1

Investment is how we, as a people living together in society and an economy, decide which ideas for creating by design prosperous adaptations to life’s constant changes can, should and will be evolved through enterprise.

Investment works in two primary moments.

1. First, it aggregates surpluses saved by individuals to form capital available for investment.
2. Second, it deploys those aggregations to support enterprises that appear to fit well the purposes for which savings have been aggregated in the first place.

Enterprise is the physical coming-together of people to do the work of applying technology – as practical knowledge of how the world about us works in some specific way and how we can use that knowledge to make the world work in that way more a way we choose – to create choices for ourselves and others for how we choose to live our lives, and pursue our own, personal and social happiness.

Every enterprise is organized around its own unique technology, its own unique knowledge of the world about it, how it works and how we can change the way that it works.  New knowledge supports new enterprise.

The history of humanity can be seen as the history of new enterprise and new knowledge.

Knowledge evolves, and adapts.

We construct new knowledge by inquiring into the limits of what we already know, and figure out things we did not previously know.

Inquiry begins with disappointment. We inquire after new knowledge what the experiences we are presently happening do not fit our expectations for the happiness we should be feeling.

All knowledge is provisional, suited to the moment, but subject to change when circumstances change. And circumstances are always changing. Partly this is because the world in which we live is always changing. Partly this is because by the actions that we take through technology and enterprise, we are always changing the world in which we live.

For this reason, also, prosperity – the feeling that we have enough of what we need and want to live well, and pursue happiness – is also provisional.  As circumstances change from time to time, and over time, what we feel we need to have enough also changes.

As times change, and knowledge evolves, enterprise also changes.  The enterprises that supplied enough in earlier times are not the same enterprises that will continue to provide enough in future times. So, investment is always needed to support the organization of new enterprises for applying new knowledge in changed circumstances to sustain prosperity in a perpetual present that is provisional, suited to its times, but changing over time.

As times change, knowledge evolves in adaptation to those changes, and new enterprises are organized to do the work of using new knowledge to build a new prosperity of having enough for the times as they are, investment decision-making also changes.

We can see this in the history of the different kinds of economies that we, as people, have constructed for ourselves over time, going all the way back to the earliest times when people first organized ourselves into economies and societies built around fire, and the making of tools for communal living through hunting, fishing, herding and small scale farming.

In these earliest economies and societies, enterprise was organized through consensus based on personal knowledge of personal ability. People got the jobs that everybody knew they were best fit to do.

As “close to Nature” as this may feel, these earliest aboriginal economies that assigned work according to ability to provide for the community according to need are uniquely human ways of being.

In 2015, I gave my first TED Talk at a TEDx event in New Bedford, Massachusetts.  While preparing for that talk, I came across a reference to the work of famed socio-bilogist Edward O. Wilson. E. O. Wilson, as he chose to sign his works, is a scientist who studies ants.  In 1975, he published a work call On Human Nature, in which Prof. Wilson posited that people are more like ants than any other animal, because, like people, ants collaborate and commit brave acts of self-sacrifice for the good of the collective.  This caused quite a stir at the time, because at that time most behavioral scientists were studying chimpanzees and other of the Great Apes, as our closest genetic relatives, in search of insights into how people behave in society – and why so many times so many people do not behave well.  E. O. Wilson broke with that conventional wisdom by pointing out that, unlike ants and people, chimpanzees do not collaborate.  Two or more chimps may be observed to work together on a task for a time, but when it comes time for one to yield to the other – the very essence of collaboration – they don’t. Each just goes its own way.

E.O. Wilson got the bit about collaboration right, but he missed this other important piece in his comparison of ants to people. He missed the making of history.  We, as people, make history. It’s what we do. Ants do not make history. The history of ants is that at one time there were some ants, and at a later time, there were different ants, but all these ants, at all these times, all always do the same ant things.

People change.  The things we do today are not the same things we did when we were children.  The things we did as children are not the same things our parents did when we were children. And so own, back into the deepest recesses of prehistory. What we do now, in our time, are not the same things that those who came before us did, when it was there time.  People learn. And then we add to what we learned.  And that is how we make history. Through learning, and inquiry, and enterprise and investing.

There have been over the long history of us, as people, stretching back tens of thousands of years into the deep recesses of prehistory, only a small number of adaptations in human knowing that have so fundamentally changed the nature of work that it required deeply foundational changes in the social structures of enterprise, and so, also, in the social structures of investment decision-making.

