Vīta Brevis, Wit Artefāctōrum Ætērna Podcast

Ash Stuart
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Exploring innovation, progress and achievement: a first-principles approach to everything that matters; combining history, epistemology, economics, anthropology, geopolitics, finance, philology, etymology and more... for, life is short, knowledge forever. ashstuart.substack.com

  1. 4d ago

    The Story of Money: Meeting Maslow

    So far we have been talking mainly about the basics of economics (and finance). Let’s today, as it were, take things up a notch. A brief detour into our fictional world: remember back in Episode 006 the one about risk, where Steve had a failed harvest the previous season and was staring down the abyss of starvation. When Bryan, Brenda and Irene are sat with Steve discussing the predicament, imagine Bryan was like, hey Steve, there is this very prestigious horseracing tournament in town in two weeks’ time and I’m told the Premium tickets offer spectacular views of the events, plus that’ll put us very close to the Duke himself. It’ll be a fun week of partying. How about you and I both buy tickets and go check it out?! From Thoughts to Sentiments I’d safely bet that the ridiculousness of such a proposition by Bryan would be obvious to most of us. It was American psychologist Abraham Maslow who built a neat framework around human needs, which we will explore today. Now, Maslow as hinted worked in the field of psychology, so why bring him up here? I suppose we can see that the question of needs gives his work relevance from an economics perspective as well. And as we saw about the Father of Economics Adam Smith’s own preferences and perspective (Episode 020), and as I hope I’ve demonstrated now and then, the ultimate goal of economics can be described as wanting to improve the human condition within our environment. From Needs to Wants to Worth Put simply, in his ‘hierarchy of needs’ later depicted as Maslow’s Pyramid, he proposed that human motivation can be driven by five distinct sets of needs. These sets can be named physiological, safety, love & belonging, esteem and finally self-actualization, depicted in that pyramid from bottom to top in that order. The core point here is that if we are at the bottom of the pyramid, preoccupied with physiological needs such as food and shelter, we have or can afford very little attention for the higher needs. It’s only once we have fulfilled that set of needs can we adequately focus on the next set higher up the hierarchy and so on. Thus our hierarchy of needs progresses from the most basic to what may be termed ‘growth’ needs. Therefore one cannot afford to focus on the ‘esteem’ level with elements in it like confidence, respectability, status, or the ‘self-actualization’ one at the top with questions of morality, creativity, spontaneity and such if they’re still scrambling to put dinner on the table for the day. From Sentiments to Concepts This concept is in fact applied in a few different areas of modern life. We’ve all seen billboards of that smiling blissfully happy couple in an ad for a car or, hmm, a kitchen tap/faucet, or a bar of chocolate. They’re in a sense fooling you into thinking you’re buying a ticket to the next stage of Maslow’s hierarchy. In organizations, apart from a well-stocked vending machine and varieties of tea and coffee, these days there are pool tables, discounted gym memberships, what not. (”We can’t pay you more, but here’s a ping pong table, please feel actualized”) So yes, fields such as marketing & advertising, and HR and management have applied such ideas, by some measures at least, quite effectively (or we may take a cynical view, quite cunningly!) But I’d reiterate that Maslow’s pyramid has greater relevance than has generally been appreciated within the area of economics, especially when viewed broadly from the stated goal of human well-being. Let’s go back to the fictional story we started with. In the event, in that episode, thanks to Brenda and Irene’s suggestions, Bryan offers Steve 10 sacks of grain from his own grain from his bumper harvest, against collateral, should the harvest fail again -- as fully set out there, as part of risk management, a key component of economics. Similarly, a great many other concepts we have explored or will do, such as but not limited to debt, opportunity cost, delayed gratification, scarcity, investment, can all be very useful when combined with the Maslow perspective of viewing the human condition. From Concepts to Deeds? Let’s one last time take the example of someone unsure of the next meal, this time not in the cozy confines of remote fiction, but in the visceral reality of today here and now, of someone who’s lived such a life of subsistence all one’s life, even if most of us who can afford to read this might never have had to confront such a situation. Some of the concepts we have covered, with the underlying premise being that it’s useful to improve one’s own lot, such as delayed gratification, investment and so on might not even be accessible to such a person, because they are essentially at a much lower level in the Maslow hierarchy. So how is one to overcome the trap of such a hand-to-mouth existence in the first place to be able to ascend the pyramid? We have the luxury of learning and applying these useful economic concepts in a way they don’t? Practically what needs to be done by way of external facilitation, either by society or government? Perhaps this responsibility falls on those of us much higher up the Maslow pyramid? Are we sensitive enough to the plight of those lower than us in this hierarchy? It’s for each of us to ask these questions and answer them ourselves. For my part I hope I’ve given some useful economic and intellectual tools to use in the improvement of the human condition, whether our own or that of others. Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other Further Reading & Reference * The Theory of Moral Sentiments, Adam Smith This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  2. Sep 4

