evolution together independently, yet at roughly the same time – Wallace, during his travels through the Malay archipelago, and Darwin, during his grand circumnavigation of the island of Earth onboard the Beagle (yes, the Galapagos archipelago played a key role, but perhaps not as important as has been suggested in the past). But what is not as commonly know is that both Darwin and Wallace had the same instructor in the art of comparative island studies. Indeed, Darwin and Wallace both traveled with identical copies of the same, treasured book: Alexander von Humboldt’s Personal Narrative of Travels to the Equinoctial Regions of the New Continent. Both also testified to the fundamental role von Humboldt played by inspiring their travels and, moreover, developing of their theories.

Thus, I submit that island studies may have been born with the publication of this monumental work in 1814; or perhaps, as Berry (2009) chronicled in Hooker and Islands (see SELECTED BIBLIOGRAPHY, below), it may have been Thomas Pennant or Georg Forster:

George Low of Orkney provided, together with Gilbert White, a significant part of the biological information used by pioneering travel writer Thomas Pennant, who was a correspondent of both Joseph Banks and Linnaeus [Pennant dedicated his Tour in Scotland and Voyage to the Hebrides (1774–76) to Banks and published Banks’s description of Staffa, which excited much interest in islands; Banks had travelled with James Cook and visited many islands; Georg Forster, who followed Banks as naturalist on Cook’s second voyage inspired Alexander Humboldt, who in turn Darwin treated as a model.

But whomever it may have been — or whomever you may ultimately choose to follow — Humboldt certainly towers over the pages of natural history, and Gerard Helferich’s Humboldt’s Cosmo’s: Alexander von Humboldt and the Latin American Journey that Changed the WayWe See the World (2004) tells Humboldt’s story incredibly well. This treasure also happens to capture the essence of Humboldt’s method, Darwin’s method, Wallace’s method, Mayr’s method, Gould’s method, and it most certainly lays out the map I have attempted to follow:

Instead of trying to pigeonhole the natural world into prescribed classification, Kant had argued, scientists should work to discover the underlying scientific principles at work, since only those general tenets could fully explain the myriad natural phenomena. Thus Kant had extended the unifying tradition of Thales, Newton, Descartes, et al.… Humboldt agreed with Kant that a different approach to science was needed, one that could account for the harmony of nature… The scientific community, despite prodigious discoveries, seemed to have forgotten the Greek vision of nature as an integrated whole.… ‘Rather than discover new, isolated facts I preferred linking already known ones together,’ Humboldt later wrote. Science could only advance ‘by bringing together all the phenomena and creations which the earth has to offer. In this great sequence of cause and effect, nothing can be considered in isolation.’ It is in this underlying connectedness that the genuine mysteries of nature would be found. This was the deeper truth that Humboldt planned to lay bare – a new paradigm from a New World. For only through travel, despite its accompanying risks, could a naturalist make the diverse observations necessary to advance science beyond dogma and conjecture. Although nature operated as a cohesive system, the world was also organized into distinct regions whose unique character was the result of all the interlocking forces at work in that particular place. To uncover the unity of nature, one must study the various regions of the world, comparing and contrasting the natural processes at work in each. The scientist, in other words, must become an explorer.

With these beautiful words in mind and the spirit of adventure in the heart, I thank you for listening to this long story about an even longer story, please allow me to be your guide through an epic adventure.

But for now, in closing, I’d like to briefly return to the topic at hand: human survival on Earth.

A few days ago, Frenchman Alain Robert climbed the world’s tallest building – Burj Khalifa – in Dubai.

After the six hour climb, Robert told Gulf News, “My biggest fear is to waste my time on earth.”

I certainly share Robert’s fear – Alexander von Humboldt, Darwin, and Wallace did, too, by the way.

But then Robert added, “To live, we don’t need much, just a roof over our heads some food and drink and that’s it … everything else is superficial.”

I’m afraid that’s where Robert and I part ways – and if you would kindly join me on a journey through The Principles of Economics & Evolution: A Survival Guide for the Inhabitants of Small Islands, Including the Inhabitants of the Small Island of Earth – I would love to explain why Robert’s assertion is simply not true.

Please feel free to post comments or contact me with any thoughts, comments, questions, or suggestions.

MWF
Charlottetown, Prince Edward Island

PS: My report suggests many preliminary and complimentary readings – but I’ve revisited this topic with the aim of producing a selected bibliography of the most condensed and readily accessible (i.e, freely available online) works which may help prepare the reader for my report and the foundational theoretical discourses noted and linked above. Most are short papers, but a few great books and dandy dissertations may be necessary as well!

SELECTED BIBLIOGRAPHY

BERRY, R. (2009). Hooker and islands. Bio Journal Linn Soc 96:462–481.

DARWIN, C., WALLACE, A. (1858). On the Tendency of Species to form Varieties; and on the Perpetuation of Varieties and Species by Natural Means of Selection. Proc Linn Soc 3:45–62.

DARWIN, C., et. al. (1849). A Manual of Scientific Enquiry; Prepared for the use of Her Majesty’s Navy : and Adapted for Travellers in General (Murray, London).

DOBZHANSK Y, T. (1973). Nothing in biology makes sense except in light of evolution. Amer Biol Teacher 35:125- 129.

EINSTEIN, A. (1920). Relativity: The Special and General Theory (Methuen & Co., London).

FIELDING, R. (2010). Artisanal Whaling in the Atlantic: A Comparative Study of Culture, Conflict, and Conservation in St. Vincent and the Faroe Islands. A PhD dissertation (Louisiana State University, Baton Rouge).

FREY, B. (2002). Publishing as Prostitution? Choosing Between One‘s Own Ideas and Academic Failure. Pub Choice 116:205–223.

FUNK, M. (2010a). Truly Non-Cooperative Games: A Unified Theory. MPRA 22775:1–3.

FUNK, M. (2008). On the Truly Noncooperative Game of Life on Earth: In Search of the Unity of Nature & Evolutionary Stable Strategy. MPRA 17280:1–21.

FUNK, M. (2009a). On the Origin of Mass Extinctions: Darwin’s Nontrivial Error. MPRA 20193:1–13.

FUNK, M. (2009b). On the Truly Noncooperative Game of Island Life: Introducing a Unified Theory of Value & Evolutionary Stable ‘Island’ Economic Development Strategy. MPRA 19049:1–113.

FUNK, M. (2009c). On the Problem of Economic Power: Lessons from the Natural History of the Hawaiian Archipelago. MPRA 19371:1–19.

HELFERICH, G. (2004). Humboldt’s Cosmo’s: Alexander von Humboldt and the Latin American Journey that Changed the Way We See the World (Gotham Books, New York).

HOLT, C., ROTH, A. (2004). The Nash equilibrium: A perspective. Proc Natl Acad Sci USA 101:3999–4000.

HAYEK, F. (1974). The Pretense of Knowledge. Nobel Memorial Lecture, 11 December 1974. 1989 reprint. Amer Econ Rev 79:3–7.

HUMBOLDT, A., BONPLAND, A. (1814). Personal Narrative of Travels to the Equinoctial Regions of the New Continent (Longman, London).

KANIPE, J. (2009). The Cosmic Connection: How Astronomical Events Impact Life on Earth (Prometheus, Amherst).

MAYNARD SMITH, J. (1982). Evolution and the Theory of Games (Cambridge Univ, New York).

