Why do we let the police power of the state take over and inevitably wreck so many aspects of our life? Why do we tolerate the invasions of our homes, businesses, and bank accounts?
One theory: people find more comfort in the false security that the state provides over the uncertainty of a liberty-driven future.
We want a plan. We want a road map. We want assurance of what tomorrow will bring.
Politicians don’t provide that, but they are glad to promise it. Liberty makes no such promise.
Fine. In that case, if we are to treasure liberty, we need to find a way to embrace, to love, to understand, and to appreciate the beauty of an unknown future. Just because we can’t imagine it doesn’t mean that it won’t dazzle and delight us with creative surprises. How can we develop affection for and confidence in something we cannot yet see?
We need a better understanding of how society evolves. I think I have just the guidebook here.
“The true measure of human genius,” writes Daniel Cloud in The Lily, a poetically dazzling defense of economic freedom, “lies in the fact that we’re able to bring about things that exceed our own comprehension.”
And what is it we cannot comprehend? A future that is always clouded in uncertainty. That none of us know what tomorrow will bring is a universal fact that unites all of humanity.
Cloud has a radical judgment on this condition. He writes that this position of not knowing is the very source of society’s progress, creativity, inspiration, and productive learning. It is also why we need radical freedom to discover and adapt. He urges us to embrace what most people find scary, to learn to love what we do not know and to use uncertainty as our finest tool in building a bright future.
This unusual defense of freed institutions goes to the root of the problem that confronts every intellectual and every society: How can we confront the issue of change? Do we regret it as destabilizing and contrary to rational plans? Or do we welcome it with openness, playfulness and anticipation of learning tomorrow what we do not know today? His conclusions challenge the very core of the social sciences, including mainstream economics and the dominant assumptions about politics today.
Cloud has a most interesting background that prepared him to write this expansion of the case for the free society on themes first taught by F.A. Hayek. Cloud teaches the philosophy of science at Princeton University. Before that, he was the manager of several hedge funds and traveled and worked extensively in China. This book brings together his two loves: entrepreneurship in real markets and high-level philosophy with a focus on biological evolution.
In his business life, he observed how enterprise relies most fundamentally on adapting to unknown conditions: Those who excel at this difficult task are those most willing to acknowledge the limits of their understanding and learn as they go. They make “irrationality” work in their favor. In contrast, the world of academia is packed with people who are loath to admit any absence of understanding because they believe that their knowledge of the world and ideas is complete and fully rational.
This book, then, could be retitled What My Academic Friends Could Learn About Society From Understanding the Real World of Economics. The book is called The Lily by way of reference to the famous passage from the Sermon on the Mount: “Consider the lilies, how they grow: they toil not, they spin not; and yet I say unto you, that Solomon in all his glory was not arrayed like one of these.” As Cloud renders the passage, the lily was not weighed down by a rational plan for its well-being and, for this very reason, adapted and became the most beautiful of all the flowers.
So it is for societies. Free societies beat controlled societies every time. This is not because free societies get more attention and care from the intellectuals and political elites but rather the opposite. The more the intellectuals attempt to think them through and the more the state attempts to provide for them, the more they stagnate and eventually fall to ruin. But societies that are permitted to develop from the internal energy of problem-solving individuals, developing in unexpected and seemingly irrational ways, grow in a manner consistent with the well-being of everyone.
In a passage that is typical of the evocative poetry of this work, Cloud asks:
“Why, exactly, didn’t government of the people, by the people and for the people perish permanently from the earth, despite repeated contests with opponents, from the Duke of Alba to Stalin, who seemed to have everything going for them, who viewed their disorganized, disunited opponents with open contempt? We seem a bit like the Fool, continually stepping off cliffs, but repeatedly borne back up to the heights on the wings of angels, fighting off armored knights with a wooden stick, casting our bread on the water and getting it back a thousandfold, at our wisest when least sober. Is it pure dumb luck that keeps saving us from our own stupidity, or is there something else going on here, some new dispensation?”
This theory heightens the role of what the author calls “play” in the course of social and economic development. People must be free to try and fail, to learn on the job, to improvise and adapt on the fly, to find new ways of doing things that completely depart from the plan and tradition. To be free to do so becomes essential.
“To whatever extent an unfree society necessarily depends on the fear of punishment, rather than the desire to impress as a motivation for good performance,” the author writes, “willingness to make mistakes or introduce playful variations is likely to be less, and the incremental evolution of complex new skills correspondingly more unlikely. Nobody wants to be shot for trying something frivolous; Stalin was very successful in eradicating that kind of boldness.”