    The Story of Money: The Great Crash of 1929

    Last time we looked at the phenomenon of supposedly ‘rational’ behavior leading to wild aggregate market outcomes. Let’s now look at what’s arguably the most spectacular and devastating real-world example of this. For, even as the 20s in this article series come to an end at 029, we shall trace how the Roaring Twenties ended with this extraordinary crash in 1929! We won’t be featuring our fictional friends on this topic, the real-world characters involved here, as we shall meet in due course, themselves go beyond what fiction could conceive. And there’s a lot of ground to cover! Let’s first set the historical stage to provide enough context. After the First World War, the United States was set on the road of massive economic expansion, in good part thanks to the rapid growth of electrification and thus the manufacture of electrical appliances and related goods. This rapid expansion in industrial manufacturing with a large number of such goods entering the market meant that the purchasing power, or at least the purchasing intent, of the public at large had to grow. Thus eventually emerged the concept of consumer credit, where organizations would lend money to people wanting to buy such goods, and on the cheap - you could get a loan of 100 dollars by just putting up 10 dollars as initial payment! However, given the interest rates were very low, meaning you got very low yield for your cash sitting in a bank’s savings account, people starting using such loans to buy stocks and shares in the booming industry - also a relatively new phenomenon for most people. Just as we saw with the Tulip Mania in the previous episode, all this led to asset prices only going up and people becoming complacent in expecting that it would keep going up forever (Now, where have we heard of that in our own lifetime?!) Humpty Dumpty sat on Wall Street And then it all came crashing down, because just as we think the prices of such assets will keep going up and up, once that bubble burst, as it always eventually does, the sentiment goes right into reverse - everyone wants to sell of theirs before others do, leading to a free fall of the prices. Fundamentally, there were structural weaknesses in the economy that were masked by the exuberance. Importantly the agricultural sector hadn’t been doing well all this while but most folk in the cities and towns were busy enjoying the party! Also, despite all the industrial expansion, actual wage growth was low, but then again, the cheap credit phenomenon served to obscure that anomaly. The major turning point came when Benjamin Strong, a very astute and influential banker heading the Federal Reserve Bank (of New York) died in 1928 leaving a massive intellectual vacuum and even paralysis at the Fed. And then the music stopped. There had been minor panics prior to the main historic crash but the market managed to brush it off. There had been siren voices warning that things had gone too far and there was a massive speculative bubble that would burst any time, but they were promptly ignored. Until they could be ignored no more! The two dates etched in historical memory would be Black Thursday, October 24, 1929 and Black Tuesday the following week. There’s a lot of gory, or if you prefer juicy, detail about what ensued, all good enough to read in a thriller novel but you wouldn’t want to be there. On Black Thursday, within the first 3 minutes 3 million shares are said to have changed hands. The selloff was so intense that the ticker-tape... the printed paper tape that displayed prices simply couldn’t keep up and was delayed by hours resulting in total chaos. But Black Tuesday is seen as the worst day - about 16 million shares were traded and the index fell 12%. Dealing with It All This account barely scratches the surface of what happened - both the bubble and the crash. It took the authorities 3-4 years to even grapple with the situation, especially given the then president Herbert Hoover didn’t think it was for the government to intervene - the decisive changes came only with the election of a new administration under Franklin D Roosevelt in 1933 - the New Deal, which we will have a lot to say about in due course. We all have black-and-white images of those long breadlines, there’s even this picture I once saw of this now-former banker with a placard offering to sell his rather fancy car for.. food or similar! All of this is in quite stark contrast to the good times - both the economic prosperity and the cultural dynamism that accompanied it. The crash would lead to the Great Depression in the US and much worse in continental Europe, with the tide turning only by 1945. The regulatory changes in response to the crash were massive. Previously the New York stock exchange, for example, operated on its own, and as we saw any member of the public was able to participate in the trading even if they knew almost nothing of the intricate details of such activity. The Federal Reserve was not the same centralized national institution it later became, it was fragmented and as we’ll see in detail another time, shackled in some rather dangerous economic dogma that only poured fuel to the fire. The easy line to take here is “those greedy bankers”, or “our corrupt politicians”, but if we take a more honest look, the public at large were happy to partake not just of the prosperity but the excesses of speculative trading as well? As we saw with the Dutch Tulip Mania and this episode, when things are going well, very few people want to pause to think about fundamental flaws in the system? There are many lessons from these events in the 1920s and the aftermath. How many of those lessons have governments and indeed the public learned? And how many of them conveniently forgotten or put aside when the ‘good times’ come back? Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  3. Aug 28