MAYR, E. (2001). What Evolution Is (Basic Books, New York).

NASH, J., et., al. (1994). The Work of John Nash in Game Theory. Prize Seminar, December 8, 1994 (Sveriges Riksbank, Stockholm).

NASH, J. (1951). Non-Cooperative Games. Ann Math 54:286–295.

NASH, J. (1950). Two-Person Cooperative Games. RAND P-172 (RAND, Santa Monica).

POPPER, K. (1999). All life is Problem Solving (Routledge, London).

POPPER, K. (1992). In Search of a Better World (Routledge, London).

ROGERS, D., EHRLICH, P. (2008). Natural selection and cultural rates of change. Proc Natl Acad Sci USA 105:3416 −3420.

SCHWEICKART, R., et. al. (2006). Threat Mitigation: The Gravity Tractor. NASA NEO Workshop, Vail, Colorado.

SCHWEICKART, R., et. al. (2006). Threat Mitigation: The Asteroid Tugboat. NASA NEO Workshop, Vail, Colorado.

STIGLER, G. (1982). Process and Progress of Economics. J of Pol Econ 91:529–545.

TALEB, N. (2001). Fooled by Randomness (Texere, New York).

WEIBULL, J. (1998). WHAT HAVE WE LEARNED FROM EVOLUTIONARY GAME THEORY SO FAR? (Stockholm School of Economics, Stockholm).

WALLACE, A. (1855). On the Law Which has Regulated the Introduction of New Species. Ann of Nat History 16:184–195.

Common wisdom is that great companies are built by business leaders who out-vision and out-innovate their competitors. However, the truth is that groundbreaking businesses tend to come from entrepreneurs who were smart enough to out-execute everyone else in their space – which means getting products out there and growing a loyal customer base, instead of engineering a product until it’s supposedly perfect.

Microsoft is a great example of company that has succeeded by execution. They’ve rarely been first to market with any of their products, but they’ve successfully brought them to market, figured out how to improve them, and introduce them again and again. This is the approach that puts you in the Fortune 500.

Why do entrepreneurs believe so fervently in the myth that they need to be first to market with a never-before-seen innovation? Because that’s what they’re told in business school. The problem with this piece of wisdom is that it encourages business leaders to wait until the mythical breakthrough business idea is fully formed.

This myth is fed by the public perception of groundbreaking companies as having come out of nowhere to rock the world. But companies like Facebook rarely, if ever, spring into being with no antecedents: MySpace and Friendster were in the market first, but Facebook did social networking better than anyone else had done before. Google wasn’t the first search engine ever; AltaVista probably deserves that title. But Google advanced the search experience to the point that we all believe they were the breakthrough innovator.

The point I’m making here is that you don’t need to have the breakthrough vision to launch your company – you need to have breakthrough execution. Launch your company even if your concept is similar to someone else’s idea, and figure how you will change the business model.

When you stall your entry into the market, you run the risk of getting outrun by competition – who’ll have gathered valuable on-the-ground information and solved problems before you’ve even planned your launch party. At a certain point, the ecosystem around your market will have become so strong that consumers will not be willing to accept a new entry. For example, anyone who launches a Facebook-style social network right now will have to hope that people are willing to totally rebuild their friend networks from the ground up.

On the other hand, if you can tweak this idea for a new market – for instance, a social network that specifically serves the healthcare community – you can launch without an entirely new concept. Or you can go to a locale where you’re not first in the market, but where there is greater potential to become a player.

In other words, you can be first to market in Seattle with widget XYZ, where there’s only a moderate interest and market potential for your product. Or you can be tenth to market in Tulsa where there’s a far greater need for widget XYZ, giving you plenty of room to gain customer share. Here’s how to position yourself for entrepreneurial success without playing the waiting game.

Follow your heart – but use your head. As an entrepreneur, you should always develop businesses that you are passionate about, since that enthusiasm will keep you pushing ahead when times are tough. But that doesn’t mean you can’t think rationally about how to apply what a competitor is doing to a different market segment or locale.

Listen to the market, and tweak as needed. The reason for launching sooner rather than later is to gather feedback from initial customers, so that you can redesign or retool as needed. Without this early feedback, you can only guess as to what customers are willing to pay for.

Don’t wallow in brainstorming. Time spent fiddling with a business plan or filling up whiteboards with ideas is time that you could spend actually launching your business and seeing if the idea floats. If it’s real, you get solid feedback, instead of the imaginary “what if” scenarios you dream up in a conference room.

Launch early enough that you’re partially embarrassed by your first product release. Entrepreneurs are likely to be somewhat off-base about their first launch and what features customers really want, but they won’t make a product better until people are actually using it. LinkedIn founder Reid Hoffman says that his co-founders wanted to delay launch until they introduced the professional social network’s “contact finder” feature, but it turns out it wasn’t necessary — eight years later, LinkedIn still hasn’t added that feature.

Be your own worst nightmare. Once you do have that toehold in the market, ask yourself how you would outflank your company if you were a competitor. Constantly out-innovate yourself, and determine how to make your product offerings obsolete with each iteration.

Follow Naveen Jain on Twitter: www.twitter.com/Naveen_Jain_CEO

How important is failure – yes, failure – to the health of a thriving, innovative business? So important that Ratan Tata, chairman of India’s largest corporation, gives an annual award to the employee who comes up with the best idea that failed. So important that Apple, the company gives us the world’s most beautifully designed music players, mobile phones, and tablets, wouldn’t be here if it hadn’t dared to fail. Remember the Apple Newton? Probably not, since it was a flop, but it was a precursor to today’s wildly successful iPad.

In a struggling economic climate, failure is what separates mediocre companies from businesses that break through and astound us with their creativity.

Yet failure has become a scenario to be avoided at all costs for most CEOs. Between fear of losing jobs to fear of rattling investors, business leaders are expected to deliver a perfect track record of product launches and expansion programs. They indirectly instill this attitude in their employees, who lack the confidence to spearhead any corporate initiative that isn’t guaranteed to work.

Call it the Tiger Mom effect: In the business world today, failure is apparently not an option.

We need to change this attitude toward failure – and celebrate the idea that only by falling on our collective business faces do we learn enough to succeed down the road. Sure, this is a tough sell at a time when unemployment figures are still high and a true economic recovery is still a long way off. But without failures, no business can grow and innovate.

Why is it that we are willing to accept a certain amount of failure along with success in other arenas, but it’s forbidden in business? Take basketball: The best player on his best night will only score about 50 percent of the time. The other 50 percent of the shots aren’t considered failures – they are attempts to test playing strategy that will figure into dunks later in the game.

If a basketball player is scoring close to 100 percent of the time, he is clearly making layups and not considering the three-pointer that may be needed to win the game. The same is true for business leaders: if every one of your pet projects rolls out successfully, maybe you aren’t stretching far enough.

Apple Computer would not have reached its current peak of success if it had feared to roll the dice and launch products that didn’t always hit the mark. In the mid-1990s, the company was considered washed up, Steve Jobs had departed, and a string of lackluster product launches unrelated to the company’s core business had failed to catch fire. But the company learned lessons from its mistakes, and shifted focus to the development of flawlessly designed consumer electronics goods. Yesterday’s failures bred today’s market dominance.

