The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being in Charge Isn't What It Used to Be, written by Moisés Naím, discusses the decline of power in established leaders and institutions. The book's overall theme points out while it is becoming easier to get power, it is also becoming harder to use it to control others and harder to keep it once you have it. Naim suggests that globalisation, economic growth, a growing global middle class, the spread of democracy, and rapidly expanding telecommunications technologies have changed our world. He says these developments have created a fluid and unpredictable environment which has unsettled the traditional dominions of power.

Moisés Naím is a best-selling author, and an internationally syndicated columnist. He is the editor of the influential magazine Foreign Policy, published by the Carnegie Endowment for International Peace. Foreign Policy magazine is a leading publication on international politics and economics. Naim has written extensively on economic reforms, the political economy of international trade and investment, and globalisation. He was formerly Venezuela's minister of trade and industry.





Personal note:
It’s interesting that this book was written in 2013 and it’s as though it predicted a lot of the events that have happened not long ago, in particular the dissipation of power in politics, such as Trump’s takeover of the Republican party and Brexit. Another interesting thing that I found in the book, Naim talks about when power changes hands quickly, the players become inefficient. When power dissipates, even mature democracies can be left unable to react to the fast-paced challenges of the twenty-first century. I can see that in my home country Australia. Australia is guilty of burning through so many prime ministers, Scott Morrison replaced Malcom Turnbull who replaced Tony Abbott who replaced Kevin Rudd who replaced Julia Gillard. The so often changing of the guards leads to the weakening of power. The absence of a powerful international authority makes it near impossible to reach the agreements necessary to make important global changes, in particular the reduction greenhouse gas emissions. Another thing that Naim talks about that rings true is, the erosion of power reduces the incentive to invest time and effort in crucial issues, because those issues’ long term consequences aren’t immediately apparent. Instability makes engaging in long-term learning and improvement an unattractive proposition. Instead, players prefer short-term goals. This is evident in the world’s shocking lack of preparation and disorganised response to the coronavirus pandemic. A lot of these learnings seem prophetic when you think of it in the context that it was written in 2013. It’s interesting to see that the trends noted are continuing to happen however, I hope more of the positive trends of the erosion of power outweigh the negative in the years to come.


Key learnings

The erosion of power has led to many important freedoms, but has also made the world more dangerous. As power continues to be spread between more and more people, societies will have to re-evaluate whether the costs of democratised power outweigh the benefits of centralisation.


Power is crumbling everywhere.

Protesters have taken to Wall Street and other public places around the world to voice their concerns about the increasing concentration of wealth and power among the “one percent,” who in their view only grow more powerful as time progresses. Reporters and foreign relations experts have long made predictions about America’s decline and China’s rise to power. Yet when we examine political relations more closely, we see that something much more fundamental is happening to the distribution of power in the world. But first, what is power exactly?

In essence, power is the ability to make others do what you want them to do. Parents exert power when they make their kids eat their vegetables before they can have dessert. Power is at work when Barack Obama motivated large numbers of young people to become engaged with party politics in the 2008 presidential elections.

But power is also relational, and the traditional barriers that reinforced the position of the mighty and prevented potential rivals from becoming significant challengers are weakening rapidly. These barriers permeate our society. They are military arsenals, access to resources, available capital, brand recognition, the moral authority of a religious leader and the rules governing elections. Any challenger to power has to overcome them.

Yet while these barriers have always been present, they’ve become less and less stable over the last three decades. Capital moves more quickly, military weapons and training are increasingly available, the knowledge-base of academia is being democratised, and so on. Consequently, the traditionally powerful are having difficulty maintaining their position. Today, even the most powerful people and organisations can be ruined in a heartbeat. Rupert Murdoch’s News Corporation, for example, was trashed practically overnight. The once esteemed Tiger Woods had his reputation dragged into the gutter just as quickly.One has only to look to the length of asymmetrical wars, such as Vietnam or the War on Terror, to see how flimsy something as seemingly cut and dried as military might can be. But why has the nature and distribution of power changed so drastically?


Things become more difficult to control when we have more of them.

Today, all kinds of “things” have increased dramatically in quantity. There are four times as many nations today as there were in the 1940s. The amount of wealth in emerging countries has risen enormously, and the number of products in the world market has followed suit. Not only do we have more, but those things that are the most important to us have also improved dramatically. For instance, people today live longer and more healthily than ever before. Life expectancy has risen, and fatalities from infectious diseases and armed conflicts have decreased. People are increasingly informed and educated, literacy rates have risen noticeably and people throughout the world are connected in unprecedented numbers.

And as we become more numerous and our lives become more fulfilled, we also become more difficult to control. Exploitation relies on destitution, and those who no longer have to fight for their daily survival and have received an education are more likely to make higher demands of their leaders, while also being less easy to force into submission.

What’s more, the immense amounts of information, goods and choices make it impossible to exert strict control over any one domain. When people have more control over what they buy, how they vote, what they read, whom they talk to, where they go, what they think, etc., they become difficult to control. This is true no matter whether they’re voters, soldiers, customers or believers. Those in power thus face new dilemmas: How do you ensure loyalty when choice is more plentiful? How can you coerce someone when force is costly and risky? How can you exert authority when people are less dependent and vulnerable?


Today’s world citizens enjoy unprecedented and uncontrollable mobility.

(Although, maybe not so much since the coronavirus pandemic, this was written in 2013)

During the Cold War, East Germany’s Berlin Wall and border inhibited its citizens’ access to West Germany. This was an internal power play: the Wall was a crucial aspect to the state’s campaign to control the people. Had they had the chance, many East Germans would have likely emigrated to the West in pursuit of a higher standard of living. Today, a wall would not have been enough to cut them off from the world. Nowadays, people, goods, money and ideas can travel at previously unimaginable speeds at a fraction of the cost. Just think: the price of airline tickets that enable transcontinental travel within mere hours has dropped dramatically in recent decades. The price of shipping cargo is ten times lower than it was in the 1950s and money transfers continue to get cheaper. According to the UN, 214 million people migrated across the world in 2010 – 37 percent more than 20 years ago. The amount of money these immigrants send back home exceeds the world’s total foreign aid by five times. Government experts have a much harder time keeping track of these funds than they do foreign aid packages.

A further cost of this increased mobility is governments’ inability to control their citizens. Looking back to East Germany: if citizens managed to flee, they were locked out, unable to come back and spread Western ideas or vote. Today, in contrast, it’s common practice for expatriates to take part in national elections, like Turkish citizens living in Germany, Mexicans in the United States or Sudanese and Senegalese emigrants. In an age of mobility people have a new way of voicing discontent: they can vote with their feet. If they don’t like the circumstances in one country, company or church, they can easily go elsewhere. That’s exactly what East German citizens did in 1989 when they crossed the border en masse into the West and brought down the socialist government within months.


As mentalities change, everything that can be questioned will be.

In recent decades our notions of what is important have undergone a radical change. Formerly poor countries with an emergent middle class, for example, have to manage the expectations of these wealthier citizens who expect more from life than full bellies and a roof over their heads. As a result, liberal values, such as individual freedom, transparency, the right to property and fairness, have spread far and wide. Take marriage, for example, which was cemented as a traditional conservative institution. For hundreds of years, there was a wide consensus across most cultures that marriage was the highest bond two people could have, a holy vow that could never be forsaken without unspeakable shame.Within a handful of decades this age-old belief has become almost obsolete. Divorce rates are on the rise, and not only in liberal Western societies. Even the conservative Persian Gulf State of Kuwait has a divorce rate of 37 percent. In the United Arab Emirates it’s 26 percent.

The increasing demand for the implementation of liberal values goes hand in hand with a waning trust in the authorities to fulfil these demands. We can see how this happened in the United States, for example, where until the mid-1960s 75 percent of the population trusted their government to do what is right most of the time. In recent decades that number has plummeted to between 20 and 35 percent. This is quite poor for a system in which the citizens elect their own leaders. Even more radical discontent with authorities was exemplified by the uprisings across the Arab World in 2011, when leaders or dynasties whose power had gone unchallenged for decades were suddenly forced to step down, fight their own people or flee.


Political power is increasingly being shared.

The more people are involved in decision-making, the less influence each individual has. The same applies to the political power of nations and political leaders. Governments are losing power on many levels. Nations are increasingly having to share power among themselves, and the triumph of democracy throughout the world has led to higher power sharing within the nations themselves. In 1947, for instance, there were only 67 sovereign states worldwide. Today the UN alone counts 193 members. In the 1970s there were more than twice as many autocracies as democracies. Today that ratio has been reversed four to one.