    The Story of Money: The Irrationality of Rational Action

    A key thread running through all my writing in this series is how each of these topics, and how economics as a whole, relate to each of us, here and now. So let’s today tackle the question of how human behavior impacts markets and how that impacts each of us back. The key tension here, as I’ve noted before, is that economics tries to be a precise science while seeking to describe messy human reality. In this spirit, economics, or at least some branches of it, have posited that humans are rational - not in the sense that we normally understand that term, but in the sense that they behave in ‘economically optimal’ ways, given that particular branch’s definition of optimal. There is even a term for this: homo economicus. Under this line of thinking, it is said that one rationally carries out a cost/benefit analysis of every action prior to a decision. (Mind you, this needn’t be with a spreadsheet and 3 pie charts, it could be intuitively and even inexplicably.) In practical terms this is said to mean that as consumers/producers we seek to maximize utility/profit. (For a more precise and unadulterated definition of the oft-misunderstood word ‘profit’ see Episode 004.) Weighing Wants To get to the heart of this, we have to look closer at the term value, which I introduced in the aforesaid episode, and have discussed elsewhere in this series. Specifically we have to consider perceived value, a fundamentally subjective concept. As an example, when we discussed price in Episode 003 we saw how it’s a sort of ‘negotiation’ between the buyer and seller. In the current terminology we’d say they’re each seeking to maximize their utility/profit, ie, they’re being rational. This could depend on several factors, including, for example, supply and demand which we discussed in Episode 017 but ultimately if something is subjective, how do we pin it down with precision? How do we put a number to it? Furthermore, how do we satisfactorily explain or predict such perceptions of value among individual actors in the economy? For we have also seen, as I’ve noted previously, if we can’t measure something do we even know it well enough? All this goes to the very tension of economics I was referring to. In Fool Bloom So far we have considered the question of a single entity, but let’s see how this pans out in aggregate. Imagine it’s 1600s Europe, the early age of exploration, and an exotic and rare new flower is introduced into a country. Instantly, it becomes a status symbol for the rich and everyone’s after them - the price of the flower skyrockets, so much so that at its peak, one variety of the flower is sold for several times the salary of a skilled craftsman! If you think this is contrived it’s not, this actually happened in the 1630s in the Dutch Republic, then undergoing the Dutch Golden Age - the Tulip Mania. It may be irrational, in our normal sense, for a buyer to be rational (an alcoholic seeking to buy more alcohol and thus find more ‘utility’?) but if this is scattered about among individuals here and there it’s one thing. But we can see what happens when everyone joins the bandwagon of this irrationally rational behavior, such as in the Tulip Mania mentioned. If tulips can be sold at such exorbitant prices as hinted, why would anyone be incentivized to grow wheat or other essential crop? Given that buyers are valuing, and thus paying, more for a shiny new flower than food? But how does that perceived value of the rational actor square with the real and proper value lost in the economy as a whole, and ever in the long term, by such collective irrational exuberance? So the price of the given asset-in-obsession goes up and up and up - and the more it goes up the more people think it’ll go up, and so well, ‘rationally’ they buy it up, and the more it goes up! This is what is called a bubble. But how long and how big can we go on inflating a bubble? What happens when the music stops? And that is exactly what we will explore next time: arguably the mother of all crashes in financial history! Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other Further Reading & Reference * The Intelligent Investor, Benjamin Graham - read from the very “Father of value investing” This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  4. Aug 21

