Sunday, May 20, 2012

Swindling Futurity on a Large Scale

1 comments


Today, I am accompanying my dear friend and colleague, Mr. David J. Pratt in a lecture at the James Madison Museum (http://www.thejamesmadisonmuseum.org/events).  Our lecture is entitled: ‘Banking on the Future: Madison and the Closure of the First National Bank’.  We expanded on some of these themes.


In a letter to his esteemed philosopher and scholarly friend Mr. John Taylor in 1816, Thomas Jefferson famously stated:

"I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."

While this sound bite has captured the #OWS crowd with patriotic zealotry, the unquoted sections of the letter of May 28, 1816 are equally or more admonishing of our current state.  And in this week when Wall Street banks had to cover their own “irrational exuberance” in the Facebook IPO bubble, we find a world in which the funding of human enterprises is devoid of consideration as much today as it was 200 years ago.  With JP Morgan unveiling its reckless synthetic illusions which have both helped the bank manufacture illusory profits and distribute dividends at the expense of the publicly-back accountability deferrals and with breathless CNN, Fox, and CNBC commentators fawning over NASDAQ: FB complete with TD Ameritrade screen shots instructing an uneducated populace into the abattoir of opaque speculation, all of Jefferson’s concerns find themselves landing on a modern America and G-8 devoid of any creativity. 

Consider:

“The system of banking we have both equally and ever reprobated. I contemplate it as a blot left in all our constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens. Funding I consider as limited, rightfully, to a redemption of the debt within the lives of a majority of the generation contracting it; every generation coming equally, by the laws of the Creator of the world, to the free possession of the earth He made for their subsistence, unencumbered by their predecessors, who, like them, were but tenants for life.”

Jefferson went on to lament that, “Much I apprehend that the golden moment is past for reforming these heresies.” What was the proximate cause of his melancholy?  Setting aside Jefferson’s personal economic proclivities which had frequently pitted his profligate consumption at odds with moneylenders, Jefferson seemed to discern that, given the opportunity to be swindled, the populace, in the main, would be seduced.  Given his profound distrust of Alexander Hamilton’s ‘big government’ impulses – fearing that they would undermine the experiment of the Republic – he reflected that, “the evils flowing from the duperies of the people are less injurious than those from the egoism of their agents.”  Resolute in his opposition to the First Bank of the United States and facing a diminishing pool of allies in his opposition to the expediency-laced formation of the Second Bank of the United States, established in large part to deal with debts from the War of 1812, Jefferson was certain that the adverse consequences of sovereign banks would lead to the undoing of his life’s aspirations.

From 1791 to 1836 – allowing for the nearly 4 year gap between the expiration of the First Bank charter and the promulgation of the Second Bank – furious debate raged over how a relatively new country, filled with industrious people and unquantified resources, would grow.  Two major wars, three financial panics, and untold scandals later, our banking system and associated laws took their first tentative step in to setting the economic stage for the Civil War.  

So, in this week of irrational exuberance ranging from Jamie Dimon’s callous fa├žade regarding the reckless synthetic positions constructed under his leadership at JP Morgan to Mark Zuckerberg’s gravity-defying circus in which the final act will likely involve “audience participation” (think Water for Elephants), I find myself intrigued by the news on the opposite side of the Earth.  

In Mongolia, “anti-investor” legislation – if you read Western pundits – was passed seeking to insure that the nation would be able to participate in the development of its vast metals and energy resources.  Most media outlets have followed the passive-aggressive narrative suggesting that instilling fear of failing foreign investment should play a role in national sovereignty.  Tragically, these fear mongers fail to understand that there are more resource investors in the world than once controlled the market and, if asked to chose between cooperation with nationalists or no access to energy and metals – participating access will prevail.  In New Ireland, Papua New Guinea, facing the electoral consequences of delayed justice, Prime Minister Peter O’Neill finally released $9 million held by the Mineral Resource Development Corporation seeking to placate a rather vocal voice that could swing his political fortunes.  What was conspicuously absent from this transaction was any meaningful participation in Newcrest Mining’s nearly $3 billion gold revenue – close to 20% of which is derived from its Lihir operation.  

