What Makes Money

Income and money operate at a very explicit level. Pay for what you see. Fully acknowledging what makes money and what doesn’t, and not using force to get your way, allows you to go deeper and wider. 

You can shift to embodied learning. To things we can’t explain. To the tacit knowledge that is held by people on the very front lines with zero distance from decision making. Knowledge built through immediate and repeated feedback cycles and real wrestling with real problems. Understanding that is impossible to pass up the chain. 

Research and development can take a lot of time and become a part of you. Where the payback is hidden. 

Competitive advantages I like are ones you can do in the open. In “The Art of Learning”, Josh Waitzkin talks about his jiu-jitsu teacher publishing his training videos. This surprised people, because he was freely giving away his secrets. His answer lay in his confidence that if you were concentrating on what he was doing, he would be a step ahead, because he had gone deeper. 

If you have to safely guard a secret, it’s not really a competitive advantage. It is a fragile wall. 

With an enduring advantage, you can tell people what to do, but the time, commitment, and effort will scare them off. Particularly if that mastery doesn't make money. They will head towards the six easy steps to financial freedom in six months. Not the life of hard graft that will set up the next generation.

Time - Commitment - Effort

Will of the Elephants

Agreements are made by getting to know elephants. In Jonathan Haidt’s analogy, the conscious choices we make are the riders, and normally when they pull left, the elephant goes left. The riders think they are in control because the choices are followed, but in reality the elephants want to go left. 

One day, when the elephants go right despite the pull... we don’t even admit the lack of control. We make excuses. We defend. We rationalise. We change the story. The power team of a public relations officer and defence lawyer explain away our behaviour. Like after a difficult relationship, or being fired, or other traumas... we have inbuilt coping mechanisms to make sense of the world. To believe in cause and effect. To believe we have control. The real intelligence is in our habits. 

The real communication is in our complicated and intimate relationships. Full of noise and deep soaked. This means epiphanies are not enough. You cannot just decide to change direction against the will of the elephants. You have to put in the hard work of retraining.

Feeling the Choices

Local markets should be more responsive to changes in preference, because they are able to respond to tacit knowledge. The stuff we can’t put into words. The stuff we don’t always understand ourselves. Our inconsistency. Our moods. 

Local markets mean relationship building and consequences. Huge markets become more abstract. If you sell someone something that isn’t a good deal for them (because you need/want the money) and it affects them badly, size matters. In a huge market, you disappear in search of the next sucker. In a local market, you still have to engage with the people. 

Local forces commitment, recognising that what we do matters. The boundaries between client, colleague, friends, and family blur. It gets complicated. Dealing with strangers is cleaner. It is transactional. Local and intimate means getting involved in the nitty gritty. Local means we experience the results of each other's decisions. Local means wrestling with issues. 

Standardization can give comfort. Where you do venture away from local to explore, some recognition is useful. When you (think you) recognise something, you don’t have to give it thought. Conscious choice is hard. 

Daniel Kahneman talks of “thinking fast and slow”. You want to embody a lot of decisions and make them fast. Jonathan Haidt talks of our rider (head) and elephant (body/habits). We think the rider is in control, but it is mostly the elephant. 

To embody and relax, we have to trust. It is hard to trust when you haven’t done the necessary wrestling to deep soak shared agreement.

International Standardization

Linked Moments

Fundamental investing and a focus on value creation are concerned with long-term compounding. How moments are linked to each other. Sustainable actions with intentional consequences. 

Price exists here and now. It moves in rapid response to supply and demand. A higher price attracts more people and resources to meet that demand. A higher price makes people who want that problem solved consider alternatives. Our decisions are all relative. 

We have a limited basket to fill, and very different decisions to make. Price averages out our immediate decision making. We do not all pay what something is worth to us. We pay the same. Some get a good deal. Some think it is fair. Some will feel they need to explore options, or uncomfortable but still pay. Others will walk away. 

That process communicates information about where resources “need” to go. A surface level information flow that does not have knowledge of all the behind-the-scenes complexity. Adam Smith’s invisible hand pulling on our tacit knowledge. The stuff we understand, or don’t understand, about our own worlds. That gets expressed through how we engage and what decisions we make. Revealed preference.

How are things connected?