Additionally, there is a tendency toward more frequent elections, which give more power to the electorate and increase pressure on political leaders to act. With frequent elections, politicians have to consider the effects of their actions or face early retirement.What’s more, due to the increasing fragmentation of political organisation, political leaders are finding their freedom to act has narrowed. Today, power is divided between more players, meaning that individuals have more opportunities than ever before to exert political pressure outside the boundaries of traditional political institutions.

The cultural and organisational barriers that separated political elites from everyone else are crumbling. Today, advances in technology and communication allow almost anyone to join the political arena and even become a major player. For instance, while it took journalists two years to finally bring down President Nixon over the Watergate scandal, today, thanks to the internet, anyone can start a scandal, and every low-level government employee can leak important documents.This added transparency has eroded voters’ trust in politicians while making those politicians acutely aware of the danger of public blunders. This further reduces their freedom of action and leaves them unable to effectively respond to challenges, which consequently makes them even less effective leaders.


Even the meek have substantial power in foreign relations.

Although we all know about the various insurgencies and guerrilla groups around the world, what’s surprising is just how powerful these micropowers have become. These micropowers are actors with relatively meager resources competing with other actors that possess an abundance of resources. The proliferation of weapons and military training to non-state actors has risen dramatically in recent years.Today, nonstate actors like al-Qaeda or Islamic State have relatively easy access to weapons that can shoot down planes, sink ships, or worse. As a result, they can inflict harm that is highly disproportionate to the low cost of these weapons. Combat skills no longer require traditional military training, either. Today, you can learn these skills at a rebel camp in Syria, a madrassa in London or a computer school in Tehran, thus eroding the state’s monopoly on combat skills. As a result of these developments, micropowers are increasingly able to significantly challenge megapowers in asymmetrical armed conflict.

The weaker side of every asymmetrical conflict between 1800 and 1849 won only 11.5 percent of wars. Compare this to the time period between 1950 and 1998, when they won 55 percent. This is partly due to the blurred lines between soldier and civilian. Traditional armies are easily identified and targeted by their gear and uniform. The opposite is true for the militias found in urban and guerrilla warfare, which makes it difficult for traditional armies to hit the “right” targets.

What’s more, micropowers now have new instruments of diplomacy available to them. For example, smaller states can challenge the decisions of broad coalitions through their veto power. The European Union, for instance, in contrast to the United Nations, grants single member states significant veto power. Even a country as tiny as Luxembourg can tie up a decision.Traditional, long-term alliances are also shrinking and being replaced with coalitions of the willing, i.e., short-term alliances formed to quickly reach a particular short-term goal.


Individual and corporate wealth are fluctuating enormously.

We’ve seen how changes in power dynamics have affected civic society. But what about businesses? They, too, have seen some major changes. Traditionally, large companies that sell a great variety and quantity of products could easily outcompete their smaller rivals. Unlike smaller companies, large companies could afford to invest in production technology to gain an edge. Companies with numerous branches could easily compensate for deficits in one area by moving capital to another branch. Moreover, investors were more likely to entrust their capital to larger companies, believing them to be more likely to pay them back.

Customers also used to prefer well-known brands with a reputation to unknown brands of unpredictable quality. For example, in 1947 the United Fruit Company started labeling their bananas with the name “Chiquita,” and created some advertising stories around it to increase sales. Chiquitas quickly became perceived as the “ultimate bananas,” and the brand was so successful that in 1990 the company officially changed its name to Chiquita. However, as the traditional barriers to entry erode, smaller players are becoming more competitive. Increased access to information and cheaper technology have helped small businesses to work under conditions that emulate those of their large-scale counterparts. Crowdfunding, for example, and other special instruments give them the high mobility of capital that used to be the privilege of larger companies.

In addition, consumers are increasingly willing to embrace new products from fresh, young brands with no scars or stretch marks. This could be due to the amazing rate at which today’s companies end up with muddled reputations. A 2010 study found that all companies’ are 82 percent likely to face a crisis that damages their reputation within the next five years, compared to a chance of only 20 percent in 1990.In the world of business, as with politics and war, the old dynamics of power have swung in favour of the smaller players.


Small churches, charities and media organisations challenge the big players in their fields.

The tremendous impact of crumbling power structures can also be found in areas that are less directly connected to political power, like religion and media. For starters, the religious landscape is becoming increasingly fragmented. New Evangelical, Pentecostal and charismatic Protestant churches draw Christians away from traditionally powerful religious institutions, such as the Catholic church.

Individuals are also becoming more influential in the world of philanthropy, upsetting the primacy of established charities. As of 2012, 81 American billionaires had signed the Giving Pledge, promising to donate most of their fortunes to charity. Many of them, including Bill and Melinda Gates, have established their own foundations, thus diversifying the field of existing charities. In addition, in response to the 2010 earthquake in Haiti hundreds of thousands of cellphone users donated millions of dollars by sending a simple text message. As individuals become increasingly capable of sending small amounts of money exactly where they want it to go, large charities lose the power to direct and control philanthropy.

Finally, new information technology allows everyone to be a reporter. The inexorable spread of the internet and camera-equipped smartphones has enabled billions of people to record, edit and publish their own news free from the control of established publications.Consider that in the United States, 15 newspapers disappeared every year from 2006 to 2011. On the whole, the industry has diminished by 43 percent since 2000. Where information was once controlled and disseminated by a few established sources, now anyone with a camera phone can be a reporter.


The decay of power yields certain benefits, but ultimately produces dangerous challenges.

The erosion of power certainly brings with it positive aspects: societies are freer, voters are better able to express discontent, ideas can move more freely and increased market competition benefits consumers worldwide. However, it also comes with some serious risks. For one, the decay of power breeds disorder and frustration. One of the state’s primary responsibilities is to guarantee a minimum level of stability and predictability, and a certain amount of power is necessary to accomplish this.

When power dissipates, even mature democracies can be left unable to react to the fast-paced challenges of the twenty-first century. For example, the absence of a powerful international authority makes it near impossible to reach the agreements necessary to make important global changes, such as reducing greenhouse gas emissions.

When power changes hands quickly, the players become inefficient. The large organisations that our societies rely on, such as political parties, companies, churches and universities, have accumulated a long history of learning through experience, which new players simply don’t have.

What’s more, instability makes engaging in long-term learning and improvement an unattractive proposition. Instead, players prefer short-term goals. Consider, for example, that if a company’s future is uncertain, they’re likely to launch products tomorrow for quick profit instead of launching an improved version in a month.

As a result, the erosion of power reduces the incentive to invest time and effort in crucial issues, because those issues’ long term consequences aren’t immediately apparent. For instance, when there are millions of self-made journalists reporting on every little thing, it’s hard to find the issues that are actually important. Low-effort contributions like pushing a “Like” button, donating $1 with a text message or signing an online petition take away resources from more effective solutions. A doctor can do a lot more for a crisis region by traveling there with Doctors Without Borders than she can by “liking” some posts on Facebook.


Participating in politics, understanding power, and resisting simple propaganda can shield us from harm caused by the end of power.

So how can we embrace the positive aspects of the erosion of power without falling prey to its threats? A good place to start is by simply changing our perspectives on the distribution of power. For example, when we talk about changes in power relations between major players, such as the United States and China, we often ignore the radical changes that contextualise this shift in power. While China is supposedly “on the rise,” the power of nation states in general – and the big players in particular – is on the decline. China’s power is simply declining at a slower rate than that of the United States.

Second, be skeptical of the terrible simplifiers described by historian Jacob Burckhardt, i.e., those who would rather play on our irrationality than make serious arguments. Weakened political institutions, short attention spans and political frustration make it easy for leaders with dangerous ideas to stir up popular support without rational arguments. We must be on a constant lookout for these terrible simplifiers and be vigilant in refusing their influence.

Finally, we must increase political participation by strengthening political parties and leaders. The failure of international political cooperation – e.g., the inability to meaningfully reduce greenhouse gas emissions – is rooted in the weakness of political leaders at home. If we can strengthen our political parties by rebuilding them in a way that fits into our highly networked world, i.e., by making them flatter and less hierarchical, then we can increase their effectiveness and trustworthiness. 

If political parties and leaders are once again perceived as transparent, accountable and indispensable, they can reclaim their ability to inspire and mobilise the masses. Parties strengthened by public trust and participation can give our leaders the tools they need to respond to the global challenges of the twenty-first century.





