And the things best to know are first principles and causes. For through them and from them all other things may be known but not they through the things covered by them. . . . But these things, the most universal, are perhaps the most difficult things for men to grasp, for they are farthest removed from the senses.
— Aristotle, Metaphysics, Book I, 350 b.c.e.
Chapter 1:
Thriving in a Complex World
From Applied Big History: A Guide for Entrepreneurs, Investors, and Other Living Things by William Grassie. Available globally through Amazon https://amzn.to/2QLHlGS
This book is written as a guide for doing good and doing well in a fast-changing world. It is intended for all living things, but especially for entrepreneurs and investors. The ambitious goal of this book is to show how economics, business, and finance can be better understood through the lens of “Big History”—a metanarrative that captures the 13.8-billion-year journey of our universe, the 4.5-billion-year evolution of our planet, the million-year rise of our species, and the 10,000-year accelerating drama of human civilization. Understanding this epic of evolution from multiple perspectives gives investors, entrepreneurs, and other living things a competitive edge today in a world of uncertainties. Through the lens of Big History, we will build what the famed investor Charlie Munger called “a latticework of mental models” that will help you to understand “the big ideas from all the big disciplines.”[1]
Big History is the term de jure. During my graduate studies in the early 1990s we used terms like “the epic of evolution,” “the new cosmology,” “the journey of the universe,” “the history of nature,” “the great story,” or simply, “the cosmos.” By whatever name, it is all the same story with different titles, and told with different emphases and interpretations. The whole story of the whole cosmos involves astronomy, physics, chemistry, geology, biology, anthropology, history, psychology, technology, economics, and more. I like to call it “our common story,” because for the first time we have an origins story that transcends ethnic, political, religious, and linguistics differences.
This book is written for people who have forgotten or who never properly learned basic science, or for that matter, economics and finance. And if you’re of a certain age, your exposure to the sciences in high school or college is partly out-of-date. What we remember and what we forget are determined by whether or not we use that knowledge. You won’t find many physicians, for instance, who remember much of undergraduate calculus, physics, or organic chemistry, though once they excelled in those subjects. Science is not like riding a bicycle, which, once learned, stays with you all your life. If you don’t use it, you quickly lose whatever knowledge you’ve acquired. This is particularly the case when the knowledge is fragmented and compartmentalized out of context. Science is complicated, changing, and burdened with too much technical jargon. Most people consult science on an as-need basis and otherwise stay clear of it. Science may seem irrelevant to their lives. And the gap between the specialized knowledge of the few and the general knowledge of the many continues to grow.
This book is not about specialization, but rather about learning how to weave all the specializations together in a useful framework that you can use every day in your work and in your life. My goal in this book is to acquaint you with basic science in a fun and memorable manner through the lens of Big History and to show how this new understanding of the universe and its evolution can inform business and investing in particular and life in general.
Among the many big ideas to be discussed is the history of the great acceleration in human population and consumption patterns during the twentieth century. How did our species come to grow exponentially, cheating the logic of Darwin and Malthus? How does the $117 trillion global economy of over seven billion people function? What might cause it to dysfunction? And how might our species, and your business, continue to prosper in the future?
The evolution of money and its recent exponential growth is astounding. Our global economy is quantitatively and qualitatively different from anything in the past. Ecologists and geologists now refer to our era as the Anthropocene—the age of humans. It is certainly the end of the Holocene, which comprises the ten thousand years since the retreat of the last ice age. We will explore what Big History might mean for economics, finance, and the evolution of our species and the planet. We will learn about complex adaptive systems, collective learning, and how to calculate value based on the evolutionary formula of energy, matter, and ingenuity.
Applying Big History to understanding business and finance will inform economic trends, niche opportunities, and endogenous dangers in the economic landscape of the twenty-first century. We will gain new perspectives on how to create and capture value in physics and biology and in business and finance. By studying the epic of evolution, we will come to understand emergent complexity, creative destruction, and micro-macro dynamics in nature and society.
I take investing to also be a metaphor for life. I take the challenges of managing a portfolio to be a proxy for also managing a business and a career. We invest in education. We invest much of our waking hours at work. We invest in our homes, family, and friends. We invest time, energy, and attention in all manner of endeavors, hopefully growing in riches broadly defined and difficult to measure. Big History is therefore relevant not only to managing your portfolio and business, but also to managing your life. By focusing finance, instead of the diverse landscape of companies, we gain useful macro-perspectives. In discussing investments, portfolios, and markets below, feel free to substitute terms that might better capture the dynamics within your profession, company, cooperators, and competitors.