See What Happens

In the study of machine learning, they started to see that you can simplify quite complex decisions down to a string of ones and zeros. The computer is not sentient. It has just learnt through multiple repetitions of trial and error, with adjustments. Feedback loops added to complicated processes. It does not understand its own behaviour. Given the ones and zeroes, you can’t extract the knowledge they contain. You can only apply it and see what happens. We are sentient, but even we do not understand ourselves completely. And we have to accept that we can not understand ourselves fully. A lot of our behaviour carries deep knowledge that we can try to interrogate but we might not be able to come to the bottom of. We can constantly be on the path of understanding ourselves through self-awareness, self-search, and self-reflection. That includes recognition of limits, and creating an environment that can cope with lack of understanding and regularly being wrong. That can cope with lack of control.  

Binary Counter

Rippling Consequences

Westworld explores how others might have a better understanding of you than yourself. The chance, if we aren’t paying attention, that other people can see what we can’t see if they are detached and observant. In “Sapiens” & “Homo Deus”, Yuval Harari questions how willing we will be to work with artificial intelligence and things that watch us. Virginia Postrel talks about tacit knowledge in “The Future and Its Enemies”. Stuff we understand without knowing we understand. The driving force behind Adam Smith’s invisible hand. You don't need central decision-makers making complex decisions. You want to drive choice down to where the knowledge lies. We don't necessarily understand ourselves, but we are still the best place to make our decisions. Attention doesn’t scale. Someone understanding us better than we understand ourselves relies on deep listening and care. Local markets with ultra-local decision-making empowers people to make decisions. Information feeds up through the paths that people choose. Through the impact of their actions. Rippling consequences of meaning creation. It doesn't matter if we don't understand this in watered-down averages and stereotypes. It does matter to the intimate relationships that wrestle with understanding. 

Ripple Marks in Ancient Sandstone

Build Capital and Free Labour

For my Batchelor’s Party, my Best Man knew the normal ways of embarrassing me would not work. Instead, he dressed me up as White Jesus with a MAGA hat. Politically and economically, I am of the “The Future and its Enemies” (Virginia Postrel) and “The Righteous Mind” (Jonathan Haidt) school of thought. We are all best placed to make our own decisions and agreements. My main objection to the politics of the last few years is the gunk in our ears. The picking of teams. The lack of acknowledgment that decisions are complicated, and we cannot see into each other’s worlds clearly enough to make decisions for others. We can just do the hard work of breaking down barriers and building agreement. With the available resources and technology, we are in a better position than we have ever been to empower people rather than looking towards putting people in power. We are in a better position than ever to build endurance and resilience, and release each other’s creativity. To build capital and free labour. I am tired of being tired. Let’s build.

Not My Decision

In Power or Empower

If you want a problem to be solved quickly, all the decision makers need to be in one room with no distractions, and intimately involved in doing the work. If you want a problem not to be solved, make those doing the work write memos and get other people around a boardroom to make the decisions based on what is on that paper. There is deep irony in the loss of meaning around the word Capitalism. Adam Smith’s “invisible hand” is effectively a tearing down of the memo factory. Let decisions be made locally by those who they affect. Not in isolated bubbles with oceans between realities. Virginia Postrel vividly describes Tacit Knowledge (the stuff we know but cannot communicate) in the book which completely changed my mind about the desirability of benevolent dictators and central planning (“The Future and its Enemies”). The world is too complicated, ambiguous, and random to concentrate power. The way you build endurance, resilience, and creativity is by creating more decision makers. That means building buffers and engines of capital for everyone. It means letting other people make different decisions to you.

Market Knowledge

Tacit Knowledge is the idea that there is stuff we know that we can’t explain. Virginia Postrel explores this powerful concept in “The Future and its Enemies”. That was the book that changed my mind about the pipe dream of a benevolent dictator, or even the desirability of central decision making. The stuff we really know is embodied. This means that decisions are best made by the people they affect. Not you. Not me. Not some undiscovered saviour. Real Adam Smith Capitalism is in the market-places where everyone has a voice. Small businesses. Small customers. Where price makes no pretence at being value. It is just an agreement between a buyer and a seller. Just a word that makes both participants happy. Capitalism is not Corporatism. Capitalism is the idea that you can build resources and reinvest them. That money/capital can be paid and our labour can be set free. Community Wealth (Capital) can empower people from the bottom up. Amplifying voices through an exchange is a much clearer indication of what people need, than a powerful representative (hopefully) making (good) decisions on their behalf.