Fail today, profit tomorrow
The good news about failing is that this is a smart time to do it. Today, the cost of failure is much lower than it used to be. And if you take chances while the economy is down, your successful business launch will grow and become exponentially more profitable as times improve.

Strange as it may sound, a positive attitude towards failure starts at the top. Here’s how business leaders can create an environment where failure is encouraged, not punished.

Applaud people who fail: As a leader, you need to praise people who take risks and explore new ways to gain market share, since short-term failures can lead to the biggest business successes down the road. Talk publicly about why the failed venture has merit, and what your employees have learned from it. At performance review time, let the innovators who dare to fail know that you value their contributions.

Acknowledge your own failures: When you experience a failure as a leader, don’t hide it – talk about it. Your missed opportunity will encourage others to take risks. When you tell personal stories about your own failed plans, you give permission to everyone in the organization to do the same, without fear of reprisals. (Of course, you should always remind people that they should dig deep for lessons learned from every failed attempt.)

Create a culture of innovation and entrepreneurship: Grant people the time to work on projects that they are passionate about – beyond their daily responsibilities. This sends employees a signal that their failures as well as their successes have great value to the business. Google does this, allowing its engineers to spend 20 percent of their work time on side projects. You can’t argue with success: Google’s Orkut social networking service and AdSense ads for website content came directly from this “20 percent time” program.

So get out there and fail – and take inspiration from Thomas Edison, who suffered through more than a thousand experiments before finally inventing a working light bulb. “I didn’t fail a thousand times,” Edison told a journalist. “The light bulb was an invention with a thousand steps.”

Follow Naveen Jain on Twitter: www.twitter.com/Naveen_Jain_CEO

“Jobs for every American is doomed to failure because of modern automation and production. We ought to recognize it and create an income-maintenance system so every single American has the dignity and the wherewithal for shelter, basic food, and medical care. I’m talking about welfare for all. Without it, you’re going to have warfare for all.”

This quote from Jerry Brown in 1995 echoes earlier fears that automation would cause mass unemployment and displacement. These fears have not materialized, due to surging economic growth, the ability of the workforce to adjust, and the fact that the extent of automation is largely limited to physical, repetitive tasks. This is beginning to change.

In recent years, before the current recession, automation in already well established areas has continued to make productivity improvements. “Robotics and other computer automation have reduced the number of workers on a line. Between 2002 and 2005, the number of auto production workers decreased 8.5 percent while shipments increased 5 percent. Assembly plants now require as little as 15 to 25 labor hours per vehicle.” The result of these productivity gains has been a higher quality, less expensive product.

As machines become smarter, less repetitive “white collar” jobs will become subject to automation. Change will come so rapidly, the workforce will not be able to adjust, with real opportunities for alternative work decreasing. The earlier fears of mass unemployment will become realized. This mass displacement could lay the foundation for civil unrest and a general backlash against technology. The full extent of this change is unlikely to happen for another generation, with strong growth in China and other emerging economies. Regardless of exact timing or mechanism, the fact is that this transition to full automation has already begun, and micro economics dictate that it will continue. The choice between an inefficient, expensive, human labor force and an efficient, cheap, automated labor force is clear at the micro level, which will drive the pace of change.

What is needed now is a new economic paradigm, new theories, and a new understanding for the new coming age. We are not far away from a time when it will be possible to provide every human with a clean, safe place to live, with excellent healthcare and ample food, through the provision of automated labor. If it is possible to provide these things as a birth right, while not infringing upon the rights of others, then it should be done. As long as we are human, no matter how virtual our world becomes, we will still have basic physical needs that should be accessible by everyone, as owners by heritage to this offspring of our species. The correct lessons from the failures and shortcomings of Marxism and Austrian Economics must be learned. The introduction of something never before possible, an intelligent omnipresent and free labor source (free once machines are able to replicate themselves from the mine, to design and manufacture, without any human input), is a game changer.

Jerry Brown was right. The trick is to not be too far ahead of your time.

Dear Ray;

I’ve written a book about the future of software. While writing it, I came to the conclusion that your dates are way off. I talk mostly about free software and Linux, but it has implications for things like how we can have driverless cars and other amazing things faster. I believe that we could have had all the benefits of the singularity years ago if we had done things like started Wikipedia in 1991 instead of 2001. There is no technology in 2001 that we didn’t have in 1991, it was simply a matter of starting an effort that allowed people to work together.

Proprietary software and a lack of cooperation among our software scientists has been terrible for the computer industry and the world, and its greater use has implications for every aspect of science. Free software is better for the free market than proprietary software, and there are many opportunities for programmers to make money using and writing free software. I often use the analogy that law libraries are filled with millions of freely available documents, and no one claims this has decreased the motivation to become a lawyer. In fact, lawyers would say that it would be impossible to do their job without all of these resources.

My book is a full description of the issues but I’ve also written some posts on this blog, and this is probably the one most relevant for you to read: https://lifeboat.com/blog/2010/06/h-conference-and-faster-singularity

Once you understand this, you can apply your fame towards getting more people to use free software and Python. The reason so many know Linus Torvalds’s name is because he released his code as GPL, which is a license whose viral nature encourages people to work together. Proprietary software makes as much sense as a proprietary Wikipedia.

I would be happy to discuss any of this further.

Regards,

-Keith
—————–
Response from Ray Kurzweil 11/3/2010:

I agree with you that open source software is a vital part of our world allowing everyone to contribute. Ultimately software will provide everything we need when we can turn software entities into physical products with desktop nanofactories (there is already a vibrant 3D printer industry and the scale of key features is shrinking by a factor of a hundred in 3D volume each decade). It will also provide the keys to health and greatly extended longevity as we reprogram the outdated software of life. I believe we will achieve the original goals of communism (“from each according to their ability, to each according to their need”) which forced collectivism failed so miserably to achieve. We will do this through a combination of the open source movement and the law of accelerating returns (which states that the price-performance and capacity of all information technologies grows exponentially over time). But proprietary software has an important role to play as well. Why do you think it persists? If open source forms of information met all of our needs why would people still purchase proprietary forms of information. There is open source music but people still download music from iTunes, and so on. Ultimately the economy will be dominated by forms of information that have value and these two sources of information – open source and proprietary – will coexist.
———
Response back from Keith:
Free versus proprietary isn’t a question about whether only certain things have value. A Linux DVD has 10 billion dollars worth of software. Proprietary software exists for a similar reason that ignorance and starvation exist, a lack of better systems. The best thing my former employer Microsoft has going for it is ignorance about the benefits of free software. Free software gets better only as more people use it. Proprietary software is an inferior development model and an anathema to science because it hinders people’s ability to work together. It has infected many corporations, and I’ve found that PhDs who work for public institutions often write proprietary software.

Here is a paragraph from my writings I will copy here:

I start the AI chapter of my book with the following question: Imagine 1,000 people, broken up into groups of five, working on two hundred separate encyclopedias, versus that same number of people working on one encyclopedia? Which one will be the best? This sounds like a silly analogy when described in the context of an encyclopedia, but it is exactly what is going on in artificial intelligence (AI) research today.

Today, the research community has not adopted free software and shared codebases sufficiently. For example, I believe there are more than enough PhDs today working on computer vision, but there are 200+ different codebases plus countless proprietary ones. Simply put, there is no computer vision codebase with critical mass.