Outperforming the Market
The investment landscape provides an overview of the ecological contexts in which businesses cooperate and compete to provide goods and services to consumers in a now global market. To be sustainable, businesses must profit in particular niches. While entrepreneurship is the engine of capitalism, focusing on finance provides an important insight into the evolution of wealth creation in history and economics.
Beating the market—in other words, outperforming the index funds like the S&P 500—is not an easy undertaking. The consensus of the market at any one time dictates that most fund managers will not beat the averages in the competition of buying low and selling high.
In an efficient market, as idealized by traditional economics, it would not be possible to beat the averages. If everyone was perfectly rational with perfect information, there would be no disagreement on price, or so the theory goes. Of course, markets, like people, are not perfect. Inefficient markets seethe with disagreements and passions, booms and busts. This gives rise to the possibility of being lucky, even dumb lucky. But luck is hardly a sustainable investment strategy.
Another way to beat the market is to cheat or steal. One can acquire insider information. One can bribe, coerce, and collude. This can be done in both illegal and legal ways, depending on the context. One can also “make a market” or “front run” transactions. In a market without rules, where anything goes, relative power determines the winners and losers. That’s another way to outperform the market.
Day traders sometimes beat the market. Pattern seeking in the daily flux of stocks, however, has evolved into high-frequency trading. The new day traders use computer algorithms to buy and sell securities in microseconds. Of the trades made every day on Wall Street, 50 to 80 percent are high-frequency trades exploiting the inherent chaos and complexity of markets.[2] This has been an extremely successful strategy for some with the requisite mathematical expertise and powerful, high-speed computer resources, but as we will see, complexity theory in economics suggests that high-speed trading by computer algorithm may actually create more chaos in the end.
Another way to beat the market is through value investing, as advocated by Benjamin Graham and practiced by Warren Buffet, Charlie Munger, John Templeton, and others. Value investing seeks to buy undervalued stocks in well-managed companies with long-term prospects for growth. Value investors are looking for long-term growth, not a get-rich-quick scheme. Benjamin Graham, the grandfather of value investing, understood that “Mister Market” had bipolar disorder, oscillating between manic highs and low depressions.[3] Graham’s recipe for successful value investing involved a rigorous assessment of the fundamentals of a company (price, earnings, balance sheet, prospects, management, market sector), acquiring ownership below the “real” value of the company so as to provide a safety cushion from normal price fluctuations, and a long-term commitment to the company. Value investors tend to buy, diversify, and hold.
In a complex world with complex markets, governed by rules restricting our vices and follies, there are opportunities to beat the market, even if the law of averages is against you. One can craft superior long-term and short-term strategies. One can identify and exploit structural changes better and earlier than others, and recognize and exploit instabilities. And one can arbitrage widespread errors of collective inference and pricing. In short, complexity economics provides lots of opportunities for growing income and wealth. Of course, this includes the possibility of losing income and wealth. As the saying goes, luck favors the prepared mind. This book is an exercise in preparing your mind.
To understand energy, technology, food, population, politics, religion, and other global challenges, you need to understand Big History. It is essential to understand how the world came to be the way it is and why people are the way they are. The major problems in the world today look different from the perspective of Big History, and the solutions to those problems become clearer. This is why I am so passionate about Big History and hope to persuade you to be as well.
Caveat Emptor
I, William Grassie, your humble guide, have spent the last forty years studying global trends and contemporary science. I began my journey as a star-struck boy in the 1960s contemplating the night sky, the Apollo space program, Carl Sagan’s Cosmos, and the voyages of the Starship Enterprise. It continued through my many years of schooling and travel. This included an undergraduate degree in political science and international relations and a doctorate in comparative religion. My doctoral dissertation explored what it would mean to treat the modern scientific cosmology as a mythopoetic creation story.[4] And I fell down this rabbit hole.
I don’t have a CFA or an MBA. I am not an economist by training. I have never worked in finance. I don’t trade stocks and bonds. Nor am I formally trained as a scientist. It is not necessarily clear how a doctorate in religious studies qualifies me to authoritatively discuss economics and finance, let alone physics and biology.