    The Story of Money: The Rabbit Hole of Money Creation

    Back in the day when I worked in banking, in a workshop the presenter asked “What do banks do?”, and I said “they make money”, to which his reply was “of course every institution needs its earnings”. But that’s not what I meant. Let’s today discuss the concept of money creation. Let’s meet our fictional friends to start with. Steve and Bryan have been in the silversmith and pawn-brokerage business for some time now. In recent days however, having gained the reputation of the town, they have found a way to extend their activities. The townsfolk are tired of having to carry around silver for all the payments, and as the only shop in town dealing with large amounts of silver, Steve and Bryan have offered to let customers deposit their silver in their vault in exchange for a written and signed note representing the amount deposited. Since that note represents a certified quantity of silver, the depositor can then use that note instead of actual silver on a day-to-day basis. Given Steve and Bryan are trusted people around, their promise on the note is enough to satisfy the depositor that any time they want their silver back, they can simply return the note for the amount. One weekend after a couple of weeks of such activity, Steve and Bryan are sat in the garden with Brenda and Irene and having a chat. Steve is like, so yeah we have all this silver sitting in our vault, Bryan adding, but the curious thing is nobody has come to claim their silver back even though we gave them a written promise. Brenda chimes in, well given that you’ve mentioned the amount of silver on each note, and anyone can use any note to come back to claim the silver at any time, they’re not in a hurry, after all it’s easier to handle such notes rather than heavy sacks of silver. Irene then goes, but wait, if you are sitting on all this silver, and they won’t come back to claim any of it because it’s easier to handle the notes, maybe you shouldn’t leave the silver idle, you should maybe lend some of it out? In Gold We Trust, But... So yes, that’s the birth of paper money. (And Steve and Bryan were the proto-Goldman Sachs? Or is it Silverman Sacks?!) But if you look closely something else is happening here. Imagine our friends have a thousand pounds by weight in silver in deposit, against which they have given out those notes representing a thousand pounds. And then, going by Brenda and Irene’s observation, they lend out a 100 pounds of the silver, to other people who need money. That silver goes into the economy and... you guessed it, someone along the line deposits that silver back into the vault in return for notes promising 100 pounds of silver. So now, we have 1100 pounds in the economy -- against ONLY a thousand real pounds of silver. This may sound like jiggery-pokery, but this is practically what EVERY bank does when lending you out money. Economists even give it a respectable-sounding name - Fractional Reserve Banking. In other words, only a fraction of the gold or silver representing the issued paper money is actually in the vault at any time. And guess what, governments are fine with it. Based on the state of the economy and other factors, governments have even encouraged banks to engage in such activity. You will recognize this from the following sentence on many currency notes: I promise to pay the bearer the sum of 10 pounds (or whatever other original indicator of weight, such as peso, libra/lira etc.) And different forms of this have had different names across history: in some versions, a bill of exchange, a promissory note, or an IOU (literally “I owe you”, with kind of the same gravitas as ‘BRB’ and ‘OMG’ I hear you say?) The Preserve of Reserve The reality here is the fact that, if this is done within limits, it can actually stimulate the economy. Imagine in our story that the economic activity -- the sum total of stuff being bought and sold -- in the town was in fact to the tune of 2000 pounds of silver by value, but the actual silver in possession was only the thousand. By reusing the reserve as depicted, it’s possible to have 2000 pounds by way of those promissory notes in circulation that then facilitates the desired economic activity. Without adequate amount of money in an economy to match the productivity, productivity would decline, as we saw very vividly in Episode 023 while discussing money supply. And after all, as I’ve reiterated, ‘money’ is just the measure of value, so what’s really the difference between using some shiny metal to represent that value or a note signed by a trusted party that represents that metal that represents...? But of course life’s not that simple. First who is Steve and Bryan, or in real life, any bank to decide to multiply money in this way? In other words, as said in my introductory quip, to literally ‘make’ money? Isn’t it still on some level someone creating money out of thin air? (I can’t decide whether to make a rabbit hole or a hat-rabbit analogy here!) What privileges to such banks get by doing this? Surely when this trend first emerged, people were more than happy to substitute carrying sacks of gold and silver in exchange for those notes which was easier to hide and especially carry around. That’s why it’s persisted despite such questions. And we in the current day have taken it even further, by entrusting small pulses of electricity to move data on a spreadsheet on some central computer by waving a piece of electromagnetized plastic with a satisfying beep? In other words we have exchanged frail paper currency for even less tangible current! So yes, as I’ve also reiterated, it all depends on trust. We trust that those digital pulses or the ink on paper with that promise mean something, that they represent the stated value of money. And what happens when there’s even the smallest fissure in that trust, when someone suspects the vault has less silver than the notes floating around? And when people, all the people with those notes, then rush to the bank to get their silver back? That’s a juicy topic for another day! Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other Further Reading & Reference * Seeeking Symmetry, Finding Balance, Making Harmony - on the origins of the early modern banking system This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  5. Aug 14