Capitalism, Socialism, and Democracy is a book on economics, sociology, and history by Joseph Schumpeter. It's one of the most famous, controversial, and important books on social theory, social sciences, and economics. Back in the 1920s, economist Joseph Schumpeter asked himself, 'Could socialism be an alternative? Should capitalism last forever? And is that even possible? In the quest for answers he came to a startling conclusion: by its very nature, capitalism is bound to destroy itself. In this book Schrumpeter gives his definition of democracy, his theory of creative destruction and his emphasis on entrepreneurship, much of his ideas have defined the economic theory of the twentieth century.

Joseph Alois Schumpeter (1883-1950) was an Austrian-trained economist, economic historian, and author. He is regarded as one of the 20th century's greatest intellectuals. Schumpeter is best known for his theories on business cycles and the development of capitalist economies, and for introducing the concept of entrepreneurship. For Schumpeter, the entrepreneur was the cornerstone of capitalism—the source of innovation, which is the vital force driving a capitalist economy.




Key Learnings

Capitalism is constantly evolving. It’s driven by a process of creative destruction, and that means that products, production methods, technologies, and markets restructure themselves incessantly. As capitalism progresses, these transformations increasingly threaten its very foundations, such as entrepreneurship and competition. At the same time, these changes can open up society and culture to socialist ideas. Capitalism will ultimately self-destruct and pave the way for socialism. Such socialism, given certain conditions, is in principle entirely operable – although running a democratic socialist society may present a challenge.


Karl Marx’s economic theories were prophetic – but they’re too stationary to account for modern capitalism.

In the social sciences, no figure looms larger than the German economist and philosopher Karl Marx. With his famous argument for an inevitable revolution, spearheaded by the working class, Marx became the great prophet of socialism. Indeed, for its proponents, Marxism is something like a religion. For better or for worse, they view absolutely everything through its lens. Why is that? Well, it’s in part because Marx’s ideas were indeed prophetic, or at least very much ahead of their time. For example, Marx was one of the first thinkers to suggest that what shapes our societies, actions, and attitudes is the economy. He was also among the first to recognise the cyclical nature of economic processes. He recognised that economic crises were inevitable and occurred at regular intervals. 

Schumpeter, recognised the prophetic qualities of Marx’s work – and he agreed that the great German thinker contributed greatly to the field of economics. But he maintained that there were quite a few problems with Marx’s conception of capitalism.

Marx argued that history is essentially all about a struggle between two – and only two – classes. On the one hand, there’s the working class, or proletariat. Its members sell their labor to the capitalists, or the bourgeoisie. These are the people who own the means of production. According to Marx, the capitalist system encourages business owners to make laborers work longer and longer hours, without necessarily paying them for it. Business owners therefore extract “surplus value” from the work of the proletariat. This is the foundation of profit – and over time, the proletariat loses out; the poor become even poorer. Enterprises, meanwhile, tend to become less and less profitable.

Schumpeter pointed to a few problems with Marx’s theory. 
  • First, it leaves no room for a third class of people essential to capitalism: entrepreneurs. Capitalism is driven by smart and energetic people who don’t necessarily belong to the bourgeoisie, but wish to ascend to it. With their ideas and innovations, entrepreneurs are constantly revolutionising the system from within. 
  • For Schumpeter, another issue is that Marxism is too stationary. It cannot explain the constantly evolving phenomenon that is modern capitalism.
  • Finally, Schumpeter sees no evidence that capitalism fuels oppression and poverty, as Marx held. In fact, capitalism has actually improved the lives of most people living under it.


Capitalism is responsible for great social and intellectual progress.

It would be foolish to diminish the progress that societies have made under capitalism. Indeed, in The Communist Manifesto, Marx himself praised capitalism’s many achievements. He argued that capitalism was a necessary historical stage, unavoidable before the triumph of socialism.

The most obvious form of progress that capitalism enables is, of course, economic. One way to measure this is to look at a country’s total production of all goods and services in a year. Let’s take the US, for instance. From the Industrial Revolution through to the 1940s – Schumpeter’s time – this total kept increasing, at an average of about 2 percent per year. With it, people’s average income also increased. And what’s more, contrary to Marx’s predictions, the income gap between the rich and the poor didn’t really widen – at least not until well into the twentieth century.

Capitalism’s economic progress made life better for many in myriad ways. As disposable incomes grew, for example, people began to spend more on personal goods and services that enriched their lives. And it wasn’t just that people started to earn more; their money actually went farther and farther. A car, for example, cost considerably less in proportional terms in the 1940s than it did in the 1900s. On top of this, products just kept getting better. That’s because companies weren’t just competing with each other on price – they also focused on quality and general standards. Think about something as simple as white stockings, for instance. In the nineteenth century, they were largely the preserve of royalty. By the 1940s, they were ubiquitous – even factory girls could afford them. 

Alongside all this progress, something else happened: capitalism, as such, became less costly. For example, practices like child labor and sixteen-hour workdays that defined the Industrial Revolution are generally gone. All in all, then, big business and even monopolistic practices have largely improved our lives. And capitalism didn’t just accelerate material progress. It also encouraged us to develop a certain economic rationality. The basic cost-profit calculation, which lies at the heart of capitalism, is now applied in such diverse fields as space exploration, medicine, beauty, and even justice. This “rationalization” of society gradually replaced the magic and mysticism of the old days. 

Finally, capitalism encourages hard work, innovation, and invention. This means that we have capitalism to thank for our high standard of living, our rational mindset, and our greatest inventions, such as refrigerators, airplanes, and even radio and television. 


Capitalism feeds on a process of creative destruction.

Capitalism itself is constantly progressing. Since it first developed, it has been expanding, accelerating, and transforming. And this is no accident. Indeed, this constant change is in the very nature of the capitalist system. For one, businesses and entrepreneurs are in constant competition with each other – or at least in constant fear of competition. This encourages them to restructure, invent, and innovate at an accelerating pace. You’re never safe at the top for long. Your business strategy may have worked yesterday, but it could easily fail tomorrow. 

And so every year we see the rise of new markets, new consumer goods, new methods of production. None of this innovation comes from nowhere: the novelty always destroys the old structures and grows right through them. Schumpeter popularised a new term, which he used to describe capitalism’s constant transformation from within. He called it the process of “creative destruction” – and, in his view, many economic theories, including Marxism, failed to take it into account.

For example, many economists seem to think that capitalism functions best in a state of “perfect competition.” This view is, of course, idealised, and it simply assumes that all companies in a market produce exactly the same product and compete only on price. Some economists say that big business practices have derailed the structure of perfect competition. But that view presupposes that such a state can exist in the first place. Schumpeter thought that such analyses were facile. He didn’t believe that the state of perfect competition ever existed. To him, competition was not based only on price – it also took into account product quality and advertising. And, above all, he viewed capitalism as a process. To him, the system was subject to constant innovation and destruction. So, then, you can’t really understand capitalism if you don’t take into account the process of creative destruction. And that means that capitalism has never really been static.


There’s nothing to prevent socialism from working.

For most of history, socialism has been considered the only viable alternative to capitalism. In a socialist society, the means of production are controlled by just one central authority, rather than by many private actors. Can this system work in the real world? Many economists have had their doubts.

In a commercial system like capitalism, the economy is controlled through constant competition. Companies, entrepreneurs, and bankers set prices, decide what to buy and sell, and hire and fire people. This means that, in theory at least, a capitalist market regulates itself. A socialist market is different. Instead of self-regulation, it relies on an external force – such as, for example, a political authority. One of its jobs could be to provide people with vouchers, each representing a citizen’s share of all goods produced in a country’s economy. In theory, this value is easy to set: you simply divide the total of all goods by the overall number of claimants.

Some economists, though, think that there’s a flaw in that plan. Here’s their question: Without price competition, how would you gauge the demand for a certain product? In capitalism, after all, prices have a really important role to play: they regulate supply and demand. But Schumpeter saw no problem with implementing a similar system under socialism. For example, the government could set up a pricing authority for each industry whose decisions would be based on customer demand. And as for consumers themselves, they could even receive different “incomes,” depending on how much they worked. Some of that may sound a lot like capitalism. But there’s a key difference here, and that’s the lack of competition. A socialist economy is not shaped by internal market forces. Instead, the way it works is all down to its central authority.

