The dearth of *monetisable* investment opportunities

Isn’t the problem here that there is a lack of monetisable investment opportunities, rather than a lack of investment opportunities per se?

I mean, the Internet is a great invention, but a lot of the benefits it brings people’s lives aren’t directly exploitable by capitalists. The blogosphere has been a huge benefit to my personal education and self-actualisation, but none of those benefits have resulted in profit going to capitalists. People write blog posts for free and I read them for free (modulo the cost of an Internet connection and PC). Both bloggers and readers get something beneficial out of the exchange, but no actual money changes hands.

This highlights one of the big problems with capitalism: investment isn’t directed towards things that are actually useful or beautiful, but towards things out of which capitalists believe they can make money. A classic example of this problem is the development of new antibiotics. Because of the development of drug-resistant bacteria, we need new antibiotics, and we need new ways of combating bacterial infection.  But these new ways aren’t being developed because there isn’t any obvious way for private businesses to profit. “Antibiotics are a one-and-done treatment, and are far less profitable for Big Pharma than drugs taken daily to treat chronic conditions and, preferably, have no competition to keep costs down.”

Another acute technological problem lies in transport. This guy has a good explanation as to why private-sector companies won’t invest in Elon Musk’s Hyperloop concept, but he can’t seem to recognise that the obvious solution is to simply have government pay for it. Investing in uncertain, expensive, and speculative technologies is one of the things that government is for.

One of the most frustrating things about the privatisation vs. nationalisation debate is how irrelevant it is. Ultimately, you’ll still have scientists and engineers in labs and workshops trying to solve the problem. It is not clear to me that there is any systematic difference between private and public enterprise in this regard. Great innovations have come out of both publicly and privately-funded initiatives (although it should be noted that most of the really big, important innovations have been paid for by the government; aerospace, the development of the electricity grid, the Internet, the World Wide Web, GSM, most of the early work in computers…).

The solution to both anti-bacterial resistance and the transport problem and global warming is to “just get on with it”. If the private sector won’t pay for it then democratically-accountable governments should. Ultimately someone needs to pay for and manage the research and technological investment programmes necessary to solve our problems. Rather than dicking about playing at shops, we (i.e. humanity) should just get on with it.

Hobbes endorses the ISO

The following extract is from Thomas Hobbes’ The Elements of Law:

In the state of nature, where every man is his own judge, and differeth from other concerning the names and appellations of things, and from those differences arise quarrels, and breach of peace; it was necessary there should be a common measure of all things that might fall in controversy; as for example: of what is to be called right, what good, what virtue, what much, what little, what meum and tuum, what a pound, what a quart, &c.

For in these things private judgments may differ, and beget controversy. This common measure, some say, is right reason: with whom I should consent, if there were any such thing to be found or known in rerum natura. But commonly they that call for right reason to decide any controversy, do mean their own.

But this is certain, seeing right reason is not existent, the reason of some man, or men, must supply the place thereof; and that man, or men, is he or they, that have the sovereign power, as hath been already proved; and consequently the civil laws are to all subjects the measures of their actions, whereby to determine, whether they be right or wrong, profitable or unprofitable, virtuous or vicious; and by them the use and definition of all names not agreed upon, and tending to controversy, shall be established. As for example, upon the occasion of some strange and deformed birth, it shall not be decided by Aristotle, or the philosophers, whether the same be a man or no, but by the laws.

(my emphasis)

Shackle and uncertainty

Reading this interview with G.L.S. Shackle, I am struck by this point:

“involuntary unemployment” merely means that there are people who haven’t enough faith in their expectations to give employment.

Something I’ve always been unclear about with regards to Keynes is whether he (and the post Keynesians, and weird hybrids like Shackle) believed that uncertainty was the only barrier to full employment. There is no obligation on anyone to use all the resources at their disposal. You could argue that the only reason anyone ever maintains excess resources is because of uncertainty, but this presupposes that you – the individual entrepreneur – have direct control the quantity of the resources available to you.

In this context the “resource” is the population of employable people. The entrepreneurial class does not control the population of employable people, and it is not clear that they would necessarily choose to employ the entire population of employable people, even if they had perfect foresight. Indeed it could be argued that the *ahem* entrepreneurial class has an interest in keeping a reserve army of labour unemployed so as to maintain discipline within the ranks of those they do choose to employ.

Once again, economics ignores the political dimension.

Two economic realms

There is a real world of production, consumption, exchange, and distribution. At any given moment in time the economic system has a certain capacity. This capacity is determined by the total number of people available to work; and the total amount of tools, plant, and infrastructure they have available with which to work.