Markets need Bottom Up Power

Not a Democracy

“This isn’t a democracy” was a common phrase in my corporate career. Although there are legal minority shareholder protections, the reality is that control is concentrated… even if you are a part owner rather than a work taking employee. But, there are checks on power. Arguably more than over democratic majorities. Companies can fail if run badly, or if competitors attract away their staff and clients. They can fail slowly, if they have Capital to eat through while paying Corporate Zombies lots of money to do bad work. They can fail fast, if they live hand to mouth. Democracies don’t have the competitive pressures of the four freedoms of movement (Capital, Goods, Services, Labour) because we still live in a system of Global Apartheid where your rights depend on where, and to who, you were born. Citizenship isn’t voluntary and with enthusiastic consent. A system that ensures that Countries don’t fail like Companies in a way that frees the people and capital. I am a “small a” anarchist. Decision making should have as few layers as possible, be voluntary, and we should hire our bosses. Should isn’t reality. Human rights are built in the same way as Capital. From scratch. If that is the world we want, we need to build it.

Hierarchy from the Greek hierarkhēs "president of sacred rites, high-priest"

Cotton Wool Focus

Tacit Knowledge is understanding we have that we are unable to write down or verbalise. Embodied knowledge. Relational knowledge. It is information that is only available to those who do the work themselves. It can’t be communicated to managers. Being good at something isn’t the same thing as knowing why you are good at something. Often, we end up attributing the “merit” to anything that is easy to count. Even if we acknowledge that there is so much noise that the numbers need to be treated carefully (this excuse is normally used when the numbers are bad). As organisations get bigger, you can get a separation between the clients and where management think the value is added. The intention is good. Cotton wool focus. In reality, a direct relationship with the client is the value added. Every layer is a distraction. Every layer loses focus. Otherwise client facing staff simply become a shield for bad performance.

Signs of Rot

Double Standards are a sign of rot. When those in charge are not held to the same level of accountability as those to whom they delegate responsibility but not authority. Responsibility without authority is meaningless. With every degree of separation from where the impacts of a decision are felt, information is lost. This is the heart of the reason why empowerment beats Central Decision Making. Why “Boardrooms” should be where obstacles are removed, not where decisions are made. And certainly not where accountability disappears. We talk of not giving hand-outs to those without money because of Entitlement and Dependency. We want to add conditions. We forget the bosses and talking heads higher up the chain who don’t roll up their sleeves. Who don’t get their hands dirty. Who don’t fall on their swords when their decisions don’t work out. Who do so well in the good times when “interests are aligned”, that they have a bottomless buffer to ride out the bad times. There is no Solution. There are only decentralised Solutions. Make more decision makers.

Wooden beam with significant fungal growth

Delegate Power

Delegating responsibility without authority is dangerous. I have always had a lot of respect for leaders who remain involved in the task. Rolling their sleeves up and leading by conscious example. Unless you are digging holes in the ground or following an algorithmic set of clearly defined steps, there is always judgment required in a world that is complex, ambiguous, and random. Delegation without involvement in these murky situations is the kind of hierarchy to which I am violently allergic. If you constantly second guess someone, they will wait until they are crystal clear on what you want. They will wait until they believe they have the skills to do the task in the way you want it done. Not all knowledge can be communicated up the chain. I am a firm believer in empowering people to make decisions where the decisions need to be made. Then backing them up. Or doing it yourself.

Athlone Power Station - Cape Town

Holy Cow

Milk doesn’t come from the shops. It comes from Cows. Most of the products we now end up using are assembled from bits that come from all over the world. The words we use have danced off the tongues of hundreds of thousands of people as they criss-cross the globe. Sharing flavours. Bending structure. Breaking rules. What you see isn’t all there is. The problem with bowing down at the alter of the obvious, the conspicuous, and the evident, is it cuts us off from the stuff you can’t count. Quantitative Finance likes to boil decisions down to two numbers. Return and Risk. The problem is, you don’t actually get paid for taking risk. In the long run, you get paid for adding value. Value is a deeply complicated, often abstract, internal, personal, and relational story. It is important to regularly remind yourself where your milk comes from. To look for, and retain awareness of, the source.

