t0hierry

The watercooler and the bird: an evolutionary perspective on profit making. Where was it, where will it be?

Profit, or wealth, is easy to miss, and difficult to detect. One of mankind's best tool for finding profit opportunities is man's mind. Thinking flaws are thus the most common reason for missing out on profit. It is the modest goal of this essay, to help readers start their journey toward profit on the right path. How far each of us travels on that path is a function of our core beliefs, abilities, and circumstances. Regardless, each step taken in the correct direction directly or indirectly affects others, by bettering their life as well. Where do we begin?

Everybody knows what a watercooler is for, and what it means as a meeting point for exchanging information, gossip, and rumors. If, instead of knowing what a watercooler is, one thinks independently about it, the picture that emerges is radically different. The watercooler is a service, whose location is imposed, which provides people with a basic need, and which people use to satisfy more than just that need. In the business world, Gilette is a watercooler. All men need to shave, and they will go where razor blades are. That is half what a watercooler is. What about the other half? Let us try again. A cell phone is a watercooler too. Not because it forces you to travel to get to it, quite the opposite, since the cell phone travels with you. It is a watercooler because people use a cell phone for far more than just talking. Taking pictures or watching videos, and accessing the internet. These so-called "killer-app", which take advantage of a customer's need for a product and propose an entirely unrelated service which people want, and that will never be satisfied once and for all, are what makes cell phones a source of profit, and a watercooler.

Turning the clock back a few years, a PC is also a watercooler, since, also PC stands for personal computer, PC's are everything but personal, since they are either on servers or networks, and are used by average consumers to do everything but computing. Back when Alan Turing was thinking about computers, he saw them as machines designed for exploring which assertions about philosophy, as quantified by mathematics, could be proven or not, and in how many steps. Few, if any, people entertain such thoughts when they turn on their laptop in the morning.

So far, we've scratched the surface of what a watercooler is. To go deeper, we need to step back in time. A two thousand year step back.

Plinus the elder wrote a lengthy treatise on natural history of the world. Let us dwell on the both words. Nature is what surrounds us, and is mostly made of inert bodies. One can include living organisms, but that doesn't change the picture. History, is the record of successive changes in time of a particular set of entities. In this case, the entities consist of the elements that make nature what it is. If you take a short slice of history, you get a process. So Pline's lengthy book contains a wealth of information about natural processes. These processes satisfy, by definition, all laws of nature. In other words, they work. Now nature, unlike humans, operates toward the reduction of inequalities, be they of temperature or moisture, as when a hurricane forms, or pressure, as when thunder erupts when lighting strikes. Man, on the opposite hand, needs to increase inequalities, if he is to survive. He does so by maintaining his body temperature at a fixed level, regardless of his surrounding. So Plinus is showing us what works in the natural world. A hurricane is a terrible thing, but being able to transport that much energy over such distances is a process, that could potentially benefit mankind. Plinus is teaching us how to profit, and benefit, from natural phenomena, or processes. Chemistry, engineering, are all disciplines inherited from the Greeks, and from Plinus.

The philosophy which consists in observing nature to copy it and benefit from it, is a positivist framework based on the notion that nature + man = progress. Both scientific, and, therefore, technical, and economic.

Understanding all this, is what I call the first natural revolution, for it sprung from an understanding of man's relationship with nature, i.e. copy nature's processes, but don't copy what nature makes with these processes. Nature manufactures death. Thermal death, as -273 degrees kelvin. In order to achieve this, nature needs to transform what is alive, into what is dead. These transformations are processes, which can be useful to us, as long as we use them for life, not death, i.e. for concentrating heat in the hands of a few, that is living beings, as opposed to inert matter. Something nature is incapable of doing.