This capacity is not fixed in time. The total capacity can change through time. This change in total capacity can occur in several distinct ways:

  1. Changes in technology may enable more desirable economic outputs (or fewer undesirable outputs) with a fixed given set of inputs;
  2. Changes in the skills of the workforce may change the nature and quantity of the goods and services the economy is capable of producing; and,
  3. Changes the relative amounts of plant, tools, equipment, and infrastructure may change the nature and quantity of the goods and services the economy is capable of producing.

Point 1 is about changes in the quality tools through time, as well as the creation of new tools in response to new desires. Points 2 and 3 are about changes in the relative ratios of different existing desires. WWII provides examples of all three types of change. The war saw technological change, but it also saw changes in the type of outputs that the economies of the combatant economies were actually producing, and hence the skills and tools that were deployed.


Because this real world of production, consumption, exchange, and distribution involves people interacting and coordinating their efforts, there needs to be some way for them to communicate with each other. One of the unique features of the animal known as homo sapiens is our use of symbolic communication. This enables humans to coordinate their actions in ways that other animals are simply incapable.

There are lots of tools for symbolic communication. Books and instruction manuals are one example; prices and money are another. Although a particular form of symbolic communication will be instantiated in a particular way (for example, being recorded in a notebook, or stored in magnetic charges on a computer hard drive), it is their meaning, which is generated within human minds, that is really important as far as economics is concerned.

Symbols have meanings, and, depending on those meanings, symbols cause humans to behave in different ways. If I have lots of the symbol known as “money” (i.e. if my bank balance is high) I will behave differently than if I have little money. A share in a company is a symbol of the estimate of the real wealth that that company possesses at the moment and an estimate of the wealth it will generate in the future. This estimate is generated by the judgements of many different people, including accountants and market participants.

If I have purchased a share in a company I will behave differently depending on whether that symbolic value increases or decreases. If it decreases in value I may choose to “sell” my share in the company, thus cutting my losses, in doing so I will affect a small change on the collective estimate of that company’s prospects for generating real wealth.


There are two kinds of wealth; real wealth, and symbolic wealth. Real wealth is the ability to acquire a particular real good or real service at a time I wish. Symbolic wealth is the method by which we humans keep track of what our real wealth is, who is belongs to, and how it should be organised.

In praise of hierarchies

In which your humble correspondent has a minor disagreement with Chris Dillow.

Blogging titan Chris Dillow does not like managers.

As you would expect from such a luminary, Chris’s reasons for disliking the Boss Class are astute and well-thought-out:

The pursuit of efficiency – managerialism’s main goal – cannot be a value-free exercise. “Efficiency” has many conflicting meanings. Does it mean increasing GDP per head, Pareto-optimality, utilitarianism, maximizing Rawlsian primary goods or maximizing capabilities, in Amartya Sen’s sense? How do we choose a meaning of efficiency from this menu? And if we choose utilitarianism (as managerialism often does) what is the moral justification for imposing costs on some – up to and including death, Mr Hoon – so that others can gain?

Chris makes the important distinction between managerialism and management. Managerialism is the ideology of the managerial class, and as such is the ruling ideology of our age. Management, or technocracy, is the application of science to the problem of achieving certain ends given certain resources, and is therefore a branch of engineering*.

I disagree with Chris that all top-down management is harmful. My reasons for thinking this are as follows.

An industrial society requires specialisation. Our world is too complex for one individual intellect to encompass any more than a tiny fraction of it in any depth. In order to function, our industrial society requires that people specialise and develop expertise in particular areas. We need teachers, nurses, paramedics, electrical engineers, baristas, taxi drivers, geologists, science fiction writers, booksellers, economists, entertainers, and economics bloggers. No one (contra Heinlein) can learn how to excel in every one of these areas.

Specialisation requires informational transfer. Individual people, with their individual specialisations, need a way of communicating. It is only through communication that these individual experts will be able to co-ordinate, and it is only through co-ordination that they will be able to deliver the products, projects, and services that we desire.

How is this co-ordination to be achieved? There are two broad answers to this question. One is hierarchy, and the other is… Something. I’m not going to say ‘markets’ because I’m fed up with that word. Call it decentralised co-ordination.


I know what a hierarchy is. I understand what a hierarchy is. It is a situation in which one person is vested with authority, and this authority entitles them to tell other people what to do, and it requires that those people do actually do what the first person tells them to do (within various limits and subject to various contextual caveats yaddah yaddah…).

But what is a market?


At this stage a market might as well be an invisible unicorn that grants magical wishes, or a pair of intersecting lines on a page of a textbook, or a place you go to at weekends to buy overpriced honey with bits of honeycomb left in it. I honestly don’t know any more. “The market” means so many things to say many different people that I give up on trying to understand it.