Philosophical hermeneutics and therefore also philosophy of science, were a big part of my graduate training. Hermeneutics is the theory of interpretation and first arises in the disciplines of interpreting sacred texts, historical events, and jurisprudence. As I learned writing my dissertation many years ago, the interpretation of the epic of evolution is hardly straight forward.
The term hermeneutics invokes the Greek god Hermes, who was a messenger between the gods of Olympus, the gods of the Hades, and mortal humans. Hermeneutics is thus the “craft of Hermes.” Renamed Mercury in the Roman tradition, Hermes was unique in the ancient pantheon as the singular translator between worlds. He was also something of a trickster. Interpretation turns out to be remarkably complicated and can make fools of us all.
I imagine that there are at least six possible “big” interpretations of Big History:
- Stoic, existentialist, atheist[5]
- Evolutionary spiritual, theist[6]
- Techno-utopic[7]
- Eco-romantic[8]
- Free market, libertarian[9]
- Socialist-Communitarian[10]
This book is not about exploring or resolving those big debates about Big History. Indeed, I do not think these six interpretations are necessarily mutually exclusive and are in any case context-dependent and involve emplotments and predictions about a future which may or may not come to pass based on the “correct” ideology-interpretation. Rather, it is my more limited goal to apply insights from the sciences to better understand business, economics, and finance. This will involve “a close reading of the text,” in this case the new book of nature and humans as understood by contemporary science.
The Latin root of the word religion is verb religare, meaning “to tie together.” In this larger sense, a doctorate in religious studies is actually an excellent preparation for this endeavor. And religions, as we understand the term today, are at the very least a complex manifestation of human nature, utilizing symbolic systems of value that radically change the world—not unlike money. Of course, religion and commerce are not really the same, but money certainly is a symbolic system of value, more powerful and more universal than any religion today. Whether in metal, paper, or digital form, money is always virtual—a useful social fiction—that dramatically changes the facts of life. Or so we will learn. I hope to surprise you with orthogonal and sometimes contrarian insights. Applied Big History builds a common foundation across disciplines, helping to unify knowledge and know-how currently fragmented in specialized guilds and trades, of which finance is one.
For decades now, through my career, curiosities, and concerns, I have been professionally involved in addressing big questions and big problems, in and out of higher education, philanthropy, research, writing, and social entrepreneurship. I have been blessed with opportunities to learn from great scientists, philosophers, theologians, entrepreneurs, and investors. Many of whom are cited in these pages. We have wrestled with great debates in philosophy, anthropology, psychology, evolution, economics, technology, conflict, and social change. I especially follow the new discoveries about our common origins, our evolved human natures, and the accelerating drama of our global civilization. Charlie Munger, the famed partner at Berkshire Hathaway I cited earlier, is a fan of multidisciplinary techniques. Munger recounts:
So I went through life constantly practicing this . . . approach. Well I can’t tell you what that’s done for me, it’s made life more fun, it’s made me more constructive, it’s made me more helpful to others, it’s made me enormously rich . . .[11]
While not formally trained in economics and finance, I have been fortunate to find many mentors and guides, so I can say with confidence that we have important things to explore and debate together. I bring to this endeavor a large bibliography accumulated over several decades of study. For the last few years, I have religiously read The Economist, the Financial Times, and Barron’s. My approach is partly that of an anthropologist in a distant land, trying to translate the practices, culture, and languages of tribal groups that trade in securities and by extension the vagaries of businesses in a complex economic ecology.
Applied Big History
It is extraordinary how much humanity has come to know. Collective learning has allowed our species to exponentially accumulate knowledge and know-how. Indeed, most of what we now know about Big History in detail, we learned in the last fifty years.
It turns out that the universe and the economy can be understood as complex thermodynamic flows of energy, matter, and ingenuity. Both nature and markets manifest common dynamics as sometimes chaotic systems, in which we discover thresholds, tipping points, Goldilocks parameters, feedback loops, nonlinear dynamics, scaling effects, deterministic chaos, and patterns of emergent and truly elegant complexity. Nature, appropriately interpreted, can and should inform investment and business decisions.