Logically, then, there’s no reason why socialism cannot work. Some economists acknowledge this, but they claim that there’s a difference between theory and reality. In practice, they say, socialism is simply inoperable. For one, a government could never have sufficient information to run a whole economy smoothly. But here’s Schumpeter’s counterargument: government’s decisions are no harder than those that businesses have to make under capitalism. Whatever the system, running it will always involve guesswork. For Schumpeter, the case is clear: of course socialism can work. But the questions is whether it’s compatible with democracy.


We need to update our definition of democracy to account for the realities of elections.

How well do socialism and democracy go together? Before we explore this, we need to ask ourselves what democracy is.

Is it some sort of ultimate good, as many people believe? Can it be an end, in and of itself, rather than a political method? Imagine a society that makes a democratic decision to reinstate witch hunts. Clearly, that would be appalling. So should we really consider democratic processes inherently good or bad? Often, democracy is simply defined as “rule by the people.” But as soon as we probe this formula, it begins to fall apart. First of all, most democracies don't involve all people – children and convicts, for example, are often barred from voting.

As well, in a democracy, people don't "rule" directly. Instead, they delegate their power to leaders who supposedly represent their interests. But here’s what often happens: as soon as these delegates get into office, they begin putting their own ambitions first.

The classical definition of democracy is a bit more complex. It says that democracy is a method of arriving at political decisions for the common good, by letting people elect their own leaders. But that presupposes that a common good is something that people can agree on rationally. And it also suggests that people can work out among themselves how to put decisions into practice. In our complex societies, that is clearly not the case. Even if we agreed that everyone deserves to be healthy, for example, people would still debate the benefits of vaccination.

In reality, we all have interests and values that are varied, irrational, and impulsive. Some of these values aren’t even our own – instead, they’ve been sold to us by advertisers or politicians. So, clearly, we need a new definition of democracy. How about this definition: Democracy is a way of making political decisions by letting individuals compete for people’s votes, in order to gain the power to implement those decisions. This definition may work better than the classical doctrine. For one thing, it makes room for the crucial element of democratic leadership – the fact that it’s politicians who rule countries, not voters themselves. Second, it makes clear that the role of the people isn’t to be the government, but to choose the government. And last, it leaves room for the fact that no democratic government can represent all people – just a majority of them. 


Socialism may be as compatible with democracy as capitalism – under certain conditions.

Throughout history, many socialists have said that theirs is the only path to “true democracy.” But some believe that it’s OK to use undemocratic methods – such as violence and terror – to create a socialist society.

There’s no direct relationship between socialism and democracy. They are neither mutually exclusive nor necessarily entwined. In Russia, for example, socialism was enforced by very undemocratic methods. But in Belgium, the Netherlands, and even England, socialist parties readily embraced democracy.

So what are the conditions under which a democracy can thrive? And is there anything that precludes socialism from creating them – especially after capitalism has laid the economic groundwork?

  • The first condition for the success of democracy is the availability of high-quality leaders. This means that the political sphere of a country should be accessible and appealing enough to attract the right kind of people – individuals who are smart, conscientious, and capable.
  • The second condition is that political decisions made democratically should stay within an appropriate range. The government should decide some things about public life, but not all of them. In fact, there’s no need to make all decisions democratically. For example, most countries appoint supreme courts outside the democratic process.
  • The third thing necessary for democracy is a well-functioning bureaucracy. It needs to be efficient enough to take care of all the mundane but important work that goes into democratic decision-making. 
  • And finally, a democracy only works smoothly if all people accept the way decisions are made, and are able to tolerate differences in opinion.
Schumpeter believed that democracy emerged as a by-product of capitalism’s rationalist ideology. But the four conditions for it can exist in either system – socialist or capitalist.

No system is perfect, of course. For example, democratic decision-making can be inefficient in large and complex societies. In a socialist country, this may be an even bigger problem. After all, if you can’t make efficient decisions, how can a central body run an efficient economy? So it's possible for Socialism and democracy to coexist.


The key features of capitalism will ultimately lead to its self-destruction.

Let’s turn to the central question: Can capitalism survive?

Schumpeter answers this question with a resounding 'No'. He thinks that the very success of capitalism will be its undoing. It will create conditions for its own destruction and a socialist takeover. 

But how?

As we’ve already seen, capitalism uses the mechanism of creative destruction to push social and technological progress. But progress can only go so far. What happens if one day we find all human needs completely satisfied? What if we lose the motivation to keep pushing?

Under capitalism, progress is becoming increasingly automated and predictable. For example, capitalist progress diminishes the figure of the business owner. Instead, it hands over control to an impersonal structure of managers, executives, and stockholders. In such a world, where running a business becomes an abstraction, why even try? 

As the cost of living increases, and as businesses focus on small niches, not revolutionary innovation, there’s less and less incentive for true entrepreneurial leadership. Instead, there is growing demand simply for administration of already-existing processes. But this is something that socialism does just as well as capitalism.

Capitalist progress also erodes the mechanisms that used to protect the bourgeoisie. For example, it encourages a taste for anti-bourgeois ideas. The rationalist ideology of capitalism creates a critical frame of mind – and, in the end, it inevitably turns against itself. For evidence, just think of the many bourgeois intellectuals who now align themselves with the working class and are growing more and more hostile toward capitalism. 

And there’s another way in which capitalism destroys the very ground that nurtures it. The trend to rationalise everything has contributed to the decline of the traditional family unit. As this trend grows, more and more people will feel inclined to conduct a cost-benefit analysis of having children. As a result, they may well decide to remain child-free. If you don’t have children, you don’t really need long-term investments like property. And that gives you the incentive to earn, and save, less. That's no good for the constant economic growth that capitalism requires.

And so, just as capitalism raises our standard of living, gives us more leisure time, and makes us better educated, it also weakens our motivation. This is self-defeating and can destroy the very structures that underpin the capitalist system. Schumpeter believed that capitalism would, eventually, destroy itself and pave the way for socialism. But maybe that’s nothing to worry about – especially if we can figure out how to consolidate socialism with democratic values.



Warren Buffett’s Ground Rules (2016) is a study of the investment strategy of one most successful investors of all time. By analysing the semi-annual letters Buffett sent to partners in the fund he managed from 1956 to 1970, author Jeremy Miller isolates key strategies that investors can use to play the stock market to their financial advantage. Compiled for the first time and with Buffett’s permission, the letters spotlight his contrarian diversification strategy, his almost religious celebration of compounding interest, his preference for conservative rather than conventional decision making, and his goal and tactics for bettering market results by at least 10% annually.


Miller reveals how these letters offer us a rare look into Buffett’s mind and offer accessible lessons in control and discipline—effective in bull and bear markets alike, and in all types of investing climates—that are the bedrock of his success. The author of this book, Jeremy Miller is a strategy coach and founder of Sticky Branding, a company that works with leadership teams from around the world to create branding and growth strategies for businesses.


Key Learnings

Playing the stock market is not easy. It's not something that will happen overnight, and it won't happen if you don't take it seriously. It requires careful measurement, consistency, and most importantly patience.


Be patient. Careful investment, rather than frenetic speculation, is more likely to create value.

There’s a basic rule Wall Street types don't want us to know. It’s a secret that has helped Warren Buffett amass an $88.9 billion fortune. Investing isn’t rocket science, but there’s a catch. People frequently confuse speculation for investment. But there’s a difference. Speculators obsessively follow unpredictable market fluctuations to buy and sell stocks hoping to get rich quick. Investors, on the other hand, buy businesses based on careful assessment of their inherent value. 

The well-known billionaire, Warren Buffett, is an investor. He attended business school in New York, but he hails from the Midwest, and his methodical, straight-talking approach characterises his letters and overall investment philosophy. Inspired by his mentor Ben Graham, Buffett figured that the prices of most financial assets, like stocks, eventually fell in line with their intrinsic values. When buying a stock, you’re buying a tiny fraction of a business. Over time, a stock’s price changes to reflect how the business is doing. If profits are good, the business’s value grows, and the share price increases. But, if the business loses value – for example, there’s a big scandal or something – the share price falls. Sometimes, the stock price doesn’t accurately reflect the value of a business. Investors who buy shares in undervalued companies, then patiently wait for the market to correct itself, can’t help but make money. 

The key, though, is to focus on what the market should do, not when it should do it. If you trust that the market price will eventually reflect the actual value of a business, you can expect to eventually make a profit. This will help you to avoid selling just because the market dips. And this patience rewards you with compound interest, which is the key driver of value over long-term investments. Compound interest is the process of continuously reinvesting gains so that every new cent begins earning its own returns. Einstein himself called compound interest the eighth wonder of the world, remarking that “people who understand it earn it, and people who don’t understand it pay it.”