A calf and a Sadhu

Demonstrable Value

We learn best through instantaneous feedback. Particularly if it is repeated every time we do the same thing. Predictable cause. Predictable effect. This is true even if we aren’t conscious about the lessons being learnt. Muscle memory kicks in. Slow is harder. The 18-year-old still lights up despite the threat of blackened lungs, bloody coughs, and amputated limbs later in life. Particularly because everyone knows a belligerent Grampa who drinks like a sailor, smokes like a chimney, and can still beat you in an arm-wrestle. Single counter-factual stories carry far more punch than spreadsheets and charts of long-term data. This leads to a bias towards demonstrable value. Things you can count, contain, and importantly, understand, get far more resources. Things you can contain make good businesses. At the expense of things that are good ideas, but subtle, nuanced and difficult to demonstrate. A lot of our knowledge is tacit. Communicating it is hard. That is why I believe in bottom up empowerment. Giving people the space and time to do their thing. Trusting each other.

Starting a Fire

Money makes money. Only because, usually, you need resources to solve problems. The point where the money is made is in the problem solving. A clearly defined offer to solve a problem, recognised by a group of people (with money) who have trust (that the offerer intends to solve the problem) and confidence (that the offerer can solve the problem). Services aren’t Capital intensive. They don’t require money to solve problems. Not having Capital is the barrier to entry for Capital intensive business. The barrier for services is skills, knowledge, and recognition. We live in an age where it is easier than ever to develop skills and knowledge. Services remain the main “starting from scratch” point in building wealth. The challenge is (1) it is easier for everyone, and (2) it is much noisier with far more people fighting for attention and recognition. I think the answer may lie in localism. 1-1 services and small groups aren’t scalable. That means they aren’t great (big) business ideas. But they are great fire starters. With so much noise, there aren’t many people who listen. There aren’t many people who see small problems when we are distracted by the big. Start small.

Know you Know

Tacit Knowledge is the stuff we know without even necessarily knowing we know. It is near impossible to communicate, because it is embodied rather than conscious. We may even tell ourselves an incorrect story about why we are able to do something. Knowing how to do something, and knowing how you know how to do something, are different skills. Being able to put that into words that someone else understands and can replicate is, again, a different skill. “The Future and its Enemies” by Virginia Postrel was first published in 1998, but remains a timeless explanation of why decisions should be made where the knowledge is, and not around boardroom tables. The “Postrel Problem” meant when I was still working for a salary, I spent a large part of my time writing memos, emails, and justifications. I have loved been freed from my inbox. Free to experiment and learn, in a micro-ambitious trial and error way. Thinking big can forget the power in small. Thinking big is imposing. Thinking small is empowering.

Tell my Wife

Energising Beautiful Questions

The world is complex, ambiguous, and random. Our capacity for understanding our own world is limited to the experiences we have had, and knowledge we have built. The “Curse of Knowledge” is that it is incredibly hard to unlearn embodied understanding. To see squiggles where now you see words. To remember what it feels like to not know something that now seems obvious. This is why I believe in bottom-up empowerment. Complexity is fine with lots of little feedback loops. The stuff we understand but can’t explain nudges progress along if we cooperate, and consent. A Universal Basic Income would provide everyone with the Financial Security to have a starting voice. Working on the generic concept of Endurance and Resilience means you don’t need big answers. You can just release lots of beautiful questions by energizing the creativity of individuals and communities.

Energising

Invisible Hand

A Universal Basic Income is a periodic cash payment without means-testing or work requirement, paid to everyone in a community without conditions. It is paid to an individual rather than a group, and is not withdrawable. Adam Smith’s invisible hand was a recognition that much of our knowledge is Tacit. Making decision several degrees of separation away around a board table loses fidelity. Just like the children’s game where you whisper a secret along a chain. Trade releases value when both the seller and the buyer believe they benefit from the swap. They don’t have to be able to clearly articulate why. They don’t need someone to represent them. A UBI doesn’t need to be tax funded to meet the definition. We could build Engines of Capital to power the stream. Managed to last. Managed to reduce the panic of life’s little (and big) surprises. Managed to release creativity through spreading Financial Security.

Empowerment and Fudge

We see the world differently. Max Planck said Science progresses one funeral at a time. "A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.” The hardest thing to do is to unsee and unlearn. Our knowledge builds up till we feel very comfortable with it, and it becomes automatic. It becomes embodied.  We are just fudging our way through life doing our best. Different flavours of fudge harden. We are most conscious of today's flavour of fudge. That is why empowerment beats imposing your beliefs on others. We are all trying to do our best. Empowering people and communities means we get to test multiple solutions.