We’ve known approximately what a neural network should look like for many decades. We need “places” for people to work together to hash out the details. A free software repository provides such a place. We need free software, and for people to work in “official” free software repositories.

“Open source forms of information” I have found is a separate topic from the software issue. Software always reads, modifies, and writes data, state which lives beyond the execution of the software, and there can be an interesting discussion about the licenses of the data. But movies and music aren’t science and so it doesn’t matter for most of them. Someone can only sell or give away a song after the software is written and on their computer in the first place. Some of this content can be free and some can be protected, and this is an interesting question, but mostly this is a separate topic. The important thing to share is scientific knowledge and software.

It is true that software always needs data to be useful: configuration parameters, test files, documentation, etc. A computer vision engine will have lots of data, even though most of it is used only for testing purposes and little used at runtime. (Perhaps it has learned the letters of the alphabet, state which it caches between executions.) Software begets data, and data begets software; people write code to analyze the Wikipedia corpus. But you can’t truly have a discussion of sharing information unless you’ve got a shared codebase in the first place.

I agree that proprietary software is and should be allowed in a free market. If someone wants to sell something useful that another person finds value in and wants to pay for, I have no problem with that. But free software is a better development model and we should be encouraging / demanding it. I’ll end with a quote from Linus Torvalds:

Science may take a few hundred years to figure out how the world works, but it does actually get there, exactly because people can build on each others’ knowledge, and it evolves over time. In contrast, witchcraft/alchemy may be about smart people, but the knowledge body never “accumulates” anywhere. It might be passed down to an apprentice, but the hiding of information basically means that it can never really become any better than what a single person/company can understand.
And that’s exactly the same issue with open source (free) vs proprietary products. The proprietary people can design something that is smart, but it eventually becomes too complicated for a single entity (even a large company) to really understand and drive, and the company politics and the goals of that company will always limit it.

The world is screwed because while we have things like Wikipedia and Linux, we don’t have places for computer vision and lots of other scientific knowledge to accumulate. To get driverless cars, we don’t need any more hardware, we don’t need any more programmers, we just need 100 scientists to work together in SciPy and GPL ASAP!

Regards,

-Keith

well-in-an-oasisIt’s easy to think of people from the underdeveloped world as quite different from ourselves. After all, there’s little to convince us otherwise. National Geographic Specials, video clips on the Nightly News, photos in every major newspaper – all depicting a culture and lifestyle that’s hard for us to imagine let alone relate to. Yes – they seem very different; or perhaps not. Consider this story related to me by a friend.

Ray was a pioneer in software. He sold his company some time ago for a considerable amount of money. After this – during his quasi-retirement he got involved in coordinating medical relief missions to some of the most impoverished places on the planet, places such as Timbuktu in Africa.

The missions were simple – come to a place like Timbuktu and set up medical clinics, provide basic medicines and health care training and generally try and improve the health prospects of native peoples wherever he went.

Upon arriving in Timbuktu, Ray observed that their system of commerce was incredibly simple. Basically they had two items that were in commerce – goats and charcoal.

According to Ray they had no established currency – they traded goats for charcoal, charcoal for goats or labor in exchange for either charcoal or goats. That was basically it.

Ray told me that after setting up the clinic and training people they also installed solar generators for the purpose of providing power for satellite phones that they left in several villages in the region.

They had anticipated that the natives, when faced with an emergency or if they needed additional medicines or supplies would use the satellite phones to communicate these needs however this isn’t what ended up happening…the-road-to-timbuktu

Two years after his initial visit to Timbuktu, Ray went back to check on the clinics that they had set up and to make certain that the people there had the medicines and other supplies that they required.

Upon arriving at the same village he had visited before Ray was surprised to note that in the short period of only two years since his previous visit things had changed dramatically – things that had not changed for hundreds, perhaps even thousands of years.

Principally, the change was to the commerce in Timbuktu. No longer were goats and charcoal the principal unit of currency. They had been replaced by a single unified currency – satellite phone minutes!

Instead of using the satellite phones to call Ray’s organization, the natives of Timbuktu had figured out how to use the phones to call out to neighboring villages. This enabled more active commerce between the villages – the natives could now engage in business miles from home – coordinating trade between villages, calling for labor when needed or exchanging excess charcoal for goats on a broader scale for example.mudshacks-in-timbuktu

Of course their use of these phones wasn’t limited strictly to commerce – just like you and I, they also used these phones to find out what was happening in other places – who was getting married, who was sick or injured or simply to communicate with people from other places that were too far away to conveniently visit.

In other words, a civilization that had previously existed in a way that we would consider highly primitive had leapfrogged thousands of years of technological and cultural development and within the briefest of moments had adapted their lives to a technology that is among the most advanced of any broadly distributed in the modern world.

It’s a powerful reminder that in spite of our belief that primitive cultures are vastly different from us the truth is that basic human needs, when enabled by technology, are very much the same no matter where in the world or how advanced the civilization.

Perhaps we are not so different after all?
Timbuktu

Introduction
At a fundamental level, real wealth is the ability to fulfill human needs and desires. These ephemeral motivators are responsible for the creation of money, bank ledgers, and financial instruments that drive the world—caveat the fact that the monetary system can’t buy us love (and a few other necessities). Technologies have always provided us with tools that enable us to fulfill more needs and desires for more people with less effort. The exponential nanomanufacturing capabilities of Productive Nanosystems will simply enable us to do it better. Much better.

Productive Nanosystems
The National Nanotechnology Initiative defines nanotechnology as technologies that control matter at dimensions between one and a hundred nanometers, where unique phenomena enable novel applications. For particles and structures, reducing dimensions to the nanoscale primarily affects surface area to volume ratios and surface energies. For active structures and devices, the significant design parameters become exciton distances, quantum effects, and photon interactions. Connecting many different nanodevices into complex systems will multiply their power, leading some experts to predict that a particular kind of nanosystem—Productive Nanosystems that produces atomically precise products—will dramatically change the world.

Productive Nanosystems are programmable mechanoelectrochemical systems that are expected to rearrange bulk quantities numbers of atoms with atomic precision under programmatical control. There are currently four approaches that are expected to lead to Productive Nanosystems: DNA Origami[1], Bis-Peptide Synthesis[2], Patterned Atomic Layer Epitaxy[3], and Diamondoid Mechanosynthesis[4]. The first two are biomimetic bottom-up approaches that struggle to achieve long-range order and to increase complexity despite using chaotic thermodynamic processes. The second two are scanning-probe-based top-down approaches that struggle to increase productivity to a few hundred atoms per hour while reducing error rate.[5]

For the bottom-up approaches, the tipping point will be reached when researchers build the first nanosystem complex enough to do error correction. For the top-down approaches that can do error correction fairly easily, the tipping point will be reached when subsequent generations of tip arrays no longer need to be redesigned for speed and size improvements while using control algorithms that scale well (i.e. they only need generational time, synthesized inputs, and expansion room). When these milestones are reached, nanosystems will grow exponentially—unnoticeably for a few weeks, but suddenly they will become overwhelmingly powerful. There are many significant applications foreseen for mature Productive Nanosystems, ranging from aerospace and transportation to medicine and manufacturing—but what may affect us the hardest may be those applications that we can’t foresee.

