Sunday, February 6, 2011

Douglas Adams on Money

Douglas Adams was brilliant.

I have been rereading his 1998 talk "Is There an Artificial God?", published in The Salmon of Doubt. (See also my earlier posts on the book and the talk.)

Here's how the talk came about. Douglas Adams was invited to be a speaker at a conference titled: Digital Biota 2 - The Second Annual Conference on Cyberbiology at Magdalene College, University of Cambridge, England. He declined to give a speech, feeling that he was an amateur among luminaries. But he did attend the conference and he agreed to be put on the agenda for a "debate." When it came time for his "debate," he stood up with no prepared notes and talked extemporaneously for over an hour, basically proposing a debate over the question: "Is There an Artificial God?"

It was an amazing performance. Fortunately someone made an audio recording, so that his talk was preserved and later transcribed. At the first link in this post you can find a link to the audio recording where you can hear both Adams himself and the audience reaction.

This captivating talk wove together concepts from science, religion, economics, agriculture and feng shui, all wrapped up in a story about the Four Ages of Sand. He brought all of these disparate themes together into one simple principle:
Anything that happens happens.

You need to read the talk to understand what he meant by that, but he believed that this principle "is arguably therefore the prime cause of everything in the universe. Big claim, but I feel I'm talking to a sympathetic audience." His talk was a tour de force, all the more so because it was off the cuff.

In this post I want to focus on what Douglas Adams said about money:
Money has no meaning outside ourselves; it is something we have created that has a powerful shaping effect on our world, because it's something we all subscribe to.

In his view, the concept of religion is the same. Now you can see how he came to include the topic of economics in a talk titled "Is There an Artificial God?"

Adams does not argue that we should get rid of either religion or money. On the contrary, he acknowledges how incredibly useful they both are. The example he uses to support the usefulness of religion involves agriculture, which is how that topic got into his talk.

That's about all that Adams says about money, but I think he could have said something additional that is interesting.

Recall his Four Ages of Sand; that is, sand to make glass lenses, silicon chips and fiber optic cable:

1. Telescopes - We discover the outer universe.
2. Microscopes - We discover the inner universe.
3. Computers - We discover computation.
4. The Internet - We discover new ways of communication.

All of Adams' major points revolve around the first three ages, especially the Third Age where we learn that complexity can arise from simple processes repeated over and over. He actually forgot to talk about the Fourth Age until someone asked a question about it. In his response to that question he talked about four modes of communication:

1. One-to-one
2. One-to-many
3. Many-to-one
4. Many-to-many

One-to-one communication needs no explanation. One-to-many communication is mass media. I'll say more about many-to-one communication below. Adams' point was that many-to-many communication is new in the world, made possible by the Internet, the Fourth Age. We don't know what changes this will bring to our world, but they are likely to be profound, just as the introduction of one-to-many communication brought profound changes. Think about the effect on history of the printing press, radio, and television.

Adams gave only one example of many-to-one communication:
Then there's many-to-one; we have that, but not very well yet, and there's not much of it about. Essentially, our democratic systems are a model of that, and though they're not very good, they will improve dramatically.

He did not elaborate on how he thought our democratic systems would improve dramatically, but the point I want to make is about something else. I think he overlooked something. I think he missed another important example of many-to-one communication: markets.

Think about the law of supply and demand. Prices adjust so that the amount supplied (at that price) equals the amount demanded (at that price). The price mechanism is what allows the efficient allocation of scarce resources. Prices serve to communicate information between buyers and sellers.

I suppose we could think of markets as many-to-many communication, since there are usually many buyers and many sellers. But I find it useful to think of markets as many-to-one communication. The many (buyers) are communicating useful information to the one (each seller). What kind of useful information? Producers are one example of sellers. The price they can obtain for the products they sell communicates useful information about how much to produce. If the price is high and the producer therefore realizes a profit, the producer will tend to produce more, and so on.

There are two important similarities between democratic systems and markets. In both systems, the many communicate to the one by voting. In democratic systems we vote with ballots. In markets we vote with our purchasing decisions.

Another similarity is that both systems operate well only with liberal quantities of freedom. It is not a coincidence that both democratic systems and markets increased in importance in the world as freedom became more prevalent. The year 1776 was a seminal year for both systems, with the adoption of the U.S. Declaration of Independence and publication of An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith.

Douglas Adams said "there's not much of it about" meaning many-to-one communication. If democracy is one's only example, that is true. The amount of information transmitted from the many to the one in a democratic voting system is limited. Not everyone votes, ballots have limited choices, and votes are counted only once every few years. Much more information is transmitted from the many to the one in a market. Participation is broader, choices are more extensive, and votes are counted continuously.

Markets are a wonderful example of many-to-one communication. I would argue a better example even than democracy. And what is necessary to make markets work? Something that:
has no meaning outside ourselves; it is something we have created that has a powerful shaping effect on our world, because it's something we all subscribe to.