Applied Big History helps investors and entrepreneurs learn how to zoom into the details and zoom out to the big picture, back and forth, taking multiple viewpoints on decision across time frames and scales. In so doing, the investor and entrepreneurs learns analytic, associative, and inductive thought processes essential to success. Applied Big History provides an essential framework for successful capital managers and business leaders by uniting microeconomic and macroeconomic perspectives, anticipating market instabilities, and building resilient businesses and portfolios.
These insights and habits of mind are not just relevant to investors and entrepreneurs. The applied part of Big History impacts how we conceive every career and industry, every academic discipline and vocation, every problem and opportunity. Every aspect of your career and life can be reframed as a “little Big History”—a story that you will be equipped to narrate by the end of this book.
Big History is not simply an esoteric scholastic endeavor. Indeed, many global thought leaders recognize Big History as a powerful pedagogical tool for promoting general literacy in the twenty-first century. The narrative approach—from the Big Bang to the twenty-first century—provides a mnemonic to help students understand and remember the many details of science and history. It provides a framework for understanding, debating, and solving the great challenges of our time. It provides an ennobling perspective on our lives, generating wonder, awe, amazement, and gratitude. Bill Gates was inspired to create the Big History Project, a free, online curriculum for high school students now used in about three thousand classrooms around the world.[12]
Numerous books have been written about Big History. David Christian, Fred Spier, Eric Chaisson, Yuval Hariri, Sean Carol, and others have penned excellent books that use this approach to explain the many insights offered by contemporary science.[13] Dorling Kindersley Books (DK) recently published a 400-hundred-page textbook on Big History with spectacular illustrations and content. This twenty-first century version of an illuminated manuscript might well be your best Bible to Big History.[14] It also makes a great gift to growing minds.
My book is not another chronological retelling of Big History. Nor do I offer much background information about the history of various scientific discoveries—how we came to know what is presented here as factual. When appropriate I will point out where there are evolving debates within scientific disciplines. This book gives you some sense of the chronology of Big History. Important thresholds in the rise of complexity, including our human complexity, will be noted. It is my intention, however, to jump around from the micro- to the macro- to the meso-levels and back again. The ability to adopt multiple perspectives will help you to better understand the creation and capture of value and wealth. Feel free to skim and jump around. For instance, you might not need a refresher on fundamental science or cell biology in the next two chapters, but you might want to pay attention to how and why I frame emergent complexity.
This book will not help you pass the CFA exams. Nor is it likely to help you obtain an MBA or any other professional certification. It will give you a larger macro perspective for understanding the predictions and choices that make up portfolio and business management. As hedge fund manager Daniel Och said, “If you don’t do macro, macro will do you.” Big History is as macro as we can get.
One of the things we learn from studying Big History is how incredibly lucky we are to live at this moment in the natural history of our planet and the cultural evolution of our species. Pharaoh and Caesar would trade places with any of us to have the same opportunities for health and wealth, travel and education, entertainment and food. It helps to have this larger perspective on our lives to weather the daily onslaught of bad news, as well as the ups and downs of the market. It puts our immediate worries in perspective.
Still, past performance is no guarantee of future success, as they say in finance. This is true for us individually, for your managed funds, for your business, and for our global civilization. Humanity faces some grave challenges with which we are ill equipped to deal, but understanding Big History can significantly shift the odds in our favor.
Throughout the book I use the word “grok” to describe the desired outcome. The verb “grok” was coined by Robert Heinlein in his 1961 science fiction novel Stranger in a Strange Land. The word has now entered the English language. The Oxford English Dictionary defines “grok” as “to understand intuitively or by empathy, to establish rapport with” and “to empathize or communicate sympathetically (with); also, to experience enjoyment.” Bill Gates groks Big History. He writes:
Today, whenever I learn something new about biology or history or just about any other subject, I try to fit it into the framework I got from Big History. No other course has had as big an impact on how I think about the world.[15]
My hope is that you, too, will internalize Big History in your life so that it becomes implicit knowledge always at the ready. My hope is that you will see old things with new eyes. May you come to also grok Big History!
Wikipedia
This book is dedicated to Wikipedia, and not just because it is a constant companion in my research and writing. Wikipedia is an icon for collective learning—the process by which knowledge and know-how accumulates in human networks spanning generations and geographies. Founded in 2001, today Wikipedia is the tenth most-visited website in the world. There are editions of Wikipedia in 295 languages. Half the traffic is on the English-language edition, which contains 5.4 million articles.[16] Scientific and technical entries are particularly reliable and up-to-date. This is not always the case with highly politicized or obscure topics, but for the most part, Wikipedia is a place to find facts—a good place to get a reality check on a wide variety of topics. Wikipedia receives hundreds of millions of visitors and many billions of pageviews every month. And it’s free!