    The Story of Money: Meeting Malthus

    You might have heard of the Malthusian Trap in some TV programme, say as part of a solemn, strokey-beard pronouncement by an expert on a panel of very wise-looking, sagely-nodding, well, experts. Let’s unravel it today. We haven’t met our fictional friends lately. Brenda has news for Steve, Bryan, and Irene. The coming weekend is to be another one of those once-a-few-years lavish banquets thrown by the Lord Mayor to all the townsfolk. This is a tradition when there has been a bumper harvest that year. Steve’s first to exult, he’s like, yess, this is great! (Simple guy alert!) And then Bryan’s like, wait so this banquet only happens when we have a surplus harvest, not if we just break even, or worse. (Perceptive fella him!) Brenda confirms, yes, this year we have a surplus of 200 bushels, they’ll be put to good use for the banquet. (Facts-girl is back!) And then Irene... Irene goes, wait a minute, if all the surplus is used up in one grand party after harvest, what progress are we making in the long term by way of additional grain accumulation and reinvesting?! Oh, What’s the Point! So can see the contours of the trap emerging. Thomas Malthus in the late 1700 posited this cycle: an increase in a population’s food production leads to an improvement in their condition, but only temporarily as it leads to greater population, which leads to resource depletion on account of greater consumption, then starvation, famine and disease, and thus a drop in the population, and back to square one. In other words, suggesting that prosperity would always cancel itself out and human lot can never really be improved beyond some sort of a subsistence common denominator. One might see a kind of zero-sum-game cruel gruel with lots of oh-what’s-the-point toppings thrown in. Being an Anglican cleric, he explained this suffering as ordained by God to impose virtuous behavior. Furthermore, Malthus had certain “ideas” around population control and dealing with “the lower classes”, ideas of the sort we wouldn’t be particularly comfortable talking about in decent discourse. So, was Malthus right at all? Time-Warp Traps and Steam Valves I think by now the answer is fairly clear to us. I mean, some of the initial observation holds true, that an increase in production leads to an increase in population. Among others, I’ve discussed the effects of this swing in TecC 36 and TecC 40 where I discuss the effects of it against the great rise in population in the first centuries after the first millennium and then its drastic fall closer to the mid-millennium. In fact, this had indeed been the lot of human societies since the dawn of agriculture and sedentary civilization (TecC 10). But the funny thing is, by the time Malthus was writing this, the Industrial Revolution was picking up steam in Britain, (steam puns intended oh yes!) making his observations obsolete in his own country first and then further afield. This is because the sudden increase in technological output the Industrial Revolution wrought for the first time ever in history gave humanity the escape velocity to overcome that trap. Realization that there were such drastic changes afoot was gaining ground in the late 1700s, notable mention being Adam Smith’s description of the emerging system in his landmark book, published 2 decades before Malthus’s. So can we say Malthus was trapped in a trap of his own making? There are other ironies too. As I hinted, Malthus insisted on adverse effects on the population and thus his controversial ideas such as “preventive checks”. It has been the case in the ensuing centuries and especially over the last 100 years or so that industrial-grade development and prosperity has in fact ushered in a fall in population rates, not just in the traditional ‘West’ but in almost all parts of the world, to the point that there are many voices now talking about the dangers of depopulation. I don’t want to go into those arguments here but the demographic changes in this direction have been factually documented (currently just the birth rate but in the foreseeable future the actual numbers predicted to drop as well). What would Malthus say if provided with these statistics in our time? What Malthus failed to see was the power of technological ingenuity and the economic effects of harnessing technology (I discuss the first of these in my technocentric series and will continue to tackle the latter aspect in this series). In any case, what are we to learn from all this? Malthus might have been too late in formulating his idea, like investing in a large candle factory just as Edison was electrifying the place, but his theory does help us appreciate the “hockey stick” phenomenon of technological progress and human prosperity brought about, warts and all, by the Industrial Revolution. Would we really want to go back to the, well, Malthusian, misery of the Middle Ages? And how many of the latest strokey-beard theories of our own day would future history prove to be massively Malthusianly mistaken? Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other Further Reading & Reference * How humans escaped the Malthusian trap This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  6. Aug 7