During the next few weeks, I will be working with my colleagues in the Pacific to educate a number of communities in an effort to limit the “swindling of futurity”.  It’s as relevant in the U.S. as it is in Papua New Guinea.  Ironically, what’s missing here is what’s missing there.  First, a public sector for the people and by the people.  Second, a population taking the time to be informed.  And finally, recognition that linking productivity to socioeconomic benefit is essential for any economy – regardless of political monikers.  While many of you visit this blog on a recurring basis each weekend, I trust that next week, as I’m in the midst of one of the most significant resource conflict and violence-torn parts of the globe, you take your InvertedAlchemy moment to reflect on this and other posts and share this dialogue with others.  In so doing, we may rekindle the taper Jefferson sought to light and reinvigorate a public accountability much needed in our time.

Fair winds and following seas until next time…



Saturday, May 12, 2012

Less Than Zero – Beyond Infinity

0 comments

please follow the link at the end of this post

Thomas Kuhn, the author of the 1962 controversial treatise, The Structure of Scientific Revolutions opened public discourse (and fierce, often polarized debate and acrimony) around the prevailing historicism-laced linear progressive world view.  Defiant in the face of a Cold War context of manifest destiny in which ‘progress’ was both dogmatic ideology and the battle cry for iconoclasts, his suggestion that revolutions were punctuations (‘paradigm shifts’) created by intellectual dissonance with incumbent systems was heretical and, well, come to think of it, revolutionary.  Most troubling for the purveyors of institutionally coalesced ‘knowledge’ – a.k.a. scientists – was his positing that endless pursuit of anomaly resolution (resolution of error from which expertise is derived and lauded) was unlikely to be the proximate cause for breakthroughs.  Revolution, he suggested, comes from those who challenge assumptions rather than from those who refine precision around consensus.

When we observe the entire incapacitation of the current masters of economy and industry – be they Central Bankers, Finance Ministers, Economists, or Corporate Titans – in their collective inability to assess the direction, duration, and scale of current economic dislocations, we could conclude that the “revolutionary” inflection is upon us.  This inflection, according to Kuhn, would suggest that what will emerge is an “incommensurable” set of methods and metrics heretofore unknown or unperceived.  Applying a modicum of discernment to our present socioeconomic paralysis, one can clearly see that our Pythagorean obsession with the ‘created order’ being essentially a numeric inevitability gives us no escape from our numerically constrained archetypes and memes.

Kuhn’s inquiry, taken together with his critics’ analysis of his work, collectively seem to conspicuously ignore one artifact – NUMBERS.  In all of my blog posts of late, I’ve toiled to admonish us to find the unquestioned assumption upon which the balance of our experience and understanding is poised and, once found, jiggle the fulcrum and see what happens.  Like an engineer balancing a spinning turbine; like a piano tuner seeking perfect pitch; one can apprehend coherence and frictionless function best by willfully introducing dissonance and then tuning it away.  To that end, I would like to propose the following:

The stronger the impulse to enumerate, the greater absence of trust.

Let us explore this for a moment.  Whether for Euclidean metrics to describe; King David’s egoic impulse to count and conscript; Pharaonic and Persian mandates to tax; or Newtonian requirements to codify finitude; the impulse to number bridges the sacred and profane with remarkable consistence throughout much of humanity’s collective expressions.  Through numbers we can limit and delimit; we can compare and contrast; and, under the euphemism called ‘the scientific method’, we can compute divination and regress our world into a series of statistically reproducible dogmatically held postulates.  Challenge the assumption that humanity and its ‘progress’ requires numbers and you’ve entered the Olympian Halls as a mere mortal.

I had the good fortune of sitting with one of the world’s most respected quant traders a few years ago and demonstrated what was possible when you understood market dynamics with intent-based linguistic analysis rather than using the nine degrees of freedom (the statistical principle of the number random vectors in an expression or model prior to the final deterministic completion of a model or set) by which numerical analysis is constrained.  The 25 degrees of freedom afforded by the alphabet and the nearly 1.013 million degrees of freedom afforded by words in global use today far surpasses any numerically constrained model and, when deployed, gives far superior understanding of market dynamics.  However, whether it’s 9, 25, or 1.013 million degrees of freedom by which we enumerate and denominate, we’re still limiting our understanding when we’re constrained by finite symbols (numbers, letters, or words). 

So back to Thomas Kuhn: why is it that neither he, nor Karl Popper (one of his great critics), nor any of his other critics were willing to challenge the concept that, through the applications of numbers, we may have actually extinguished human potential rather than seeing its progress?  After all, some of the greatest puzzles which plague modern self-proclaimed ‘scientists’ is how pre-linguistically recorded civilizations achieved great feats of navigation, architecture, and communication “without numbers” or “without knowing about zero”.  Could it be possible that they achieved these wonders because they didn’t have numbers?