As a parenthesis, if you believe in a God, you might be interested in contrasting how rich the Earth is in the hands of man, compared with by itself. A productive orchard can only be man made, the same holds for rivers equipped with dams, forrests prosper when maintained by man. The list goes on and on. Man is, thus, taking care of the Earth, and vice versa. It's a fact. That fact can be recast in religious terms, which is what makes it so interesting. It goes without saying that such an interpretation is not mandatory, but offers an interesting vista on the scientific and religious "thinking" processes.

That primary natural revolution led to the discovery that, beyond the obvious, i.e. beyond the natural instinct of feeding from nature's animals, which are easy to spot, but not to capture, a detailed understanding of the process of plant growth, would yield sustainable food supply. This was made possible by the substitution of immediate return, the capture of a prey, with an investment in time, which necessitated a strong sense of memory, and the conviction that just like the night didn't signal the end of life, neither did winter. When you plant a seed, you're not going to eat today, nor tomorrow. Instead, you will have to wait six months. Considering how invisible plants are, they don't move, don't seem to change, it was a performance for ancients humans to trust that a seed could survive winter, and grow. More precisely that your seed could do that. I.e. that you could substitute yourself to nature. That was clearly impossible with preys, which nobody could, nor can, manufacture, and certainly not out of its own remains.

What is a plant? It is a value generating business, which has a large multiplicating factor. One seed, is potentially one million seeds. Here, nature showed ancient men, how capitalism worked, provided man was tenacious and observant enough of its slow, almost invisible, workings. And for the longest time, man didn't dare compete with nature, and land stayed for the longest time the primary source of capital.

This allowed mankind to grow, and not just multiply, until it reached a turning point, that of needing more food than was available. A more efficient means of sustaining growth was needed. Before that time, one could say, crudely, that one man equalled one farmer. People were feed-yourself people, which can be understood as the fact that food creation was a currency, and human work another, and that they were linked. When human need  for currency exceeded the available supply, or rather when the rate of growth of the former exceeded that of the latter, the fixed parity of human work and food production was abandonned. This was the nineteenth century breakdown of that specific fixed parity: The industrial Bretton Woods breakdown ushed by the industrial revolution.

What is the industrial revolution? The successful attempt by man to not only substitute himself to nature, in food production, but to create multiplied value outside of the food chain, by individual businesses, and to delay the cycle of production-consumption of food enough to allow harvest to be turned not only into new agricultural seeds, but as wealth-creating seeds, by being used in a longer chain of value multiplicating processes, in the hands of other humans than the ones originally assigned the task of producing the initial value, i.e. the crop. As humans learned to trust that, in the end they would put food on the table, they introduced a capitalistic food: money, i.e. gold. Men learned that, as much as they needed food, they also wanted gold, one can say needed gold, and that they were willing to hold gold, temporarily, as a means of sending their crop to other humans, where it would be returned with a high rate of return to society as a whole. The more you loan the money you have, the more you allow others to generate value on top of the value you are already generating.

If we are to understand the nature of the current revolution we must ask one more question. What is nature? Inasmuch as being able to make verifyable predictions, nature is a collection of agents which is large enough that the details of individual agents matter less than their common properties, i.e. that statistical thinking applies. That is the first level. All rocks have a comon behavior under stress, all liquids change shape when a pressure is exerted on them, all gases have a temperature, and heat flows from the hot to the cold. Likewise, money flows from low to high interest rates, from low to high return equities, from low to high housing value. This is in line with nature working to reduce inequalities (in temperature, for instance), and humans acting to do the opposite. When McDonald statistically estimated the optimal size of its burgers and coke servings, it treated humans as indistinguishable "particles", endowed with average human properties, such as appetite, eating cycles, and so forth.

That was the first step of the second natural revolution: how to profit from, not nature as we think of it, but human nature, as defined by statistical properties of large collections of humans. And those humans, in the McDonald case, were treated as not interacting with each other. They just show up in a restaurant, and wait for their food, with a waiting time that is minimized, but not too much, so you have time to crave for more than what you initially came in to buy.