He applies the model to the issue of capitalist firms. Management textbooks tend to map out plans for how firms should work. But the plans are next to useless so far as this author is concerned. How do you keep large organizations from stagnating in the same way that societies ruled by large states die? By the freedom and willingness of employees and managers to try new things and to come and go. Those firms who attract and retain great talent — and that includes creative and playful talent — are the ones that thrive, while those that cannot tend to shrivel, become technologically backward and die. This determines which institutions flourish or decay.
The Cloudian perspective helps illuminate what makes great entrepreneurs last and last. It has nothing to do with the alleged power of capital. Capital can vanish as quickly as it came. “How do people make abnormal profits in markets? By being in the minority and being right and being persuasive.”
The real stickiness of wealth in certain hands has to do with the speed at which competitors learn:
“The real reason the entrepreneur’s profits don’t quickly get arbitraged away is that it takes people who aren’t quite as creative a long time to realize that he is not crazy and begin to imitate him, and by that time, he’s already moved on to some other uncertain project on the basis of some new keen hunch. You become Bill Gates or Steve Jobs or Warren Buffett by doing this over and over and being right almost every time. People seldom get rich by just correctly measuring a risk; the real source of economic profit in a technologically dynamic capitalist economy is individual intuitions about objective uncertainties.”
The ultimate example of the institution that forbids coming and going, experimentation and play, is the state:
“The economic planner who wants to actually succeed in rationally planning an economy has to first suppress exactly the sort of negotiation individuals might be able to do if they weren’t chained to their desks, because he has to get people to follow the plan, to stay where they are and do what they’re told. This suppression seems to bring the evolution of institutions and skills to a grinding halt — with grave consequences a few years or decades down the line.”
The state always favors the rational and certain plan, rather than permit the unforeseen in an environment of freedom. For this reason, states oppose what they consider the waste of competition, business failure, research and entrepreneurship.
“In a world where we all just cooperated like sensible people, there would be no real room for conversations with two sides, and that is what the political rationalist always finds himself trying to eliminate. To keep things rationally optimal,” writes Cloud, “he needs to stop social evolution in its tracks, but that brings him into direct conflict with the things that make us human.”
This tendency becomes the source of failure. Social evolution can never been planned or designed:
“Planned markets are sick markets, markets that are always in crisis, because their most-important social function — facilitating selection between competing pools of capital on the basis of what way of doing things in the real world works best in practice, distinguishing between real capital formers and fools — has been disrupted by the planner’s clumsy interference. When the state tries to plan a market, it must try to make clever contrarians into mindless lemmings who follow where they are led; but then they become useless for their old function of picking good risks.”
Sometimes it can be hard to see the costs associated with state planning, simply because the changing and advancing that comes with freedom is not permitted to occur and we cannot observe what fails to happen:
“As long as you’re just installing old technology invented by someone else, a planned economy and a managed society can be made to work, but as soon as you reach the technological frontier, as soon as the free play of endogenous innovation is genuinely needed to maintain the pace of growth, as soon as you actually have to cope with real uncertainty, the whole thing is likely to grind to a halt at some arbitrary point on the tortoise-blanket-pea landscape, and begin to die as the tortoise moves away.”
Even worse and more dangerous are the frenzied attacks on commercial society that keep reemerging in our history — the loathing of the entrepreneurial class that leads to utter destruction. He cites Cambodia as a case in point: the application of political rationalism gone mad and leading to unthinkable bloodshed and extinction of society itself. He issues a warning that people have not yet learned from these experiments in hyper-rationalism in politics and that no people are immune from such frenzies.
This is professor Cloud’s first major work, but it follows a lifetime of exciting experience in the two very different worlds of capitalist speculation in emerging markets and the staid and static world of academia. He brings the two together to urge intellectuals to learn from the experience of real-world markets and for market participants to gain more confidence over their primary role of embracing a changing and developing society. To this end, he uses many tools from economic science to create biological metaphors about the philosophy of society from the ancient world to modern times.
The prose style is like nothing you’ve seen from a thinker of his caliber. It is rhapsodic, imaginative and poetic. His erudition is often startling. His vision is refreshing and new. You can’t escape the feeling that he has put his finger on something very important, very profound. Here he acts as our teacher to help us learn to love and appreciate the very point about freedom that most people have considered regrettable. He teaches us to love what we do not yet know.