Now all of this becomes quite relevant when we realize that numbers serve a very important role in our social systems and their possible irrelevance (or even the contemplation thereof) can be quite disconcerting.  We’re sure that we need numbers.  But, I would suggest that our “need” for numbers is inversely correlated to our access to and acceptance of TRUST.  Certainty, laws, science, wealth, identity, power, and faith all hinge on numbers and their control.  If one had absolute confidence in the perpetual source of animating energy in the universe – as propagator, transmitter, and consumer in simultaneity – than the need to constrain or describe anything would be rendered obsolete.  It’s when we lack confidence in the undeniable and absolute abundance of universal energy – when we need to harness, control, or lord over the same – that enumeration is perceived as necessary.  And when this shows up in the microcosm of economics and currency, the postulate seems to be reinforced.  My desire for a “stored unit of value” – the consensus definition of money – is a proxy for my inability to TRUST that future performance will be remembered, much less honored.  By introducing the surrogate of an artifact of value storage and exchange, I’m stating that the TRUST between transacting parties is untrustworthy when compared to the confidence in an inanimate consensus artifact.  The artifact, which can only express value when used in a community sharing a consensus illusion is, by definition, a paradox.  Since I don’t trust you, I’ll trust a system in which we share an illusion where a disembodied enumeration instrument has more “faith and confidence” than the individuated actors in the system

You want to try something fun?  Try a day without numbers.  See what happens when you show up without metrics or constraints.  See what happens when all you have to deploy in transaction with others is yourself and your TRUST.  Try it and then let me know if this may be the fulcrum of our society’s undoing and the infinite mass through which something essentially new and human might be born.

My dear friend and colleague Richard David Hames published a great companion discussion on his Five Literacies blog at http://fiveliteracies.typepad.com/richard_hames/2012/05/dichotomies.html

Saturday, May 5, 2012

A More Perfect (Monetary) Union

1 comments

I recently had a wonderful correspondence with a dear friend and colleague in which I had written the following two sentences in response to an impassioned inquiry into how to solve a funding need for a truly inspired project.  In response to my letter, these two sentences were described as “dense” and “in need of unpacking”.  As I wrote my response, I realized the applicability of this conversation to many others and so, courtesy of my friend’s valuable criticism, I’m inviting you all into a deeper discussion.

“…I have never encountered anyone who has an ‘abundance of scarcity’ when it comes to accessing money.”

“I have frequently encountered impulses who want to emerge without being defiled by the surrogacy that comes with money.”

Let’s start with the first absolute statement.  Money, in terms of Integral Accounting, is a surrogation-utility of value transfer.  Money, in its agnostic form is neither credit nor debt; neither sovereign nor communal.  Rather it is the manifestation of a consensus promise – explicitly in the form of an artifact – of temporally stored value.  When one states a “lack” or “abundance of scarcity” around accessing money, this can often be discerned as a symptom emblematic of either a detachment from communities of trusted consensus or an obsession with a particular form of artifact.  In a fiat or central bank-linked debt denominated currency system like the one in which we find ourselves, we may perceive scarcity of dollars in a world overflowing with artifacts of temporally stored value. 

The effort required to expand our understanding of Money in an inclusive sense is monumental if we’re looking for dollars, euros, rupees, or yuan.  While I can accept on one level that one may have an abundant scarcity of accessing these sub-class artifacts, I would suggest that the deeper issue is an incapacity to see other value storage units that are present for which no explicit account has been taken.  Too often our self-imposed exile from deeper interaction and engagement comes from our unquestioned assumption that we are compelled to suspend our inquiry when it comes to money because “the system” mandates our acquiescence to its ubiquity.  This is merely the Stockholm Syndrome in which we are confined within, and defenders of, the agency of our captivity.  Worst of all, we heartily defend our dependence on a utility inextricably linked to our enslavement sacrificing even our most deeply held aspirations on the altar of, “I would have, but for…”