Buffett’s favourite story illustrating the power of compound interest involves the French government’s purchase of the Mona Lisa. King Francis I paid the equivalent of $20,000 for the painting in 1540. If he had instead invested the money at a 6 percent compound interest rate, France would have had $1 quadrillion by 1964.


Successful investors all have one thing in common – they compulsively measure.

Warren Buffett has always been a supremely confident investor. Even when he was a relatively inexperienced young fund manager, he saw his main competition as the Dow Jones Industrial Average – the famous New York stock index. His one job was to grow his fund at a faster rate than the market. It wasn’t easy. We all know the stress of checking your bank balance after a big weekend or stepping on the scale when trying to lose weight. For a lot of people, the anxiety of failure might be too much to handle. But to be a successful investor in the mold of Warren Buffett, you’re going to have to get over those anxieties. Careful measurement, clear-eyed analysis, and a steady hand even when you’re down are the only ways to succeed as an investor. 

The difficult truth is that most people aren’t shrewd enough investors to beat the market. It was huge for Buffett to deliver returns greater than 7 percent annually. But the miracle of compound interest means that you only have to do a little better than the market to create the potential for serious financial gains. Knowing what to measure – and then doing it properly – is the only way to know if you’re on the right track. You need to compulsively measure. You need to monitor your investments every day, keep track of how they’re doing relative to past performance, and be patient when your chips are down. It takes energy, commitment, and honesty. In short, you’ve got to know when to hold ‘em and when to fold ‘em.

You’re not just measuring your results against past performance, though. Each year’s results should also be measured against the market. This means if the market is down, and you’re slightly less down, this still counts as a win. When Buffett was a young investor, doing better than the market was a lot harder than it is now. It’s easier today thanks to index funds. Pioneered in 1975, index funds combine slices of many different companies on a given stock exchange. This means their returns broadly match the gains and losses of the overall market. Buffett advises those who don’t have the time or energy to devote to their investments to buy the index. Otherwise, compulsive measuring is the only way to determine how you’re doing.


Young investors should focus on buying shares in undervalued companies, which Buffett calls Generals.

Once you’ve got the measuring part down, you can start developing your personal investing style. Each investor is a unique snowflake. Your investing style should reflect your personality, goals, funds, and especially, your competence set. Example, if you’re an alpaca rancher, you shouldn’t try to get rich off computer chips. If you’re a new investor with less money, you actually have an advantage over investors managing huge funds. This is because you can invest in small companies not listed on the stock exchange, making big percentage gains. Once you’re managing more money, you need much bigger deals to move the needle on your overall results. 

When Warren Buffett started his fund in 1956, he had just over $100,000 to play with. By 1960, his fund had ballooned to $1,900,000. He attributed this incredible rate of return to his focus on small, relatively unimpressive investments. Along with his patient temperament, Buffett’s best asset as an investor is his skill at determining the value of a company. In the early years, he favoured buying Generals, which he defined as “fair businesses at wonderful prices.” This means that the companies were of middling quality, but, for some reason, priced under market value. Once again, Buffett’s patience paid off. Most of the Generals he bought stayed in his portfolio for years.

Buffett also liked buying shares in companies that were worth more dead, that is in liquidation, than they were alive. That way, if the business started failing, he could liquidate it and not lose money. This type of business is called a net-net. Ultra-cheap stocks and net-nets are not glamorous. In fact, Buffett referred to them as his “cigar butts.” But 12 years into his career as an investor, Buffett looked back and determined that this category of investment had done the best in terms of average returns. 

As his success grew, Buffett’s definition of value changed. He began looking beyond cheap stock prices, toward the quality of a business and whether its earnings could be sustainable. As his experience as an investor grew, he transitioned from buying fair businesses at wonderful prices, to buying wonderful businesses at fair prices. Once you have more experience as an investor, you might want to get involved in the management of one of your investments. 


Assuming more risk in markets you know well can yield even more reward potential.

As a kid, Warren Buffett would buy a 25-cent six-pack of Coca Cola from his grandfather’s store. He would then sell individual bottles on to his pals for a nickel each. There was certainly a risk involved: if the neighbourhood kids weren’t thirsty that day, he’d have extra bottles on his hands that he couldn’t move. But if he had a good day, he would earn 20 percent on every six-pack. Buffett didn’t know it, but with the 25-cent Coca Cola deal, he’d done his first arbitrage (is the simultaneous purchase and sale of the same asset in different markets in order to profit from tiny differences in the asset's listed price). He was capitalising on the price difference for one product – his Coca Cola – in two different markets – the store, and the neighbourhood kids.

Arbitrage is a way to bet on what you think a company will be worth in the near future. Returns on arbitrage bets can be very attractive. But to get it right, you have to know the businesses, and their respective markets, intimately. When that product is a piece of a company, this is called merger arbitrage. “Merger arbs” were one of Buffett’s specialties during his years as an early investor. He would buy stock in a company at one price, betting that it would be worth more once it merged with another company. Returns on merger arbs may be enticing, but the risk can be great. That’s why arbitrage is usually tricky for the average investor. Unless the deal is in your specialised field and you’ve studied it inside and out, it’s probably best to leave it alone.

But experienced investors who don’t want to mess with merger arbs can also get their control fix with what Buffett aptly referred to as Controls. That’s when you buy a large enough piece of a company listed on the public stock exchange that you have the right to influence how it’s run. As you might imagine, this type of deal can lead to stressful confrontations between company owners and new board members who may demand drastic operational changes. Buffett was vilified for these deals early in his career; he thought he was saving a company by removing the inefficiencies. But as he matured, Buffett stopped getting involved in Controls, which could turn out to be messy and uncomfortable with layoffs or firings. His core investment principles have never changed, though. 


Your methods may change with the market, but your core principles should stay the same.

Following the crowd can be an effective strategy. If everyone’s running away from something you can’t see, it’s probably a good idea to join them. But when it comes to investing, it can be problematic. By definition, the majority can’t do better than the average. So to be a successful investor, you have to train yourself to go against the crowd. Warren Buffett’s investment style reveals that there’s only one instance in which you should put your money on the line: when you totally understand the whole picture and the best course of action. In all other cases, you should pass. Even if everyone else is making money.

Buffett has always been a cautious investor. When he began his career as a professional investor in 1956, the stock market was generally considered to be too high. But instead of correcting itself, stocks continued to creep up. Buffett not only stayed true to his strategy, but he also doubled down on his ultra-conservative investing approach. He knew a correction was coming, he just didn’t know when.  Meanwhile, other hotshot investors were making big money. In New York, Jerry Tsai had invented a new kind of investment, which took advantage of the general public’s new appetite for speculation. Tsai’s approach was the opposite of Buffett’s. He’d jump in and out of stocks at the drop of a hat. Tsai’s approach worked, for a while. He earned fabulous sums for his firm, even as his fund lost and gained wildly with market swings. But Buffett remained convinced that it wouldn’t last.

When the market reached a new high in 1966, Buffett finally acted. He announced that he wouldn’t be accepting new partners and halved his performance goal. Miraculously, his fund continued to do very well: 1968 was its best year with a 58.8 percent return. But Buffett knew when to fold his hand. He was done risking his fortune on a market that was bound to crash. Tsai’s end was imminent, and he ultimately saw it coming too. He sold his fund at just the right moment in 1968. In the early 1970s, the Dow experienced its most spectacular crash since the Great Depression. Buffett’s net worth was unaffected, because he had taken all his money off the market. Tsai barely dodged defeat, but his investors lost 90 percent of their portfolio assets. Buffett’s courage of conviction is a worthy goal for all investors, if not people more generally.


Image source: CSQ 



This book is an easy-to-digest introduction to Blockchain, written by Stephen Williams. It talks about what Blockchain is, how it works and what the implications are for the future of our world. It makes clear why it's so important for our future, showing how this technology can help with everything from voting rights to economic inequality to corporate transparency to climate change. Williams interprets the complexity into digestible, straightforward descriptions for readers who don't know tech, and explains all of blockchain's most important aspects: why this so-called digital ledger is unhackable and unchangeable; how its distributed nature may transfer power from central entities like banks, government, and corporations to ordinary citizens around the world; and what its widespread use will mean for society as a whole.