The first was the invention, in the Fertile Crescent, in Mesopotamia, in what is now called the Middle East, of large scale grain agriculture some 5,000 years ago.  Grain agriculture transformed the food supply, providing surpluses that are more reliable, more abundant and more enduring than anything before – or since.  We still live in a society and economy that is built upon this technology of raising grains in large fields using irrigation or other land management practices.

Grain agriculture is not so episodic as subsistence living. It is more regular and recurring. Seasonal, yes, but also predictable.  It requires large numbers of people to perform essentially the same tasks at essentially the same time, but in different, although adjacent places.  So, it requires a central authority to synchronize and coordinate the activities of many different actors. Also, all this shared work produces a common benefit: a harvest of grain.  The harvest is abundant, and the abundance must be stored for safekeeping and future use.  The extreme individualism of aboriginal societies does not fit this structure of shared harvests.

With grain agriculture, we see the beginnings of written history.  Temple societies evolve with a priestly class “speaking to the gods” on behalf of the people, to organize and synchronize the planting and the harvest, to share out the land and water, to store the grains and share out the stored surpluses over time.

The sustainable surpluses of grain agriculture supported a larger population of people than was actually needed to do the work of planting, harvesting, storing and sharing. These surplus people were free to pursue other, non-agricultural, activities.  Craftsmanship flourished, as many implements of comfort and convenience could be made by people whose time and attention was not needed just to keep the community fed.

With craftsmanship, we see the invention of commerce, not so much in the finished works of artisans, that can be bartered directly, artifacts for food, as in the raw materials and other commodities that that the people come to need and want as the raw materials out of which they make well-being and support their pursuit of happiness.

The rise in commerce, and trade, creates a new experience of diversity of choice, and also scarcity that is circumstantial.  Beyond the basics of life, we do not all want the same things, and in the making of artifacts – in the anthropological sense, as “the work of human hands” – we cannot all have the same things.  With choice comes selectivity. With selectivity comes competition. With competition comes conflict, conflicts that can not always be resolved through the intercession of the priest as speaker for the gods. Sometimes, these conflicts can only be resolved by force.  This force must come from authority that is recognized widely as legitimate. Otherwise, conflict just spreads.

So, we see kings organizing armies, taking over for the temple priests to enforce the king’s peace.  Less noticeable but equally important is the king’s coinage, as commerce multiplies and diversifies, inspiring the invention of money as a token of value in exchange, and storehouse of wealth as purchasing power in a mercantile economy, the integrity of which is guaranteed by the king as an important contribution to the keeping of the peace.

The king’s coinage, like the king’s law, works well within the king’s realm, but as kingdoms proliferate, and commerce between kingdoms, and between people living in different realms increases, a new need arises that creates the opportunity for private bankers to evolve to equalize the coinage between diverse kingdoms.

Much of the story as told to this point is derived from archeology and anthropology, as many different kingdoms have coalesced and collapsed over time across the span of the many millennia that people have populated the earth.

This is true until we reach the period known as the Renaissance in the place know as Western Europe.  Then, our story becomes more modern, and takes on a more linear feel.  At the time of the Renaissance, kingdoms populated Europe, and local commerce in the artifacts of local artisans delivered a prosperity that was largely local.  During the Renaissance, commerce, especially in spices from the Orient, became increasingly what we now call international.  The origins of banking as we know it today can be identified in the activities of the Medici in Italy, the Fuggers in Germany and many other less famous names.

Before the Renaissance, wealth in Europe was measured in land and titles, in the responsibility to govern a local economy, and the right to tax that wealth of that economy in order to pay the costs of good governance. During the Renaissance, merchant voyages to distance voyages, especially to exchange gold and silver for silks from China and spices from India and the Indies, originally brokered through Arab merchants, made commerce increasingly the source of greatest wealth.  Originally organized and paid for by aristocrats, as the volume of trade increased, more and more private enterprise sailed under charters provided by the Crown.

Banks become repositories for the surplus wealth of merchants measured in coin, more than land, lending money held on deposit from wealth merchants to landed aristocrats to pay for royal adventures, sometimes in trade, often in war against other aristocrats. Banks would also lend to private merchants (often under the patronage of lesser aristocrats) to outfit voyages, further increasing the role of banking in an increasingly mercantile, international economy.  In time, banks began the practice of issuing notes against coins held on deposit as an easier and more secure way of arranging payments than actually moving large amounts of metal money along dangerous trade routes, borrowing from the Chinese invention of paper money.