But what characterizes humans, is their inability to not communicate, a prime example being the writer of this text. Humans have to talk. It's a given. That seemingly innocent remark takes us one step higher in the sophistication of the model we need to use to account, and profit, from human interactions. That is the third natural revolution: profit from talking humans, or in the jargon of the so-called hard sciences, profit from interacting humans.

That is the social network revolution, which is in its infancy. It was made possible thanks to the prior revolutions, which put enough food on the table for people to survive and communicate.

Unlike real particles, humans do not have to tell the truth, assuming they know it, and often modify their answer to simple questions, based on who is asking, when, and a long list of factors, all qualified as irrational, in the sense of the hard sciences, and the semi-hard, or semi-soft sciences that are economics and behavioral finance. Complicated systems from the physical sciences, exhibit collective behavior, a prime example being a phase transition. As water approaches the boiling point, all bubbles in the water become connected, to the point that they become almost as one. In jargonese, one says that the correlation length becomes infinite. In human nature, panic, consensus, mobilization for war, cohesion of a sports team, could be seen as examples of such collective behavior.

A firm wanting to foster a cohesion among its employees, could try to operate near its boiling point. That transition point is achieved, for instance, every time a firm has results beyond expectations. People feel
as one. How to keep that sense of unity in the absence of stellar results, which, at best, only come once a quarter, is an interesting question for business managers and owners.

Another point worth mentionning, is the crucial difference between doing what the circumstances dictate, and doing what pleases us. Molecules don't have a sense of pleasure, they do what is required. As a result, molecules are very efficient. They are also dumb. Which raises the question: what type of intelligence is required to do what is needed to do? Molecules don't have ego either, but ego can be a driving force, when properly managed, and checked for size.

All these thoughts really revovled around one question: what are the necessary conditions for value to be generated? To try and answer this question, we need to go back in time and ask a well-known provocative question: How come Spain, with all the gold it took from South America, didn't become the most prosperous country in the world? What was wrong with Spain?
 

Below is my last exchange with Judy Whiting, the day of her surgery.
========================================================================================================

From Judy Whiting to thierry kauffmann
Sent Mar 4


thanks Thierry see you soon.
off now to get the job done
Judy
========================================
From thierry kauffmann to judith whiting
Sent Mar 3

I know what you mean by freedom. Last time I went in, I took sheets of paper and I used them to draw and write poetry. Plan something fun for when you get back. Take some sudoku with you. Numbers take your mind off all the emotional stuff and help you not go nuts.

Hospitals suck, dont let it get to you. Go in there like you're going to kick a**. Be determined and focused and only think about positive stuff. There's no "what if" anymore, no hesitation. Think olympics: you're going for freaking gold!

Remember, you're a winner. So go ahead and do your job: win. Ok?

I will be at the dentist tomorrow. You tell me how your day went, I tell you how mine went.
Talk to you tomorrow. Hugs.

thierry
========================================
From judith whiting to thierry kauffmann
Sent Mar 3

all is set for tomorrow. gotta keep busy today, last day of freedom for awhile. Little bit scared,nervous and jittery. Will keep you posted and then back soon.
Judy
========================================
From thierry kauffmann to judith whiting
Sent Feb 25

Hi Judy,

Just checking on you to see how things are going. I hope you're getting the financial help you need, be it through facebook cause or directly. Are there more specific news concerning the benefit concert that John mentionned?
So 4th of march is the surgery day for you. You are in my prayers every day, and will be especially that day. You are a strong person, with a lot of wonderful things to bring to this world. Don't give up on yourself, regardless of how tempting that might be, at times. You need to live, because the world needs you. I'm going to post a short instrumental piece that keeps me thinking positively, and might help you too.

Like Sydney J. Harris said: “When I hear somebody sigh, "Life is hard," I am always tempted to ask, "Compared to what?"”

Hope to hear from you soon. Your friend. thierry