My second observation – if you can imagine it – is even more controversial.  Much of the world has seen well-intended actors watch helplessly as great animating impulses whither for the “lack” of money.  What is abundantly ironic in this sociopathic state is our unwillingness to consider that the impulse may not want to be animated by an artifact that could one day destroy its purity.  Many people would classify me as an entrepreneur.  I find that classification repugnant not for its literal illusion to the ring master of an itinerant French circus but rather for the mistaken cavalier personality customarily associated with the moniker.  Among the endeavors of greatest consequence in my over two decades of commercial business, funding neither animated nor validated the efforts I’ve undertaken.  In fact, when I set out to create M•CAM in the mid to late 90s, I knew that the greatest market inefficiency was the unaccounted value for state-sanctioned artifacts of human innovation (the fact that banks took intangible asset liens but could not count them as explicitly valued collateral).  The scale of the commercial banking side of our business alone is conservatively measured in the trillions of dollars!  However, the explicit requirement that our business had was not reckless monetary financing – it was ratable balance sheets.  Inviting investors and financial institutions into a dialogue where they were asked to keep their money but merely lease access to their assets was the most perplexing value proposition they’d ever heard.  And, mind you, this is while dot com madness was frothing a bubble with valuation multiples exceeding 1000 times revenue or more on ludicrous delusions.  Their incredulity notwithstanding, our company persisted for over 14 years and it is only now that people are starting to get that to access the largest banking and conventional capital market in modern history, we don’t need funding!  We need collaborative asset counter-party agreements. 

You see, even at the white hot core of the monetary and banking system, the single largest monetary denominated transaction in history (yes, even bigger than Facebook’s IPO or Apple’s ephemeral valuation) can only occur in an ecosystem where counter-party asset interaction (in Integral Accounting parlance “Custom & Culture”) is the predominant value.  Here’s the rub.  When we take a step back from what we perceive to be indicted for “lack of monetary endorsement or funding”, we may very well be seeing an opportunity to be unconstrained from the limitations imposed by a debt-based currency.  Now many of you will see what I'm describing and contextualize it some paternalistic 60s or 70s communal nostalgia.  This is not the case.  Right now, the biggest economic (monetary) growth engine on the planet realizes that narrow views confusing "currency" with "money" is contrary to its growth.  When China recently entered into its transaction clearing agreements with Japan and India, the value did not accrue to their respective currencies.  Rather, it accrued to the Custom & Culture friction reduction between cross-border businesses.  While the explicit currency clearing agreement uses money, the value of the AGREEMENT is an explicit acknowledgement of Custom & Culture harmonization.  Neither the Japanese nor the Indian agreement explicitly expanded wealth transfer or trade but both did create a common market into which new types of relationships would be possible (saying nothing of their disintermediation of the U.S. dollar dependency). 

Much of what we collectively judge to be impaired by insufficiency in funding is, to the contrary, begging to thrive independent of money’s insidious constrictions.  In their recent Thrive: The Movie, Foster and Kimberly Gamble stated that on their path to documenting narratives of humanity thriving, they kept running into the horror of humanity held hostage by money and its nefarious lords.  My heart breaks when I see a film nominally about ‘thriving’ conclude with a call to abolish the Federal Reserve.  Money isn’t the problem.  The Federal Reserve isn’t the problem.  Heinous, sociopathic corporate titans aren’t the problem.  Large banks aren’t the problem.  The problem is a humanity that elects to actually empower these entities by continuing to participate in the system devoid of willful, more expansive, more imaginative engagement.  I’ve spent time with the people and the corporations of the Gamble’s inquiry.  And, as odd as it sounds, many of the people (yes, there are real people in the upper echelons of the rarified 1%) are enthusiastic when they hear about initiatives to diversify the calcified dependence on an anachronistic debt-laden dollar denominated system.  And while I would not suggest that there is unanimity in the stratosphere of the financial elite with respect to an appetite to abdicate the power they perceive to wield, I have had too many experiences of profound behavioral shifts from those that see an alternative form of engagement explicitly apart from their monetary narrative.

To conclude that every illumined path must eschew all currency artifacts is the stuff of myths and is a luxury of the elite.  But to ascribe to currency a supremacy at the expense of all other temporal value surrogates is to serve oneself Hemlock and begrudge the death.  We must realize that the persistent passion, when not attended with money or any other accounting artifact around which we perceive animating necessity, may still be an impulse worth following.  In one instance, our struggle to provision it may merely be a teacher to allow us to see the world in a new manner.  In another, it may give us the opportunity to discern the true emergent signal clarified from the metaphor we constructed when the impulse first arose.  And in yet another instance, we may be invited to manifest an impulse without defiling it with provisioning that is incompatible with the intended scale, duration, or intent. 

Now don’t you wish I had just stated all of this in two short sentences?  Oh, that’s right, I did.  But I’m thankful that you needed me to unpack the “denseness”.  I hope this helps.