So instead of market, I will use the term decentralised co-ordination. This encompasses a much broader set of behaviours than just whatever markets are taken to be. When motorists are traversing a roundabout they are engaging in decentralised co-ordination. The crowds who walk down Oxford Street are engaging in decentralised co-ordination when they avoid bumping into each other (most of the time).


De-centralised co-ordination has a problem. This problem is best illustrated by an example. Suppose we want to build an aeroplane. This is a complex task and therefore requires specialisation. Specialisation requires co-ordination. Co-ordination requires communication. The problem is that within a completely  decentralised system of co-ordination each individual would have to communicate with each other individual. This results in a combinatorial explosion in the amount of communication that has to go on.

If you have, say, 300 engineers working on the design, manufacture, and commissioning of your aeroplane then, in a completely decentralised situation, each engineer would have to engage in 300! interactions (that’s factorial 300) in order to co-ordinate her individual efforts with her fellow engineers.

How much is 300 factorial? If we assume that each interaction will be a “brief chat”, how many “brief chats” will our engineers have to engage in so as to design, manufacture, and commission our aeroplane?

According to Wolfram Alpha, about this many:











Wow. OK.

So, what do we do?

A far more sensible option is to divide the engineers into functional groupings and have each group sub-divided into smaller groups, where each group reports to one particular engineer who digests their information and then passes it up the chain, whilst receiving instruction from those above based on what she has told them; in other words, a hierarchy.

If we have one engineer at the top of the chain, and if she has seven engineers reporting to her, and they have seven engineers reporting to each of them, and they have seven engineers reporting to each of them… we end up with a potential capacity of 1 + 7 + 49 + 343 engineers. What are the total number of “brief chats” required now?

Well let’s see, we have one to seven, then each one of those seven to seven, then each one of those seven to (substantially less than) 343.

So it’s 7 to the 4 right? That’s how many brief chats are going to have to take place. Which according to Wolfram Alpha is:


Which is a lot, yeah? But a lot less than we’d be dealing with if we expected our engineers to communicate on a completely non-hierarchical basis. Two thousand four hundred and ten is a tractable number. You can do business with that kind of number.

This is why hierarchies exist. They are more informationally efficient than non-hierarchies. We have managers because if we didn’t, we couldn’t have cheap flights, we couldn’t have a nuclear deterrent, we couldn’t have the Internet, we couldn’t have electricity. We couldn’t have almost all of the goods and services afforded by our wonderful industrial society.

Bosses exist for a reason; if we didn’t have them, we’d have to create them. Or live in mud huts and grow all our own food.

This may sound strange. Many people think of hierarchies as barriers to communication. We see them as controlling, fusty, bureaucratic, and inefficient.

But really they’re not. Like democracy, hierarchies are the least bad solution to the problem they are intended to solve.


Some guy on Twitter disagreed with my disagreement with Chris. So what about Kaizen? Well Kaizen is all very well. But the other pillar of the Toyota production system is something called Just In Time. JIT is not a system that spontaneously arose because of the self-interested actions of atomistic individuals working as equals. JIT requires enormous amounts of discipline, morale, and managerial gumption to implement in the first place, and then requires that workers maintain that level of discipline consistently for a long period of time.

So how does one ensure that the workers maintain that level of discipline? Whose responsibility is it to ensure the workers are kept in line?

Well, the bosses, of course.

Once again, the question devolves to an issue of who benefits. Are workers better off for being corralled and controlled? Are the fruits of hierarchical, specialised industrialisation such that workers are – on the whole – better off for being managed? I honestly don’t know.

The real problem here is…


Chris has a point. Left Outside has a point. Hierarchies lend themselves to rent-seeking and power-grubbing. Here’s a points from Left Outside:

I’m thinking more along the lines of avoiding bad news, important people overriding the more knowledgeable.

This happens. But I submit that this will happen in basically any situation involving human beings ever. This is a problem of power, not hierarchy, per se. The problem, as ever, is politics. It is about the morality of the right of some people to dictate to others, as opposed to the effectiveness of the right of some people to dictate to others.

Kaizen is a good thing to have, but it only works if you treat your employees with respect. I don’t know what ‘respect’ means in this context. Some people would argue that demanding that people work for a capitalistic enterprise is inherently disrespectful, but there you are.

Bosses are always going to exist. I’d rather they were all elected by their peers, rather than being appointed by our capitalist overlords; but the fact remains they are necessary. Any socialist utopia worth living in will have bosses, because any socialist utopia worth living in will need the kinds of products, projects, and services that can only be provided by hierarchical organisations.


Like any technology, hierarchy can be used for malicious and anti-social purposes. But that doesn’t mean the technology is intrinsically harmful or that it isn’t worth using in the first place.

*Chris calls technocracy a practice, in the sense used by Alasdair MacIntyre.