Thus far, no scientific reason has been discovered that would prevent any of the four approaches from leading to Productive Nanosystems, much less all of them. So when an early desktop nanofactory prints out the next generation of Intel’s processor (without a $8 Billion microphotolithography fab plant), or a sailboat goes out for a weekend cruise and collects a few kilograms of gold or plutonium from seawater, people will sit up and take notice that the world has changed. Unfortunately, by then it will be a bit late — they will be like Neanderthals staring at a jet fighter that just thundered by overhead, and is already half-way to the horizon.

Combined with sufficient medical knowledge of how the human body should operate at the nanoscale, Productive Nanosystems may also be able to cure all known diseases, and perhaps even reverse the seven mechanisms of aging. For example, replacing red blood cells with microscopic artificial red blood cells (consisting of pressurized tanks and nanocomponents) will enable people to hold their breath for four hours.[6] Such simple nanobots (with less complexity than a microwave oven) may save the lives of many patients with blood and heart disorders. Other nanostructures, such as artificial kidneys with biocompatible nanomembranes, may prevent end-stage renal failure. One important caveat however, is that Productive Nanosystems can only move atoms around—they are useless when we don’t know where the atoms are supposed to go. Discovering the optimal positions of atoms for a particular application is new science, and inherently unpredictable.

In contrast to inventing new science, connecting nanodevices together to form a Productive Nanosystem is an engineering problem. If done correctly, it will make possible nanofactory appliances that can “print” anything (caveat the flexibility of the output envelope, the range and limits of the input molecules, the “printing” process, and the software).[7] These developments should increase our average standard of living to levels that would make Bill Gates look like a pauper, while reducing our carbon footprint to negative numbers, and replacing the energy and transportation infrastructures of the world.
Maybe.

After all, we currently have a technologically-enhanced standard of living that kings and pharaohs of old would envy, but we certainly haven’t reached utopia yet. On the other hand, atomically precise products made by Productive Nanosystems will be able to reduce economic dependency to a square meter of dirt and the sunshine that lands on it, while simultaneously lowering the price to orbit to $5/lb. Those kinds of technological capabilities might buy a significant amount of economic and political freedom.

Economics
The collisions between unstoppable juggernauts and immovable obstacles are always fascinating—we just cannot tear our eyes away from the immense conflict, especially if we have a glimmer of the immense consequences it will have for us. So it will be when Productive Nanosystems emerge from the global financial meltdown. To predict what will happen in the next decade or so, we must understand the essential nature of wealth, and we must understand the capabilities of productive nanosystems. Plus we must understand the consequences of their confluence. This is a tall order. Like any new technology, the development of Productive Nanosystems will depend on economics and politics, primarily the Rule of Law and enforceable contracts. But then the formidable power of Productive Nanosystems to do more with less will significantly affect some of the rules that govern economics and politics.

In the past few months, many people have panicked over plummeting retirement accounts, tumbling real estate values, and the loss of jobs by their coworkers (if not themselves). The government’s subsequent response has been equally shocking, as government spending has skyrocketed with brain-numbing strings of zeros being added to the national debt. Historically in both the U.S. and abroad, an expansion of the money supply in excess of the production of real goods and services has invariably produced inflation.

To make some sense of what is happening, and of how we might get out of this mess, it might be useful to re-examine the concept of wealth. Karl Marx’s “labor theory of value” identified human labor as the only source of wealth, but there are at least three major errors with this view. First, valuable material resources are spread unequally over this planet (which is why mining rights are so important). Second, tools can multiply the value of a person’s labor by many magnitudes (and since tools are generated by human labor and other tools, the direction and specific accomplishments of human labor become important). Third, political and social systems that incentivize different types of human behavior (and attitudes) will significantly increase or decrease the amount of real wealth available. Unfortunately, the tax rates of most political systems decrease the incentive to produce real wealth, and few of them provide an incentive to encourage the ultimate source of real wealth: the valuable ideas in the minds of inventors and innovators.

But what is that real wealth? Basically, it is the ability to fulfill human needs and desires. This means that (as subjective value theory claims), one person cannot know the needs and desires of another, and therefore all central planning schemes will fail. Statistics are fallible for a number of reasons, but mostly because reality is too complex: In the chaotic interplay of causal forces in the real world, the injection of a brilliant idea into a situation that is sensitive to initial conditions can change the world in very unpredictable ways. Also, central planning fails because human beings in power (i.e. politicians) are too susceptible to temptation (as in rent-seeking), and because the illogical passions that drive many human decisions cannot be encompassed by bureaucratic rules (or bureaucratic minds, for that matter).

By its very nature, real wealth requires government to uphold the inalienable rights of its citizens (including property rights), to provide for the common good by creating and orderly environment in which free citizens may prosper with their work, and to protect the weak from the strong. So government plays an important role in creating real wealth.

Wealth is often associated with money, but money is simply a counter: it replaced the barter of objects and services because it is an efficient marker that facilitates the exchange and storage of real wealth.[8]

Productive Nanosystems will only rearrange atoms, so they will not change what money and real wealth are. However, because Productive Nanosystems will provide a precise and powerful mechanism for rearranging atoms, they will be able to fulfill more human needs and desires than ever imaginable. But it still won’t be free.

Nanotechnologies and their applications will not be easily bartered, and atoms of different elements will still have relative scarcities (along with energy), so money will still be very useful. Unfortunately, it also means that deficit spending will still be inflationary. But will that be bad?

Early medieval Christian, Jewish, and Islamic societies all denounced usury as immoral, thereby preventing fractional reserve banking and inadvertently reducing the supply of available capital for business expansion. Some people are suspicious of the consequences and ethics of fractional reserve banking, based on an instinctive uneasiness that it seems like a Ponzi-scheme — creating money out of nothing. But while a Ponzi scheme is always based on extravagant promises and fraudulent misrepresentation, fractional reserve banking can serve a beneficial role (i.e. generate real wealth) as long as the fraction that banks choose to lend is commensurate with the velocity of money, risk weighted credit exposure, and the productivity of different forms of real wealth.[9] In today’s non-agricultural post-industrial society, the optimum reserve percentage has been calculated to be around 10%, and that is what the legal limit has been for some time. Unfortunately, greed being what it is, people have found loopholes in that law. In the United States this began occurring most notably in the early 1990s with the repeal of the Glass-Steagall Act of 1933 and the creation of Collateralized Debt Obligations.[10]

In the olden days, monetary expansion occurred when the king called in all the coins, shaved them or diluted the alloy that made them up, and then re-issued them. This was the old-fashioned form of deficit spending. This trick became easier with the invention of paper money, and became even more easy as financial services moved into electronic bits. Other than being a theft from future lenders by present borrowers, deficit spending skews the value decisions of consumers and investors, causing them to spend and invest money differently than they would if they knew how much real money actually existed. Another problem develops when bankers start underwriting government bonds, giving them powerful incentives for pressuring governments to maximize profit for themselves—not to benefit the country or its citizens (this is especially true when those in power build monopolies to reduce competition).

The expenses of running a bank, along with the expansion of the money supply via fractional reserve banking means that lenders must charge a reasonable interest rate to stay in business (at the same time, the exploitation of the poor by charging exorbitant interest is certainly unjust). The expansion of the money supply then maximizes the productivity of human labor as population grows and technology improves. This is why most economists think that the money supply should expand at the same rate as the growth in goods and services. Otherwise deflation occurs as the exchange value of the money increases to meet the expanded demand. At best, deflation only makes it more difficult for businesses get loans for expansion; at worst it signals the beginning of a deflationary spiral, in which falling prices give consumers an incentive to delay purchases until prices fall further, which in turn reduces overall economic activity, etc.