Stephen Williams is a journalist and author. He has written business and health columns for The New York Times and Newsweek. He heads a sustainable fashion startup called Wm. Williams, which uses blockchain technology to manage distributed manufacturing. Williams has an MBA in Sustainability from Bard College and an MA in Communications from Stanford University.


Key Learnings

Blockchain is so much more than Bitcoin or any other cryptocurrency. Computer scientists are pushing this unhackable, distributed digital ledger technology to do everything from revolutionising business to tackling climate change. While the actual uses of the technology will depend on the groups and individuals who use it, it intrinsically encourages an unprecedented degree of transparency, as well as challenging the inequalities inherent in traditional hierarchical systems.

These days, everyone from finance gurus to conceptual artists is talking about blockchain. Initially devised as a platform for Bitcoin, blockchain went unnoticed for years until technologists realised that its potential far exceeds the realm of cryptocurrencies. Now, the hype around this new technology has amounted to some philosophers calling it the next enlightenment. What exactly is blockchain? Simply put, blockchain is a digital ledger software that is unhackable and unchangeable. Its distributed technology offers an unprecedented amount of transparency and accountability that poses a threat to traditional intermediary authorities such as banks, businesses, and even governments.


The blockchain is a new, revolutionary kind of ledger.

Blockchain is a digital ledger, or book in which accounts or monetary transactions are recorded. Ledgers are the foundations of civilisation. Without them, we wouldn’t have been able to build cities or efficient markets. They are the means by which we do everything from keeping track of our finances and demonstrating ownership of a house to verifying our status as citizens. 

For hundreds of years, the world economy has been based on a ledger system called double-entry bookkeeping. These ledgers have two columns for information: debit and credit. As long as the credit and the debit for a transaction match in both the buyer’s and the seller’s books, that transaction is error-free. In order to establish trust in the system and ensure that a transaction is true and accurate, double-entry accounting requires middlemen. Brokers, bankers or other intermediaries get a fee to certify the legitimacy of transactions.

However, history has shown us that this system isn’t always reliable. In the aftermath of the 2008 financial crisis, it was revealed that many large corporations, like Enron and Lehman Brothers, had effectively been keeping extra sets of books, which they used to conceal the true nature of their financial operations. For years, these companies were able to manipulate the system to launder vast amounts of money. Ever since the dawn of the Internet, many have hoped that it would bring an end to these kinds of transgressions. But until now, the Internet’s susceptibility to hackers has posed security issues when it comes to large financial transactions.

However, the blockchain might change all that. The blockchain was originally created as a platform for the cryptocurrency Bitcoin. By tracking every purchase or sale, the blockchain ensures that a digital coin can never be spent twice. Transactions are all online for everyone to see; all you need to join is an Internet connection.

In addition to credit and debit, the blockchain has a third column in its digital ledger: verification. This eliminates the need for intermediaries. Instead, trust is built into the very system. Blockchain technology is already being developed in ways which might revolutionise everything from the way that artists can certify the provenance on their work to the way we value currencies such as the U.S. dollar. It could even eliminate the possibility of tampering or lost ballots when it comes to voting. But how can we be sure that this technology is so trustworthy? That’s because unlike other ledgers, the blockchain is unhackable and unalterable.


Blockchain technology is unhackable and unchangeable.

Blockchain looks like: a network of phones, computers and other devices, forming a supercomputer that runs the blockchain.The blockchain system is secured through the construction of linked blocks that represent information. Say you want to record the number of rubber trees in the Amazon rainforest. The data would be entered into a digital collection called a “block.” After a block reaches its capacity it’s ready to be added to the chain of linked blocks, or the “blockchain.” However, before it can be added, the new block must be approved by every node – meaning every device linked to the chain – in a process known as the protocol. That's why blockchain is called a distributed technology: everyone on the chain has equal decision-making power.

There are various protocol methods, but the most common one is called “proof of work.” With proof of work, every new block comes with a complex mathematical problem, which must be solved before the block can be added to the chain. This is done by special nodes called miners that compete to solve the problem in order to win Bitcoins. Thanks to proof of work, adding blocks to the chain requires substantial computational resources, which helps prevent malicious actors from manipulating the blockchain.

Part of solving the problem generates a cryptographic hash, or a code made up of a long string of numbers and letters. In addition to its own hash, each block contains a timestamp as well as the hash from the previous block, aligning it with the rest of the blockchain. Why it’s possible to mine Bitcoins, but not to hack into the blockchain and change a block’s information? To say that someone else’s Bitcoin actually belongs to you, for instance, changing a single block’s information would render the entire chain’s hashes out of sync and automatically signal a break-in. Not only would hackers have to change the hashes for every block in the chain, but they would also have to do this for every single node, since the blockchain is copied onto every node’s device. The computing power required to achieve such a task increases exponentially with every node added to the chain. In other words, the more nodes there are on a chain, the stronger the chain becomes.



In theory and practice, distributed applications built on the blockchain have radical potential.

Unless you’re a computer programmer, you’ll probably never come across a blockchain code. What you will see and interact with is what blockchain enables - namely, distributed applications, or “dapps.” Dapps is a decentralised application that runs on a decentralised computing system. They are like normal apps and offer similar functions but the key difference is they run on a peer-to-peer network i.e. the Blockchain. The potential for these dapps is endless. 

One example is smart contracts. A smart contract is essentially an automated contract on a blockchain with terms agreed upon by both parties. Once the terms of the contract are carried out, an algorithm delivers the payment in cryptocurrency and documents the transaction on the blockchain. Smart contracts thus automate bureaucracy, eliminating the need for centralised authorities to verify the transaction. Many dapps already use smart contracts. On Ethereum, a public blockchain that supports smart contracts and uses a cryptocurrency called Ether, you can find dapps that use smart contracts to do things like record the origin of a work of art or time-stamp an idea you have for a film, creating an official document of your intellectual property.

Other possibilities for smart contracts require only that we use our imagination. Currently, Uber uses a centralised app to connect drivers with customers and ensure payment. A blockchain dapp equivalent could use smart contracts to enable taxis to connect to customers directly, and bypass any centralised intermediary. You can take that one step further. Say that at some point in the near future you buy a self-driving car. Smart contracts could allow you to set the car up to run itself as a taxi 24/7. If the car is low on gas, for instance, a smart contract between you and the car would be activated, and the car would drive itself to get its tank filled. Similarly, if the car has a flat tire, another smart contract would kick in and the car would drive itself to get the tire fixed. Eventually, your car will have earned enough money to purchase another self-driving car. The second car may then earn enough money to purchase another car all by itself. This process would continue until there was an entire fleet of autonomous taxis functioning without owners. Such a business model is called a DAO, or distributed autonomous organisation. We can’t be sure right now whether such a model could be successfully realised. But the mere idea of it goes to show how blockchain offers radical potential.


Distributed technology signals a paradigm shift away from centralised hierarchies.

The hype around blockchain might sound familiar to anyone who remembers the utopian ideas surrounding the Internet in the 1990s. Although the Internet did make people more connected, it failed to bring about the egalitarian society that many had hoped for, as corporations like Facebook were quick to monopolise the network for their own growth. However, with blockchain, things may be different.That’s because distributed systems intrinsically shift accessibility and power to the masses. 

Think of investing. For most of history, it has been exclusive to the elite. Banking fees, credit histories, and limited access have undermined the ability of the lower classes to participate in this lucrative activity. But anyone can join a blockchain like Bitcoin or Ethereum, meaning anyone can invest with them. Some even envision that cryptocurrencies will overtake the central banking system. That’s something that many people have dismissed, but since the US dollar no longer stands for a tangible asset such as gold, cryptocurrencies are really no less valid than dollars, or in fact any other currency. As more people start valuing cryptocurrencies, the vision of a future free of big banks might not be such a stretch after all.

For the time being, the United Nations, the World Economic Forum, and the Rockefeller Foundation are all already developing ways for blockchain technology to empower disadvantaged farmers, disenfranchised voters, and underprivileged people without banking access. Blockchain technology itself, of course, has no moral agenda. But the distributed system that it represents encourages a rethinking of hierarchies, creating a more equitable version of capitalism. In the same way that smart contracts could eliminate the need for Uber, blockchain dapps have the potential to enable other kinds of trading, like that around rented accommodation. Instead of paying fees to Airbnb as a central arbitrator, as the owner of a property you could set up a smart contract with a renter that would run the venture for you. Depending on your agreement, if guests overstayed their visit, the smart contract would either lock them out of the house or automatically charge them for a longer stay. This peer-to-peer system would mean a true sharing economy.