    The Story of Money: The Concept of Competition

    In the last episode we looked at monopoly, let’s now turn to its antidote, competition. To the extent that competition is at the opposite end of monopoly, and given monopoly literally refers to ‘one-seller’, the phenomenon we are talking about here should translate to ‘many-sellers’. (I wonder why, unlike for ‘monopoly’ and ‘oligopoly’ “few-sellers”, we don’t use a Greek-derived term for this related phenomenon - I guess ‘polypoly’ would sound like a parrot trying to do economics?) But yes, it’s quite simply just that: there are several sellers offering you the same or similar thing. This we have seen requires a functional (or free) market allowing for additional sellers - competitors, to naturally emerge without the existing players hindering them, which as we’ve seen doesn’t always work along ideal lines. Competition as it operates in such a functional market gives the buyers more choice. Which means the pricing is likely to be more competitive, in line with the dynamic I outlined in Episode 003 while discussing price. Competition is also in dichotomy with cooperation, but within the realm of sellers trying to offer similar goods, ‘cooperation’ can morph into its shadier cousin collusion, and as Adam Smith derisively observed, the only thing competitors trying to cooperate would lead to is cartelization - in other words collusion to charge the same (high) prices and thus negate the benefits of competition for the buyer. Furthermore, just like supply and demand which we discussed in Episode 017, competition is a dynamic that goes beyond the simple market-square buyer-seller demand: it’s a lot more pervasive. Best Foot Forward Let’s explore the benefits of competition. Competition fosters innovation. If you are vying to offer the same goods as others, you are motivated to find better ways of doing it - a better technique to make the goods so you can offer better quality, or a lower price, or better yet, both. We have seen this at play all the time. (For an in-depth historical example of how this would pan out, I can offer, among others, TecC 43 from my other series here dedicated to innovation and progress.) Of course competition also means the seller having to be on the toes all the time. But in the economy as a whole, this is a net positive for society - we are all sellers in only one small set of things, but buyers of many more - our consumer footprint is much larger. Besides, most large-scale production being the domain of corporate entities with deep pockets, it’s competition that allows individual consumers like you and me some say in the whole process. But even producers, including the large-scale ones, have hidden benefits of competition. It both means there’s a valid demand for a certain good or service in the market, but also gives them insights as to how such demand operates and how the buyers behave. Picture the widespread phenomenon of several hairdressers or Japanese restaurants clustered on the same street - this is of course deliberate, and demonstrates that in some sense, given they cannot eradicate competition, producers in some sense seek to embrace it? Tying it All Up Going back to the topic of price, we saw back there how price is essentially a signal, each item’s price distilling, in its own way, the sum aggregate of the entire economy. And consumer behavior in response to such prices allow for the dynamics of supply and demand to play out forming a constant feedback loop regulating the proper allocation and use of the limited resources that make up the entire economy. Similarly, back in Episode 002 where I asked an even more fundamental question - what is the market itself, answering by saying that it’s fundamentally an information system, I trust we can see how all these concepts tie together: without competition, we’d have a monopoly, which means the price wouldn’t reflect the true state of reality, which means there is no incentive for producers to optimize resource allocation, which leads not just to waste but also environmental damage, damage that given the suppression of such signals would be much harder to quantify. And as I said, competition goes way beyond the market square, like supply and demand it affects a good part of our daily decision-making. We are all forced to compete in a great many areas of our daily endeavors. And like those market-square sellers, we might prefer to have less or none of this, but as I hope we’ve seen it’s what makes things move. But then yes, for our day-to-day lives in particular, that comparison between competition and cooperation resurfaces - given the benefits of both, (and while we generally see cooperation as a positive, it has its downsides too as I hope to get to another time) when is competition the right tool for a challenge at hand and when instead is cooperation? Can we have both, and if so in what relative proportions? How do we know then how to find that balance? Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other Further Reading & Reference * The Story of Innovation and Progress This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  7. Jul 31

