Risk & Progress| A hub for essays that explore risk, human progress, and your potential. My mission is to educate, inspire, and invest in concepts that promote a better future for all. Subscriptions are free, paid subscribers gain access to the full archive, including the Pathways of Progress essay series.
Having traversed a brief history of human progress, it is time to step back and examine “how” it works. We conduct our examination by looking at the three necessary components of progress 1) matter 2) energy, 3) and knowledge. Matter is the clay from which we sculpt the physical world, energy is required to do the sculpting, while knowledge informs us how. Unlike matter and energy, which are finite, knowledge is limitless. Therefore, human wealth and progress are limited only by our ability to create new ideas and more beneficial counter-entropic forms.
The Economy
The growth of what we call “the economy” closely mirrors the growth of “productivity” (more output per worker) which is a function of the expansion of knowledge. Knowledge informs us how we can do more with less. It tells us how to combine molecules to make disease-curing medicines. It tells us how to etch microscopic switches onto silicon to create chips that can think like we do. The more humans that are born, the more interconnected we become, the more ideas we share, and the more opportunities and possibilities we can create.
As a growing number of us were freed from the farms and relocated into cities, we brought together more and more ideas that otherwise would have forever been isolated from each other or possibly never generated at all. Some of these ideas were good, some bad, but most were somewhere in between. The ceaseless clash of ideas that occurred in the burgeoning cities allowed people to challenge their assumptions, refine and hone their knowledge, and create new avenues to solve societal problems. But how do we know if an idea is a good one? The ultimate test of the value of an idea comes in the agora or the marketplace.
The goods and services that compete with each other in the agora are the products of ideas. Whether it is a new car, computer, phone, or streaming service, they all require matter, energy, and knowledge. The marketplace that we call the “economy” is just a human-simulated version of the jungle; the same kinds of ecosystems that were the crucibles of evolution that eventually led to our species.
The Corporation
In the historic expansion of wealth that we have seen in the past couple of centuries, much of it was led by one of the greatest institutional inventions of all time: the “corporation” or limited liability company. Before their invention, businesses were inextricable with their owners. This meant the failure of a business could cause one to lose their home and other assets, discouraging risk-taking and experimentation. The corporation, on the other hand, is (mostly) a separate legal entity. It can take out loans, buy and sell goods, and operate independently of its owners. This is important because all progress requires some level of risk.
While often derided in popular culture as bastions of greed, on a high level, a corporation is simply a group of people who have organized themselves together to create ideas and solve problems. Many believe corporations are set up for the pure pursuit of greed, but that is misleading. It was once described this way: One does not purchase a car to buy more gas, one buys a car to go somewhere, and gas is required to get there. A business is the same, it hopes to help its customers do something, and making money is essential to this process. When a company makes money, it can hire better talent, invest more in R&D, and (hopefully) do more for its customers. Indeed, it can be argued that more lives are saved and bettered in the “selfish” pursuit of profit than in the “selfless” work of philanthropy. More money is available to the former to do (hopefully) more good.
So long as a company isn’t relying on the drip feed of economic rents, we can be fairly certain that a profitable company is generating value for its customers. After all, people trade their time for money when they work. They will only purchase a good or service if they felt that it had sufficient value to them; only if it was worth the time they traded for it. It is the mission of a corporation to solve a problem and to do so at a price that people will pay. The judge is the consumers; when they buy that good or service, the business’s value increases, signaling success. Successful corporations draw more investment from investors who hope to make returns by lending their own money to share in that success.
Social Value
Despite what many seem to believe, this is how it should work. A corporation creates ideas in the form of goods or services that customers find valuable and is rewarded with investments, loans, and profit, that provide more money to continue providing more value to more people. If and when that company can no longer do this, it fails. In a competitive market, companies compete with each other for these limited dollars. The competition forces them to continually improve themselves and innovate in ways that bring benefits to more people. If it didn’t work that way, that certainly would be a problem.
The modern corporation is analogous to a creature of the jungle. The various departments within it, like marketing, advertising, design, logistics…etc. function like its organs, and its employees, like the individual cells that comprise these organs. Here again, we see that the total is greater than the sum of constituent parts. And just as happens in the jungle, corporations compete with one another for survival. The competition results in the occasional extinction but also in gradual evolution that makes them increasingly effective and efficient at solving problems, from which we all benefit, directly or indirectly.
There is often a sense that corporations need to do more to “give back” to society. While I would never begrudge a company for engaging in a mission of altruism, the very existence of a thriving and profitable business is a good indicator that it already provides societal value; if it didn’t it would cease to exist. And yes, sometimes that makes the owners of these companies insanely rich. Famously, however, in a study of the social value of innovation and production, William D. Nordhaus found that the producers of value, the businesses and entrepreneurs who create ideas, can only capture, on average, about 2.2 percent of the benefits for themselves. In other words, almost 98 percent of the fruits of their work and ideas are spillover onto everyone else.
Keep in mind that, while real, corporate wealth, exists only in equity (shareholdings), it is not “liquid,” or freely usable. More importantly, as we will soon discuss in an analysis of wealth and inequality, there are actually two ways to become wealthy. First, (most obviously) by increasing our incomes. Second, by reducing the cost of goods and services and increasing their quality and features. The latter is important because while growth and progress increase wealth inequality on paper, in some ways, it paradoxically compresses inequality in reality.
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