Blockchains champion an unprecedented degree of transparency while enabling privacy.

In the future, you might be able to check your turkey’s journey from farm to table on your phone. Cargill, the company that owns the brand The Honeysuckle White, has already tested a blockchain dapp that lets people track exactly where their turkeys on Thanksgiving came from. This is not the only way in which blockchain is paving a way for a future of unprecedented transparency. Fura, Everledger and DeBeers are three companies devising blockchains to avert blood-diamond trafficking. With the technology, once the certification for a conflict-free diamond is entered onto the blockchain, it follows that diamond all the way up the supply chain, as its location is updated at each step. Not only would this mean that buyers could recognise and refuse blood diamonds at the point of purchase, it would also enable diamond miners to track where their stones end up, and even give them a chance to communicate with people at the top of the supply chain. In that system, the diamond miner would be just as important as the buyer at the top of the supply chain, and would have a real voice to influence how the system is run.

At the same time as making transparency possible, blockchains also enable unparalleled privacy.Intimate is a dapp that enables pornography vendors and sex workers to offer their services using cryptocurrency and anonymous addresses. The dapp enables users to keep their identities private while making their reputation recognisable across the platform, making conditions for all participants safer. Up until this point, we’ve been discussing public blockchains. But some blockchains are private, invitation-only platforms. This kind of maximum privacy is essential for businesses, such as health care operators, that deal with confidential information, but it’s also being embraced by businesses in general. Computer behemoth IBM has already engaged private blockchains for major business operations using the Hyperledger Fabric framework, and other corporations are sure to follow. Still, the fact that corporations might opt out of transparency won’t affect blockchain’s utopian promise; the public chains will remain under the control of the public.


Environmental friendly solutions for blockchain are underway.

As of yet, blockchain networks require an extortionate amount of energy. This is especially true for the Bitcoin proof-of-work protocol. When Bitcoin was first released, you could mine coins from your desktop computer. Today, there is so much competition on the Bitcoin blockchain that it requires an assembly of computers drawing large amounts of energy. The business is so lucrative that professional bitcoin mining farms have been set up around the world. All this means that on some days the bitcoin network requires as much energy as the entire country of Denmark.

That being said, for most blockchain applications, proof of work isn’t the most efficient way of authenticating new blocks for the blockchain. One example is the Ethereum blockchain. It has been experimenting with a “proof of stake” protocol, which does without mining entirely. Rather, nodes called validators place a stake or bet that they will be given the next block to validate. If they do catch the next block, they gain a financial reward. The hope is that such alternatives will reduce blockchain energy consumption levels as well as make transactions faster.

Looking at the problem from another angle, there are many ways in which blockchain technology could become a tool in the quest for climate change solutions. One environmental application for blockchain is in the carbon-trading market. By turning carbon emissions into a tradable good, carbon-trading markets provide a financial incentive to offset air pollution. Beijing-based Energy Blockchain Lab, working with IBM, has already used the open-source Hyperledger blockchain to develop a new, more efficient platform for carbon asset trading in China.

Another green use of blockchains could be the use of a reliable and transparent ledger to track greenhouse gas emissions. This would be essential to monitoring the progress made by nations pledged to the carbon reduction targets of the 2016 Paris Agreement. Blockchain could also be used to track endangered species, make the ultimate destination of donated funds more transparent, and certify land ownership to counter deforestation. The possibilities are endless. It’s up to us to embrace this new technology and continue to think of creative ways in which blockchain could make the world a better place.



 


This book is about the nature and future of money—whose evolution may play a deciding role in the future success and prosperity of our species. Money is one of mankind’s earliest inventions. Its history appears to be as old as that of writing, and the two are closely connected—some of the oldest written artifacts in existence are 5,000-year-old clay tablets from Mesopotamia that were used to record grain deposits. This book begins with the debt tablets of Mesopotamia and follows with the development of coin money in ancient Greece and Rome, gold-backed currencies in medieval Europe, and monetary economics in Victorian England. The book ends in the digital era, with the cryptocurrencies and service providers that are making the most of money's virtual side and that suggest a tectonic shift in what we call money. By building this time line, The Evolution of Money helps us anticipate money's next, transformative role.

The Evolution of Money is written by David Orrell and Roman Chlupatý. David Orrell is a writer and an applied mathematician. He is the author of The Future of Everything: The Science of Prediction (2007), Economyths: How the Science of Complex Systems Is Transforming Economic Thought (2010), and Truth or Beauty: Science and the Quest for Order (2012). Roman Chlupatý is a journalist, lecturer, and consultant specialising in the global economy and politics. He is the coauthor, with David Orrell, of The Twilight of Homo Economicus (2012).



Key Learnings

It’s trite but true: money makes the world go round. Throughout history, money has taken on a number of different forms, but some things never change – those with money wield immense power, and the strength of a civilisation’s economy may spell its success or demise.


Contrary to popular belief, money wasn’t invented to replace the barter system.

One old and popular theory holds that money was “invented” as societies outgrew the barter system. In fact, this theory dates back to Aristotle. Though it was essentially pure speculation, the theory gained traction with many great thinkers who followed, including the influential eighteenth-century economist, Adam Smith. They all believed that money was an outgrowth of commercial trading– where, for example, some valuable bit of property such as cattle could be traded for a certain number of slaves. But this isn’t very efficient; things like cattle aren’t very easy to transport, whereas coins are. Plus, the precious metals in coins were seen as being valuable just about anywhere, while other goods may not be in demand in some areas and are therefore less valuable.

This idea of money evolving from bartering may sound plausible, but it’s actually been debunked. In 1913, Alfred Mitchell-Innes, a British economist, published his own findings, noting that there was no evidence in commercial history to suggest that a barter-only system ever existed. And Mitchell-Innes has yet to be proven wrong – in fact, historians have only gone on to find more evidence of ancient civilisations using old forms of money in addition to bartering.

Around 5,000 years ago, in Sumer, one of Mesopotamia’s earliest urban civilisations, commercial transactions were recorded on clay tablets, which show us that salt, beads and bars of precious metals were all used as early versions of money. The truth is, we don’t know exactly how or when money came to be used, but we do know that the first coins began appearing in the seventh century BC, in the Mediterranean kingdom of Lydia. And by the sixth century BC, Greek city-states were minting their own coins as a demonstration of power and independence.


Determining the value of money reveals its complex nature.

Most people know that Sir Isaac Newton is one of world history’s most influential physicists, but not many people know he also had a huge impact on our currency. Newton is responsible for developing the relationship between money and its weight. This happened in 1649 after Newton suffered a nervous breakdown and took a job as warden of London’s Royal Mint. It was here that he put England on the gold standard, a system that uses a fixed rate between the currency’s weight, such as England’s silver coins, and the value of gold. This is how we got the name for a British “pound” – one of these silver coins used to be worth one pound of gold.

But when it comes to money, it’s important to consider both its tangible and intangible properties.Money is, of course, a real and tangible object, like the coins and bills in your pocket. But money can also represent intangible things, such as the number denoting its value. Some people consider the dual nature of money – what it physically represents versus what it theoretically represents – to be similar to a quantum object, like a photon that has the characteristics of both a particle and a light wave. And like some quantum objects, money can change from one moment to the next. A one-dollar bill’s worth is determined by a trusted authority, such as the Federal Reserve. But once we begin using it to buy goods or services, that value can change due to market rates. So today a dollar might get you a bottle of water, but tomorrow conditions could change, and you might be able to sell that same bottle of water for two dollars. This complex nature has been confounding and enchanting economists for centuries.


Banking and international trade flourished after the invention of debt.

No one enjoys being in debt, but debt itself is a necessary part of a functioning economy. Debt can’t exist without negative numbers. And the first person to demonstrate the use of negative numbers was Brahmagupta, an Indian mathematician who explained their purpose in his seventh-century book, The Opening of the Universe. 

From this point on, businesses could use bookkeeping and the double-entry system, which notates two kinds of transactions, negative debits and positive credits. This system made it a whole lot easier to find out when a transaction error may have occurred and also to evaluate how profitable a business was. Once transactions were recorded in a ledger, ideas of money lending began to emerge, introducing intangible concepts, such as interest.

In seventh-century Mesopotamia, promissory notes (unconditional promise by an issuers to pay an agreed sum of money at a fixed or determinable future time to a specified person) known as sakk were introduced. Around the same time, Islam officially forbade usury, the practice of lending money at high interest rates, but it did allow for fees to be accepted in exchange for loans.