    The Story of Money: The Matter of Monopoly

    Back in Episode 022 while on the topic of mercantilism, we touched upon the idea of cartels - a small band of merchants grouping together for market abuse and unfair advantage. Let’s take it a notch up. Let’s first go back to where we left our fictional friends way back in Episode 003 when discussing price. Back then, at the idyllic townsquare market, Brenda and Irene strolling around, on inquiring the price of a sack of grain, get quoted 8 and 10 copper coins by Steve and Bryan. They may have been surprised by the difference in price, maybe they first thought of shopping around a bit more. Maybe they were happy to pay either price, the lower for obvious reasons, the higher for the less obvious reasons I explored back in that piece. A fortnight later, when Brenda and Irene are both out again, they only find Steve. And this time he’s charging them 15 copper coins! When they grumble, he’s like take it or leave it (with a look of it’s my way or the highway!) So Few For So Many So what’s going on here then eh? Maybe by undercutting the other seller, he gained an edge and the other seller moved shop to the next town. Maybe the other seller found a better market to sell his goods at a better price anyways. Or some other set of circumstances. But right over here, potential buyers are left with only one choice of seller. Intentionally or not, Steve has a monopoly. In the much more complex world of modern commerce, there could be a myriad other factors that lead to monopolies, although underhanded measures like deliberate undercutting (charging lower while taking a profit cut until bleeding your rivals out), can and do occur. To extend the phenomenon we discussed in the mercantilism episode, where a few sellers got for themselves an unfair advantage by using the corrupt and coercive arm of the State to block newcomers, and thus formed an oligopoly, taking that process to its ultimate end is what leads to monopoly - “a few sellers only” to “only one seller”. Sole Seller or Sold Soul? We have all likely seen and dealt with monopolies in our lives. We might even use the word ‘monopolize’ in non-commercial contexts. But let’s look at its repercussions in the wider context here. We saw back in the price episode that in a functioning market price is not purely in the hands of the seller, but subject to a bunch of other factors, including what other sellers are offering. Now, obviously, some such constraints are weakened, and the sole seller can charge higher prices without restraint - and thus even distort the market equilibrium I touched upon back there. Alongside that, in line with the newly found take-it-or-leave-it nonchalance of the seller -- I mean if the potential buyer has nowhere else to go..., the seller doesn’t have to bother so much about the quality of their goods, again leading to worse outcomes for the buyers and the economy as a whole. It’s also important to note that the monopolist seller, such as Steve here, might not even be a bad person, but the whole incentive structured is so skewed to enable such undesirable behavior - whether on an individual or an institutional level. So what is the answer to this? We all perhaps instinctively know the answer, but from an economic angle I’ll elaborate on the matter in the next episode. Furthermore there are some services that can, in many cases, not be provided by the market, and falls into the arms of the state to deliver. The obvious ones are defense, justice, what we call public infrastructure and indeed the apparatus of the state itself - which is by definition, within a sovereign realm, a monopoly. (Oh you don’t like this army? Go subscribe to that army down the road, they do Tuesdays half price!) And then there are often politicians who, fairly or unfairly, denouncing a particular industry for abusing its powers, ask for the state to take over. (”Bro, I had too much to drink last night, I have a hangover.” “Here, have this Bourbon, it’ll cure you of your hangover.” ) So given what we have seen so far, that monopolies can lead to undesirable outcomes, how is it that some services are widely to understood to be best dealt with by the state - say for example the trains (Anyone tried the coffee in a State-run train?) For then they are still a monopoly? How can we justify those politicians’ argument purporting to solve the problem of market abuse by, well, erecting a monopoly? What is the metaphoric price -- for the state could hide the actual marketprice by routing the production costs via taxes, we are willing to pay in terms of lower quality and less choice? Or can we find a balance where we can, via partnerships and collaboration, harness the best abilities of both the state and the market? Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other Further Reading & Reference * The Watermellon Sellers - hilarious video depicting how a monopoly can form - watch on mute This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  8. Jul 24