Thus deficit spending skews the economical signal between production and consumption. This is why it is harmful, especially as deficit spending increases, and especially if the spending is politically charged. With respect to nanotechnology, the salient point is that deficit spending incentivizes short-run gains over long term investments. The real problem is that this bias makes the investment necessary for nanotechnology-enabled productivity much more difficult to attain, even though such an investment could ameliorate the negative impact of the current deficit spending.

Nanotechnology can do nothing about correcting distorted economic signals. However, nanotechnology can increase productivity. And if it increases productivity as fast as the money supply grows, then we may not suffer from hyperinflation—though admittedly outracing politicians on a spending binge will be no mean trick. Whether it does or doesn’t depends on some sensitive initial conditions that may or may not trigger a psychological tipping point at which many people realize that more claim-tickets (dollars) to wealth have been printed (or stored as zeros in some computer’s memory) than can ever be redeemed. So they start selling panic- selling—exchanging paper or electronic money for anything with a more solid aspect of reality. The enhanced properties of primitive nanotech-enabled products will certainly have a dramatic effect on reality—this will be even more true with Productive Nanosystems—many of which may seem miraculous. Why worry about whether the numbers in your checking account are “real” as long as they cover the credit card bill next month for medical nanobots we would buy online and download today? The big question is *if* the medical nanobots will really be available or not.

Unfortunately, even in the best case many individuals will suffer because hyper-increased productivity may cause hyper-increased money flows. If the flow of money hyper-accelerate does (and even if it doesn’t), the hyper-acceleration of productivity will undoubtedly cause more economic and social turbulence than most people can handle. This is a matter for concern, because many scenarios predict very significant amounts of turbulence as Productive Nanosystems reach a tipping point. By analogy, the recent financial meltdown is to the nanotech revolution what a kindergarten play dress rehearsal is to the Normandy invasion.

Why is the advent of Productive Nanosystems so significant, why is it bad (if it is), and what are we going to do about it?

First, it seems obvious that a rapid commercialization of Productive Nanosystems will cause turbulent economic fluctuations that hurt people who aren’t fast enough to adjust to them. But how do we know that Productive Nanosystems will cause massive fluctuations?

Briefly, it is because they are so powerful. For example, building nanoelectronic circuits on a desktop “printer” instead of a fab plant will probably bankrupt the many companies needed to build the fab plant (no matter whether it is a mere $2B as it is today, or whether it may top $50B as expected a few Moore’s generations from now). It is difficult to predict what would happen if the desktop “printer”, or nanofactory, could print a copy of itself, but a continuation of “business as usual” would not be possible with such an invension.

Second, why is the quick development of Productive Nanosystems bad? Or is it?

Though many Americans today have adequate material comforts, we do not have some of the freedoms taken for granted by kings of old. Trinkets and baubles are not equivalent to freedom, and nanotech-enabled trinkets are trinkets nonetheless. On the other hand, atomically precise products made by productive nanosystems will be able to reduce economic dependency to a square meter of dirt and the sunshine that lands on it, and lower the price to orbit to $5/lb. Those kinds of abilities will buy a significant amount of economic and political freedom, especially for those with more than a square meter of dirt and sunshine. Just as the settlement of the New World had large effects on the Old, an expansion off-planet would have huge implications for those who stay behind. Given such possibilities and pushing Bill Joy’s overwrought fears of nanotechnology aside,[11] it seems that there is cause for concern, but there is also cause for hope.

Third, what are we going to do about it?

Part of the problem is that the future is not clear. Throwing more smart people at the problem might help reduce the amount of uncertainty, but only if the smart people understand why some events are more likely to occur. Then they need to explain to us and to policy makers the technical possibilities of Productive Nanosystems and their social consequences.

Second, we need to invest in Productive Nanosystems. Historically, we know that companies such as Google and Samsung, who increased their R&D spending after the dotcom bubble of 2001, came out much stronger than their competition did. In 2003, China ranked third in the world in number of nanotechnology patents, but in recent months Tsinghua University has often had more than twice as many nanotechnology patents pending as any other U.S. university or organization. Earlier, the Chinese had duplicated [12] Rothemund’s DNA Origami experiment within months of the publication of his seminal article in Nature. Those who invest more money with more wisdom will do much better than those who do not invest, or who invest foolishly.

The other part of the problem is that we often don’t have the intestinal fortitude to do what is right, even when we know what it is. As human beings, we are easily tempted. Neither increased intelligence nor mature Productive Nanosystems will ever help us get around this problem. About the only thing we can do is practice ethical and moral behavior now, so that we get into the habit now before the consequences become enormous. Then again, judging from the recorded history, legends, and stories from ancient sources, the last six thousand years of practice has not done us much good.

Some of our current financial meltdown occurred because we were soft-hearted and soft-headed, encouraging the making of loans to people who couldn’t pay them back. Other financial problems occurred because of greed—the attempt to make money quickly without creating real wealth. Unfortunately, the enormous productivity promise of Productive Nanosystems may only encourage that type of risky gambling.

There is also the problem that poverty may not only be the lack of money. This means that in a Productive Nanosystem-driven economy, poverty will not be the lack of real wealth, but something else. If that is true, then what is real poverty? Is it ignorance? Self-imposed unhappiness? The suffering of injustice? I don’t know, but I suspect that just as obesity plagues the poor more than the rich, a hyper-abundant society will reveal social dysfunctions that seem counterintuitive to us today. Some characteristic disfunctionalities, such as wealth producing sloth, are obvious. Others are not, and they are the ones that will trap numerous unsuspecting victims.

Eric Drexler has identified a few things that will be valuable in a hyper-abundant society: new scientific knowledge, and land area on Earth (the limit of which has been a cause of wars since humans first left Africa). Given the additional gifts of disease-free and ageless bodies, I would add a few more valuables, listed by increasing importance: the respect of a community, the trust of friends outside the increasingly byzantine labyrinth of law, the admiration of children (especially your own), the total lifelong commitment of a spouse, and the peace of knowing one’s unique destiny in this universe. We should all be as lucky.