Loans proved to be useful in the Middle Ages, as European towns used them to build churches, which was seen as justifiable since it was in service of God. With economies becoming more complex in the Middle Ages, an international banking system began to emerge. It began with tradesmen forming associations that led to companies, prompting moneylenders to require a more formal system of finance. Port cities like Venice and Florence began trading with Asia, which led to their becoming major financial centers. Moneychangers then formed their own guild called Arte del Cambio at the turn of the thirteenth century, making them the earliest version of modern bankers.

Eventually, international traders realised that heavy coins weren’t ideal, which is how bills became popular. At first they were simply letters, instructing a banker or a foreign agent to make certain payments on the writer’s behalf. This dramatically boosted the efficiency of international trade. Now a merchant in Venice could purchase goods from a French supplier using a bill valued at an agreed exchange rate.


The gold and silver riches of the New World significantly changed the world economy.

The discovery of the Americas was, a big deal for folks in the Old World, and part of that was due to the economic impact it had. After Hernán Cortés conquered Mexico in 1521, Spain soon learned about the financial chaos that too much of a good thing can suddenly cause.

When Cortés landed in Mexico, he found that the Aztecs were rich in gold and silver, which they used for jewelry and decoration. For money, they used other things, such as cacao beans. And even though the Aztec emperor, Moctezuma II, offered the Spaniards gifts of silver and gold, they instead chose to conquer and take as much of the Aztec riches as they could. As a result, Spain was flooded with more precious metals than they could have imagined. Between 1500 and 1800, around 150,000 tons of silver and 2,800 tons of gold was produced. This influx led to a new problem: inflation, as the value of the precious metals declined.

Prices now had to be adjusted, and as Spanish goods became more expensive, massive debt caused Spain to default on its loans a whopping 14 times between 1500 and 1700. However, this surplus of gold and silver allowed more European nations to mint coins. Even the lower classes now had access to them.

The newfound riches also led to the development of mercantilist nations, such as Great Britain, which extended its military reach to secure as much of these precious metals as possible. Such nations operated under the mercantilist theory, which assumes that there’s a fixed amount of resources in the world, and a nation’s wealth depended on how much precious metal it possessed. So, for one to gain, another must lose.

With very few gold and silver mines, Great Britain became eagerly expansive by granting a royal charter to the East India Trading Company at the beginning of the seventeenth century. This charter allowed the company to mint its own coins and spread England’s power to India, where the silver rupee became the Indian standard.


The ability to print money led to certain problems, but a stable economy eventually emerged.

Paper money has come a long way. It’s now a complex mix of numbers, watermarks and even holograms. The history of banknotes goes back to the early eighteenth century when France was facing some tough economic times. To help straighten things out, economist John Law convinced France to let him start his own bank and to use banknotes as currency. This led to the nationalised Bank Royale in 1718 and a similar bank in the settlement of New France, in what is now Mississippi.

Banknotes were attractive since they could be produced cheaply and in huge amounts without using expensive metals. But, once again, people soon discovered the dangers of having too much currency. Coins were in short supply in the New World, so people relied on old-fashioned commodity trading and foreign coins. But this wasn’t ideal for the ongoing military campaigns in the area, and colonial governments were forced to issue bills, which again led to inflation.

To fix this problem, and ensure that the supply of physical money didn’t exceed the economy’s needs, Pennsylvania came up with a brilliant solution in 1723. Supported by Benjamin Franklin, the state tied its supply of bills to measurable assets, like land and future taxes, meaning that more bills were only issued in relation to growth in these assets. And, sure enough, the economy stabilised and grew.

But a stable system needs a stable relationship between banks, which is a concern that Abraham Lincoln had to deal with. He wasn’t happy with the power struggle that was going on between the private and the federal banks, both of which could issue money. Eventually, the Federal Reserve in the United States ended up providing reliable supervision and regulation of private banks, which has enabled a relatively stable and robust money system, even when the economy has faltered. It’s worth noting that when the economic crisis of 2007 unfolded, it was mostly the private banks that were abusing their power, not the federal ones.


Economic theory has changed over the last few centuries, and it’s come to include psychological aspects.

If you’ve taken a class in economics, one of the first names you’ll have encountered is that of the eighteenth-century philosopher, Adam Smith. In his desire to create a universal theory of finance, he gave birth to the science of economics.

Smith laid a very solid economic foundation, but our understanding of the relationship between money and its value has certainly evolved since then. Smith typically determined the value of something by considering the labor required to obtain it. So, for instance, the value of gold should reflect the amount of work it takes to unearth it. But this relationship isn’t always clear-cut. For instance, what’s the value of the labor when a company uses unpaid slaves to do the work? This is why, two centuries later, economist Irving Fisher developed the quantity theory of money. This became the prevailing philosophy for the twentieth century. Fisher, arguing that an active economy is the healthiest, felt that monetary value isn’t as important to an economy as the momentum or flow of money. So an ideal economy is one where people are constantly investing and buying, not hiding their money under mattresses or in piggy banks.

Another important factor that is now being reexamined is the psychology of consumerism. Most economists up until the latter half of the twentieth century assumed that our economic decisions were rational. More recently, economists like Daniel Kahneman and Amos Tversky have shown that that’s not the case, and we are in fact profoundly irrational when it comes to money. They created a new field called behavioural economics to help explain why we make biased, irrational and emotionally charged decisions about how we spend and save money. For example, behavioural economics illustrated that we place a higher value on money that we can have now rather than in the future.


Economists and politicians have discussed and tried various methods to deal with monetary crises.

A number of economists believe that providing people with extra spending money is a very realistic way of helping economies bounce back from recessions, like the one that followed the 2007 crisis.In December of 2008, Australia did just that, giving every taxpayer $900 to encourage spending. And unlike many other countries, Australia did not experience a recession after the crash.

Another strategy is called quantitative easing (QE), which involves a central bank providing extra money and boosting reserves by buying assets from private banks. While some think this could stimulate the economy by making loans more readily available, critics think this is too close to printing money and could lead to inflation. Yet a QE plan has recently been put in place in Iceland after the nation experienced a banking collapse, and it has since proved successful.

A third option for resolving an economic crisis is to change the currency altogether. Ever since the gold standard ended in 1971, the International Monetary Fund has reported around ten systemic financial crises every year. Economists think that one solution to this recurring problem would be to simplify economies by using a universal currency. And solving a problem by changing a nation’s currency does have a history: In 1922, after Russia faced a crisis with the ruble, it reintroduced gold chervonets, a move that did help stabilise the monetary system.

However, if currency is in short supply, introducing negative interest rates can help stimulate spending. For instance, during the Great Depression, stamp scrips were introduced. These were notes that would lose their value unless every week, you bought a one-cent stamp and stuck it onto the scrip. This incentivised people to spend them quickly.


Bitcoin has changed the present status of monetary systems – and the future has many challenges.

Things have been changing fast in the new millennium, and it’s not over yet. So far, Bitcoin is the closest we’ve come to a truly universal currency, and it’s also a threat to the traditional banking system.Bitcoin was created in 2008 as an electronic currency unconnected to any banking system. It can also be seen as a response to rising distrust of the global financial system after the 2007 banking crisis.

Unlike traditional money, new Bitcoins aren’t issued by any central bank based on a government order; they’re created as a kind of reward whenever someone with a powerful computer, or a network of powerful computers, solves a difficult math equation. It’s part of a process called mining, and as more Bitcoins get put into circulation, the more difficult the equations become. 

At first, Bitcoins were seen as being part of a game, but once people began buying real things with them, they quickly became legitimate. One of those first purchases with the new currency was for two pizzas that were bought by a computer programmer in Florida for 10,000 Bitcoins. In 2016, that amount of Bitcoins was worth millions of dollars.This kind of innovation may actually be good for the economy since it is currently facing some big problems.

Right now we’re in a largely deregulated capitalist system that aims for unlimited growth by exploiting more and more of nature’s very limited resources. Every level of the environment is being damaged; we release massive amounts of carbon dioxide into the atmosphere, we exploit the land in search of metals and minerals and we overfish the already polluted seas. Meanwhile, income inequality is at an all-time high. An average CEO in the United States earns 354 times more than an unskilled worker. It’s no wonder that we’re facing immense tensions due to social conflict. While it’s difficult to predict how all this will ultimately resolve itself, it’s not unreasonable to think that an economic revolution might play a role.



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