    The Story of Money: The Intricacies of Money Supply

    I started this series by emphasizing that money is rather simply a measure of value than having intrinsic value itself. (Episode 001.) Later, in Episode 017 we looked at the dynamics of supply and demand. Let’s now look at the interplay of these with money itself. Specifically, when we talk about supply and demand, it’s with regard to, in this strict sense, the items we want or can offer in exchange, and not the measure itself. Can there be such a thing as ‘too much money’ in the economy? Too little? What are the repercussions of either? Especially now that we have clearly categorically distinguished between ‘money’ and ‘wealth’ in the previous episode. Let’s go back to the metaphor I offered there to depict this: that money is like the measuring tape rather than any actual tailoring. If a tailoring team completes 5 suits a week, there might be a need for, say up to 5 tapes in the course of working on those suits, perhaps 10, two for each. (Note to professsional tailors, this is just an example, tailor-made for non-tailors by a non-tailor!) So as in the example last time, if a tailor hoards several dozen tapes while still at 5 suits at any time, what’s the point of all those tapes? In quite the same way, the amount of money - the money supply in an economy must reflect the real economic output, the value being created, to measure it adequately. Simply jacking up by printing lots of cash simply recreates this tailor-made problem across the economy. Similarly if there is only one tape that has to go around managing 5 suits being worked on by the team, it’s not hard to see how it slows down the work. Everyone’s fighting to get their hands on that one tape. So correspondingly, a fall in the money supply can have severe repercussions. Like There’s no Tomorrow Most of us might have a sense of what happens when there’s too much money chasing the same goods - inflation, and as we saw in the very first episode, when governments overdo this, hyperinflation. We instinctively know that inflation is undesirable, you don’t want to see the price of goods in the supermarket keep climbing every day you’re out shopping. But deflation, the opposite phenomenon, can have its problems too, in particular in raising the costs of servicing a debt. We will dedicate specific articles to each of these to be explored in their own right. And more broadly, the question of money supply has had such rigorous research and debate that a lot more can be said later on at a more advanced stage of this series, which is some way off. But even before we get into the depths of Monetarism and monetarist policies, terms we routinely hear in the news, I may add that a huge part of the focus and attention of Central Banks, the banks that print money in an economy, has come to be dedicated to controlling the money supply. After the 2008 financial crash, the term quantitative easing was thrown around quite a bit. Quite simply it referred to printing tons of money to alleviate the damage done by developments such as the credit crunch that followed the sudden loss in trust. Some commentators bemoaned that central banks were printing money like there’s no tomorrow. But the counterargument is that it was this that stopped a repeat of the Great Depression, at which point there was a severe drop in the money supply. So regulators and authorities did learn something from that catastrophe, and we may say, didn’t repeat those mistakes. The Pain in Spain I will in due course have a lot to tell about these two recent crises, but for now, keeping it simple, let’s look at that older case which I presented in the last episode as the classic case of getting this wrong, that being perhaps the most dramatic case in history. The Spanish crown, among other kingdoms in the vicinity, back in the 1400-1500s were hugely motivated in their explorations by the lure of gold and silver. And silver they did eventually find, even a whole mountain of it in South America, which they extracted with brutal consequences to the local population and the environment, and shipped them over to Spain. So suddenly, there’s a lot more silver in Spain and in Europe more widely. But here’s the thing, there was no corresponding increase in the industry or production within the Spanish economy. So just as in the above analogy, that silver now meant much less, and there was inflation. It’s one thing to think that conquered peoples invariably suffered, being subject to forced labor in very toxic conditions to extract that silver, which the indigenous populations in the Americas did have to endure, but the ordinary people of the ‘conquering’ nation saw their lot worsen as well. Let’s take an example (these figures are only representative): say an ordinary peasant in Spain would pay one silver coin to purchase his weekly supply of food and other essentials. With that rampant inflation, the price of the same goods shoots up to 5 silver coins. But the peasant’s wages are the same, he still has only 1 silver coin at hand for the same goods. We cannot change the past. And as I said last time, these early explorations had other motivations too, but can we say the lack of an understanding of basic economics was a significant factor in the misery that ensued on both sides. They say charity begins at home. Economics also begins at home. We each have to first seek to understand such basic economic ideas and apply them in our own lives before we expect our public institutions to properly do so? Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other Further Reading & Reference * The Fifth Sun (A history of the Aztec conquest based on indigenous sources) This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

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Exploring innovation, progress and achievement: a first-principles approach to everything that matters; combining history, epistemology, economics, anthropology, geopolitics, finance, philology, etymology and more... for, life is short, knowledge forever. ashstuart.substack.com

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