Footnotes
1. Paul W. K. Rothemund, Folding DNA to create nanoscale shapes and patterns, Nature, Vol 440, 16 March 2006.
2. Christian Schafmeister, Molecular lego. Scientific American 2007;296(2):64–71.
3. John Randall, et al., Patterned atomic layer epitaxy — Patent 7326293
4. Robert A. Freitas Jr., Ralph C. Merkle, “A Minimal Toolset for Positional Diamond Mechanosynthesis,” J. Comput. Theor. Nanosci. 5(May 2008):760-861; http://www.MolecularAssembler.com/Papers/MinToolset.pdf
5. The Zyvex-led Atomically Precise Manufacturing Consortium has recently met their DARPA-funded Tip-Based Nanofabrication project’s Phase I metrics by writing 100 dangling bond wires, half of them 36.6nm x 3.5nm and half 24.5nm x 3.5 nm in 5.66 minutes. That is 1.5 million atoms per hour, but the error rate was ±6.4%, which is unacceptable for Productive Nanosystems (unless they implement error correction, which for Patterned Atomic Layer Epitaxy may or may not be easy because the high mobility of hydrogen at the operating temperature of the process).
6. Tihamer Toth-Fejel. Respirocytes from Patterned Atomic Layer Epitaxy: The Most Conservative Pathway to the. Simplest Medical Nanorobot. 2nd Unither Nanomedical and Telemedicine Technology Conference. Quebec, Canada. February 24–27, 2009. www.unithertechnologyconference.com/downloads09/SessionsDayOne/TIHAMER_web.ppt
7. Chris Phoenix and Tihamer Toth-Fejel, Large-Product General-Purpose Design and Manufacturing Using Nanoscale Modules: Final Report, CP-04-01, NASA Institute for Advanced Concepts, May 2005. http://www.niac.usra.edu/files/studies/final_report/1030Phoenix.pdf
8. The Federal Reserve distinguishes value exchange as M1 and the [storage] of value as M2. For a good description of the history and role of money, see Alan Greenspan, Gold and Economic Freedom. http://www.constitution.org/mon/greenspan_gold.htm
9. Karl Denninger describes the benefits and drawbacks of fractional reserve banking, pointing out that the key determinate is whether or not the debts incurred are productive (e.g. investments in tooling, land, or education) vs. consumptive (e.g. heating a house, buying a bigscreen TV, or going on vacation). See http://market-ticker.denninger.net/archives/865-Reserve-Banking.html
10. Marc and Nathalie Fleury, The Financial Crisis for Dummies: Securitization. http://www.thedelphicfuture.org/2009/04/financial-crisis-for-dummies.html
11. Bill Joy, Why the future doesn’t need us. Wired (Apr 2000) http://www.wired.com/wired/archive/8.04/joy.html On some issues, Bill Joy was so far off that he wasn’t even wrong. See “Why the Future Needs Bill Joy” http://www.islandone.org/MMSG/BillJoyWhyCrit.htm
12. Qian Lulu, et al., Analogic China map constructed by DNA. Chinese Science Bulletin. Dec 2006. Vol. 51 No. 24

Acknowledgements
Thanks to Forrest Bishop, Jim Osborn, and Andrew Balet for many excellent critical comments on earlier drafts.

Tihamer Toth-Fejel, MS
General Dynamics Advanced Information Systems
Michigan Research and Development Center

From financial crisis to global catastrophe

Financial crisis which manifested in the 2008 (but started much earlier) has led to discussion in alarmists circles — is this crisis the beginning of the final sunset of mankind? In this article we will not consider the view that the crisis will suddenly disappear and everything returns to its own as trivial and in my opinion false. Transition of the crisis into the global catastrophe emerged the following perspective:
1) The crisis is the beginning of long slump (E. Yudkowsky term), which gradually lead mankind to a new Middle Ages. This point of view is supported by proponents of Peak Oil theory, who believe that recently was passed peak of production of liquid fuels, and since that time, the number of oil production begins to drop a few percent each year, according to bell curve, and that fossil fuel is a necessary resource for the existence of modern civilization, which will not be able to switch to alternative energy sources. They see the current financial crisis as a direct consequence of high oil prices, which brace immoderate consumption. The maintenance is the point of view is the of «The peak all theory», which shows that not only oil but also the other half of the required resources of modern civilization will be exhausted in the next quarter of century. (Note that the possibility of replacing some of resources with other leads to that peaks of each resource flag to one moment in time.) Finally, there is a theory of the «peak demand» — namely, that in circumstances where the goods produced more then effective demand, the production in general is not fit, which includes the deflationary spiral that could last indefinitely.
2) Another view is that the financial crisis will inevitably lead to a geopolitical crisis, and then to nuclear war. This view can be reinforced by the analogy between the Great Depression and novadays. The Great Depression ended with the start of the Second World War. But this view is considering nuclear war as the inevitable end of human existence, which is not necessarily true.
3) In the article “Scaling law of the biological evolution and the hypothesis of the self-consistent Galaxy origin of life”. (Advances in Space Research V.36 (2005), P.220–225” http://dec1.sinp.msu.ru/~panov/ASR_Panov_Life.pdf) Russian scientist A. D. Panov showed that the crises in the history of humanity became more frequent in curse of history. Each crisis is linked with the destruction of some old political system, and with the creation principle technological innovation at the exit from the crisis. 1830 technological revolution lead to industrial world (but peak of crisis was of course near 1815 – Waterloo, eruption of Tambora, Byron on the Geneva lake create new genre with Shelly and her Frankeshtain.) One such crisis happened in 1945 (dated 1950 in Panov’s paper – as a date of not the beginning of the crisis, but a date of exit from it and creation of new reality) when the collapse of fascism occurred and arose computers, rockets and atomic bomb, and bipolar world. An important feature of these crises is that they follow a simple law: namely, the next crisis is separated from the preceding interval of time to 2.67+/- 0.15 shorter. The last such crisis occurred in the vicinity of 1991 (1994 if use Panov’s formula from the article), when the USSR broke up and began the march of the Internet. However, the schedule of crisis lies on the hyperbole that comes to the singularity in the region in 2020 (Panov gave estimate 2004+/-15, but information about 1991 crisis allows to sharpen the estimate). If this trend continues to operate, the next crisis must come after 17 years from 1991 , in 2008, and another- even after 6.5 years in 2014 and then the next in 2016 and so on. Naturally it is desirable to compare the Panov’s forecast and the current financial crisis.
Current crisis seems to change world politically and technologically, so it fit to Panov’s theory which predict it with high accuracy long before. (At least at 2005 – but as I now Panov do not compare this crisis with his theory.) But if we agree with Panov’s theory we should not expect global catastrophe now, but only near 2020. So we have long way to it with many crisises which will be painful but not final. Continue reading “From financial crisis to global catastrophe” | >

(This essay has been published by the Innovation Journalism Blog — here — Deutsche Welle Global Media Forum — here — and the EJC Magazine of the European Journalism Centre — here)

Thousands of lives were consumed by the November terror attacks in Mumbai.

“Wait a second”, you might be thinking. “The attacks were truly horrific, but all news reports say around two hundred people were killed by the terrorists, so thousands of lives were definitely not consumed.”

You are right. And you are wrong.

Indeed, around 200 people were murdered by the terrorists in an act of chilling exhibitionism. And still, thousands of lives were consumed. Imagine that a billion people devoted, on average, one hour of their attention to the Mumbai tragedy: following the news, thinking about it, discussing it with other people. The number is a wild guess, but the guess is far from a wild number. There are over a billion people in India alone. Many there spent whole days following the drama. One billion people times one hour is one billion hours, which is more than 100,000 years. The global average life expectancy is today 66 years. So nearly two thousand lives were consumed by news consumption. It’s far more than the number of people murdered, by any standards.

In a sense, the newscasters became unwilling bedfellows of the terrorists. One terrorist survived the attacks, confessing to the police that the original plan had been to top off the massacre by taking hostages and outlining demands in a series of dramatic calls to the media. The terrorists wanted attention. They wanted the newsgatherers to give it to them, and they got it. Their goal was not to kill a few hundred people. It was to scare billions, forcing people to change reasoning and behavior. The terrorists pitched their story by being extra brutal, providing news value. Their targets, among them luxury hotels frequented by the international business community, provided a set of target audiences for the message of their sick reality show. Several people in my professional surroundings canceled business trips to Mumbai after watching the news. The terrorists succeeded. We must count on more terror attacks on luxury hotels in the future.