Collective learning is also largely free—a rare example of positive economic externality. It is the foundation of our evolutionary and economic success story. Knowledge and know-how are passed on and accumulated exponentially. Proficiencies, however, are hard to acquire. Decades of rigorous training are often required to master a technical profession. Moreover, every generation must be taught anew, lest what we have so recently learned be forgotten. If our descendants are going to succeed, come what may on our restless planet, they must never forget what our generation has been so fortunate to recently learn—a new, practical, evolving, and inspirational story of the universe and ourselves. It is our duty to ensure that what we have received and recently learned not be forgotten but only added to and improved upon. This is how our species has and will continue to succeed. From this vantage point, we come to understand education in all its forms as a sacred intergenerational duty; but first I need to show you how Big History gives you an edge when facing the challenges of business, economics, and finance. Here begins a 13.8-billion-year journey into territory and topics rarely discussed in classrooms, let alone in boardrooms or on trading floors.
End of Chapter One
You got this far, maybe you should buy the book!
[1] Charles Munger, “Usc Law School Commencement Address, May 1, 2007,” Genius.com, http://genius.com/Charlie-munger-usc-law-commencement-speech-annotated.
[2] Seth Shobhit, “The World of High Frequency Algorithmic Trading,” Investopedia, https://www.investopedia.com/articles/investing/091615/world-high-frequency-algorithmic-trading.asp.
[3] Benjamin Graham, The Intelligent Investor (New York: Harper, 1949).
[4] William J. Grassie, Reinventing Nature: Science Narratives as Myths for an Endangered Planet (Philadelphia: doctoral dissertation, Temple University Department of Religion, 1994).
[5] See for instance, Richard Dawkins, The Blind Watchmaker: Why the Evidence of Evolution Reveals a Universe without Design (New York: Norton, 1986); The God Delusion (New York: Houghton Mifflin, 2006); Daniel C. Dennett, Darwin’s Dangerous Idea: Evolution and the Meaning of Life (New York: Simon & Schuster, 1995); Breaking the Spell: Religion as a Natural Phenomenon (New York: Viking, 2006).
[6] Ian Barbour, Religion in an Age of Science: The Gifford Lectures 1989-1991, vol. Volume One (San Francisco: Harper, 1990); Holmes Rolston, Genes, Genesis, and God: Values and Their Origins in Natural and Human History (New York: Cambridge University Press, 1998); John Haught, God after Darwin: A Theology of Evolution (Boulder, CO: Westview, 2000).
[7] Ray Kurzweil, The Singularity Is Near: When Humans Transcend Biology (New York: Penguin Books, 2005).
[8] Thomas Berry and Brian Swimme, Universe Story, The: From the Primordial Flaring Forth to the Ecozoic Era (San Francisco, CA: Harper, 1992).
[9] Matt Ridley, The Evolution of Everything: How New Ideas Emerge (New York: HarperCollins, 2015).
[10] John B. Cobb Jr. and Herman Daly, For the Common Good: Redirecting the Economy toward Community, the Environment, and a Sustainable Future (Boston: Beacon Press, 1989).
[11] UCLA Law School Munger, “Usc Law School Commencement Address, May 1, 2007”.
[12] Bill Gates et al., “The Big History Project,” http://www.bighistoryproject.com.
[13] David Christian, Maps of Time: An Introduction to Big History (Berkeley, CA: University of California Press, 2004, 2011); Fred Spier, Big History and the Future of Humanity (New York: Wiley-Blackwell, 2011); Eric Chaisson, Epic of Evolution: Seven Ages of the Cosmos (New York: Columbia University Press, 2006); Yuval Noah Harari, Sapiens: A Brief History of Humankind, Kindle ed. (New York: HarperCollins, 2015); Sean Carroll, The Big Picture (New York: Dutton, 2017).
[14] Elise Bohan et al., Big History (New York: DK, 2016).
[15] Ibid.
[16] “Wikipedia,” Wikipedia Foundation, https://en.wikipedia.org/wiki/Wikipedia.