Money, in the form of bank notes representing the king’s coinage, became increasingly common as the economy became increasingly mercantile, not just in the luxury goods of the aristocracy, but increasingly also for many of the necessaries of everyday living.  Also, through increasing commerce, wealth as purchasing power stored in money “as a technology that communities use to trade debts” (Michael Mainelli) came to be shared more widely through a more diverse population.

With the invention of the steam engine in the 18th Century, commerce became less mercantile, and more industrial.  Production of the artifacts of human ingenuity for taking the world about us as we found it and making it to be more a way we choose to make it became less an exercise of artisanal craftsmanship for localized use and more a expression of industrial processes for producing large quantities of standardized units for mass markets.  Industry did more than increase quantities. It opened up whole new possibilities for the design of devices that can do work for people that we, as people, would be hard pressed to do for ourselves.

Mercantile prosperity operated according to the episodic rhythms of the merchant voyage.  The archetypal enterprise at scale is the outfitting of a ship with cargo for trading and provisions for the journey, sailing to a distant land, where cargo is traded for silks, spices and other exotic commodities, and the sharing of the profits when the voyage is completed and its return cargo sold off.

Industrial prosperity operates at the pace of the machine, constantly producing more stuff that is sold as it is produced.  Large investments in the means of production are needed to start an enterprise. Profits are realized in small increments, recurring at more or less regular intervals in more or less regular quantities, over extended periods of time.  Banking, which fit well the episodic rhythms of the merchant voyage, proved less fit for the incremental earn-back rhythms of industrial enterprise.  A new kind of capital was needed.  Trade in corporate shares fit this need.  Shares in merchant voyages had been traded during merchant sailing days, as the equity equivalent of bank debt.  Shares in industrial enterprises were similar, but also different.  Where voyages had fixed initial costs, a fixed end date, and fixed profits, industrial has ongoing costs, ongoing operations and open-going cash flow generation.  The joint venture of merchant voyages became the corporation of industrial enterprise.  Shares in industrial corporations came to be traded, not as shares in some final settlement, but as shares in the ongoing operation of the enterprise (as dividends), and also as shares in the growth of enterprise over time, and the rise in the price of its shares.

The stock market as we now know it was born.

Industry brought new prosperity. It also brought retirement as a new reality.

As the economy became increasingly motorized, mechanized, urbanized and globalized, it also became more monetized.  In order to live, people needed to have money to spend to buy the things we need.  In order to make money, people needed to work, either in enterprise, or as the organizers of enterprise.  Working in industrial enterprise means keeping pace with the machine.  As we get older, this gets harder.  We slow down. The machine does not. When the parts that comprise the machinery of industry get old and wear out, they are retired, and replaced by new parts that fit better. The same is true for us as people living in an industrialized economy.  As we get old and wear out, we are retired, and replaced by younger people, better able to keep up.  The pace of change adds obsolescence to wear and tear as factors that limit the useful life of machine parts, and of people as cogs in the machinery of industry.  As times change, old knowledge becomes less relevant. New learning is required to keep earning.  Here again, the physical realities of being human make it difficult for older people to stay current as we age.

Retirement is a new reality in our increasingly urbanized, monetized, mechanized, motorized and now digitized economy.

The need for retirement is creating the need for society to make new provisions for income security in retirement.  The solution? Insurance, in the obverse.

Life insurance is a form of actuarial risk pooling that uses statistics, and the Law of Large Numbers, to socialize the costs of dying too soon across a statistically significant population of statistically similar persons.  Pensions are the obverse. They use statistics and the Law of Large Numbers to socialize the costs of not dying soon enough across a statistically significant population of statistically similar current and future retirees.

Vast aggregations of the shared savings of society are now set aside as pensions to provide income security in retirement.  Couple that with endowments, for education and for philanthropy, that have been with us since the days of the aristocrats, and we have today an important new way of aggregating surpluses saved for investment.

We live now at a moment in history when we can identify these six paradigms for prosperity that have evolved over time, going back to the earliest times of our beginnings:

1. subsistence
2. agriculture
3. craftsmanship
4. trade
5. industry
6. socialization of shared risks.

Associated with each we can identify unique social structures for organizing enterprises, and unique social structures for making investment decisions about enterprise that we call:

1. Family & Friends
2. Church & Philanthropy
3. Taxing & Spending
4. Money, Banking & Lending
5. Share Trading
6. Stewardship of Shared Savings

Each form of enterprise is fit to the right kind of work. Each form of investment decision-making is fit to the right kind of enterprise.