Can the journalists and news organizations who were in Mumbai be blamed for serving the interests of the terrorists? I think not. They were doing their jobs, reporting on the big scary event. The audience flocked to their stories. Their business model — generating and brokering attention — was exploited by the terrorists. The journalists were working on behalf of the audience, not on behalf of the terrorists. But that did not change the outcome. The victory of the terrorists grew with every eyeball that was attracted by the news. Without doubt, one of the victims was the role of journalism as a non-involved observer. It got zapped by a paradox. It’s not the first time. Journalism always follows “the Copenhagen interpretation” of quantum mechanics: You can’t measure a system without influencing it.

Self reference is a classic dilemma for journalism. Journalism wants to observe, not be an actor. It wants to cover a story without becoming part of it. At the same time it aspires to empower the audience. But by empowering the audience, it becomes an actor on the story. Non-involvement won’t work, it is a self-referential paradox like the Epimenides paradox (the prophet from Crete who said “All Cretans are liars”). The basic self-referential paradox is the liars’ paradox (“This sentence is false”). This can be a very constructive paradox, if taken by the horns. It inspired Kurt Gödel to reinvent the foundation of mathematics, addressing self-reference. Perhaps the principles of journalism can be reinvented, too? Perhaps the paradox of non-involvement can be replaced by ethics of engagement as practiced by, for example, psychologists and lawyers?

While many classic dilemmas provide constant frustration throughout life, this one is about to get increasingly wicked. Here is why. It is only 40 years since the birth of collaboration between people sitting behind computers linked by a network, “the mother of all demos”, when Doug Engelbart and his team at SRI demoed the first computer mouse, interactive text, video conferencing, teleconferencing, e-mail and hypertext.

Only 40 years after their first demo, and only 15 years after the Internet reached beyond the walls of university campuses, Doug’s tools are in almost every home and office. Soon they’ll be built into every cell phone. We are always online. For the first time in human history, the attention of the whole world can soon be summoned simultaneously. If we summon all the attention the human species can supply, we can focus two hundred human years of attention onto a single issue in a single second. This attention comes equipped with glowing computing power that can process information in a big way.

Every human on the Net is using a computer device able to do millions or billions of operations per second. And more is to come. New computers are always more powerful than their predecessors. The power has doubled every two years since the birth of computers. This is known as Moore’s Law.

If the trend continues for another 40 years, people will be using computers one million times more powerful than today. Try imagining what you can do with that in your phone or hand-held gaming device! Internet bandwidth is also booming. Everybody on Earth will have at least one gadget. We will all be well connected. We will all be able to focus our attention, our ideas and our computational powers on the same thing at the same go. That’s pretty powerful. This is actually what Doug was facilitating when he dreamed up the Demo. The mouse — what Doug is famous for today — is only a detail. Doug says we can only solve the complex problems of today by summoning collective intelligence. Nuclear war, pandemics, global warming. These are all problems requiring collective intelligence. The key to collective intelligence is collective attention. The flow of attention controls how much of our collective intelligence gets allocated to different things.

When Doug Engelbart’s keynoted the Fourth Conference on Innovation Journalism he pointed out that journalism is the perception system of collective intelligence. He hit the nail on the head. When people share news, they have a story in common. This shapes a common picture of the world and a common set of narratives for discussing it. It is agenda setting (there is an established “agenda-setting theory” about this). Journalism is the leading mechanism for generating collective attention. Collective attention is needed for shaping a collective opinion. Collective intelligence might require a collective opinion in order to address collective issues.

Here is where innovation journalism can help. In order for collective intelligence to transform ideas into novelties, we need to be able to generate common sets of narratives around how innovation happens. How do people and organizations doing different things come together in the innovation ecosystem? Narratives addressing this question make it possible for each one of us to relate to the story of innovation. Innovation journalism turns collective attention on new things in society that will increase the value of our lives. This collective attention in turn facilitates the formuation of a collective opinion. Innovation journalism thus connects the innovation economy and democracy (or any other system of governance).

There is an upside and a downside to everything. We can now summon collective attention to track the spread of diseases. But we are also more susceptible to fads, hypes and hysterias. Will our ability to focus collective attention improve our lives or will we become victims of collective neurosis?

We are moving into the attention economy. Information is no longer a scarce commodity. But attention is. Some business strategists think ‘attention transactions’ can replace financial transactions as the focus of our economy. In this sense, the effects on society of collective attention is the macroeconomics of the attention economy. Collective attention is key for exercising collective intelligence. Journalism — the professional generator and broker of collective attention — is a key factor.

This brings us back to Mumbai. How collectively intelligent was it to spend thousands of human lifetimes of attention following the slaughter of hundreds? The jury is out on that one — it depends on the outcome of our attention. Did the collective attention benefit the terrorists? Yes, at least in the short term. Perhaps even in the long term. Did it help solve the situation in Mumbai? Unclear. Could the collective attention have been aimed in other ways at the time of the attacks, which would have had a better outcome for people and society? Yes, probably.

The more wired the world gets, the more terrorism can thrive. When our collective attention grows, the risk of collective fear and obsession follows. It is a threat to our collective mental health, one that will only increase unless we introduce some smart self-regulating mechanisms. These could direct our collective attention to the places where collective attention would benefit society instead of harm.

The dynamics between terrorism and journalism is a market failure of the attention economy.

No, I am not supporting government control over the news. Planned economy has proven to not be a solution for market failures. The problem needs to be solved by a smart feedback system. Solutions may lie in new business models for journalism that provide incentives to journalism to generate constructive and proportional attention around issues, empowering people and bringing value to society. Just selling raw eyeballs or Internet traffic by the pound to advertisers is a recipe for market failure in the attention economy. So perhaps it is not all bad that the traditional raw eyeball business models are being re-examined. It is a good time for researchers to look at how different journalism business models generate different sorts of collective attention, and how that drives our collective intelligence. Really good business models for journalism bring prosperity to the journalism industry, its audience, and the society it works in.

For sound new business models to arise, journalism needs to come to grips with its inevitable role as an actor. Instead of discussing why journalists should not get involved with sources or become parts of the stories they tell, perhaps the solution is for journalists to discuss why they should get involved. Journalists must find a way to do so without loosing the essence of journalism.

Ulrik Haagerup is the leader of the Danish National Public News Service, DR News. He is tired of seeing ‘bad news makes good news and good news makes bad news’. Haagerup is promoting the concept of “constructive journalism”, which focuses on enabling people to improve their lives and societies. Journalism can still be critical, independent and kick butt.

The key issue Haagerup pushes is that it is not enough to show the problem and the awfulness of horrible situations. That only feeds collective obsession, neurosis and, ultimately, depression. Journalism must cover problems from the perspective of how they can be solved. Then our collective attention can be very constructive. Constructive journalism will look for all kinds of possible solutions, comparing and scrutinizing them, finding relevant examples and involving the stakeholders in the process of finding solutions.

I will be working with Haagerup this summer, we will be presenting together with Willi Rütten of the European Journalism Centre a workshop on ‘constructive innovation journalism’ at the Deutsche Welle Global Media Summit, 3–5 June 2009.