The Long Finance Initiative began in 2007 based around a core question: “When would we know our financial system is working?” Long Finance aims to improve society’s understanding and use of finance over the long term, by posing awkward questions and encouraging innovative answers.
As a community Long Finance seeks to expand frontiers, change systems and deliver services. Long Finance activities include providing evidence-based examples of how finance works and doesn’t work. Where finance doesn’t work, Long Finance encourages discussion of possible solutions. Long Finance has hosted 150 events over the past six years. The spring and autumn conferences each year are particularly large and well-attended. Long Finance runs four programmes: the London Accord, Financial Centre Futures, the Eternal Coin and Meta-Commerce.
Inspired by David Hilbert’s 23 questions meta-mathematics project of 1900, Meta-Commerce aims to set out a map of core questions that need solving in order to arrive at a working financial system. The programme attempts to link economics, finance and society. Long Finance hopes that the Meta-Commerce questions can help prioritise future research and direct action. Due to funding constraints, Meta-Commerce is the least active of the Long Finance programmes, although the community has developed over 70 questions and topics for discussion which can be accessed online.
Is “when would we know our financial system is working?” the right meta-question for Long Finance? Is it possible to distill Long Finance, Hilbert-style, into a fixed number of questions? Can such questions sensibly be sequenced and prioritised – and if so, how?
This thought piece is not a formal paper or essay, although it might be a prototype of such a a document. In its current form, it is simply a stream of consciousness with the specific aim of facilitating Meta-Commerce discussions during the autumn of 2012. In this thought piece, I seek to question the basic principles of our Meta-Commerce approach. My purpose is to trigger discussions and enquiries, such that prioritised plans, research and actions can eventually follow.
If we are to persevere with this meta-question for Long Finance, we need to be clear about the definition of our terms. I would break the question down into three parts:
Long Finance people thought hard about the “time period” aspects of Long Finance early in the initiative. Inspired and informed by the Long Now Foundation, which uses 10,000 years as its base time period, we recognised that a base period was one of the first questions people ask, and most people move foward more rapidly if given a straight answer. Long Now lists fashion, commerce, infrastructure, governance, culture and nature as a sequence of paces with increasing longevity, fashion being seasonal and nature perhaps measured in units of 10,000 years. When we discussed a base period with the Long Now community they laughed, saying something along the lines of, “we thought 10,000 years for a clock was bold, but if you can do something about 100 years in finance, that’s by far the harder problem”.
We used two more pointed questions as early examples for Long Finance: “How might a 20-year-old responsibly enter into a financial structure for his or her retirement?” and “When could investors safely fund a 75 to 100 year forestry project?” In short, we seem to have settled on roughly 100 years as a reasonable definition of “long” for the purposes of Long Finance.
“Our financial system” is a difficult term to define or scope. We could define our financial system as “the subject of our meta-commerce questions” or “the workings of financial services organisations and governments”, but these are circular and/or closed frames of reference. The term “financial system” is perhaps deceptive, instilling thoughts of a single, homogenous mechanism or toolkit. Such a system would lend itself readily to repair, replacement or tinkering. A scientific approach to problems in such a system might be boiled down to a couple of dozen questions, in the style of Hilbert’s problems. If we were to tackle those problems in a sensible sequence, we might find optimal solutions and equilibria.
I would argue, however, that “our financial system” is more analagous with the planet’s ecosystem or a complex organism combining genetic and microbiomic properties. To some extent these remain scientific analogies, but we are delving more into the science of evolution, step changes, multiple equilibria or natural disequilibrium. Unlike physical systems, monetary and financial systems are highly subject to feed-forward; people respond proactively to changes in financial systems in various ways, anticipating the responses of others, adapting their responses accordingly, in ways that can be highly chaotic and unpredictable. Keynes was aware of this phenomenon; in the General Theory he uses a fictional beauty contest to describe the idea of people anticipating the response of others and then anticipating the response of others to that anticipated response and so on.
Our financial system faces wicked problems - messy, circular, and aggressive problems - wheels within wheels which lead to bigger messes and unintended consequences. In this respect, climate change problems might be analagous with financial systems problems; mixtures of complex natural phenomena and human intervention.
You only need to think about one central component of “our financial system”, money, to doubt the relevance of scientific analogies. Money is often described as a medium of exchange and/or a store of value. Economist and monetary systems expert Bernard Lietaer says that: “money is to people as water is to fish” and “it is such an intrinsic part of our environment that we hardly notice it.” But money can also be described as a collective decision making tool, a vehicle for taxation, a communications medium or even, as the journalist Simon Carr describes it, “a collective work of the imagination.”
These concerns about money matter if we really are seeking a route map of actions to get the financial system working. If the main problem is the monetary system itself, is it possible to replace it? – how do you change the monetary system without using the monetary system? Even at less radical levels of intervention, money might be such a multi-faceted, essential and yet ethereal part of the financial system infrastructure that it is simply impossible to make deliberate, material changes to that element of the financial system and predict in any meaningful way the outcomes of those changes.
Indeed, attempts to be proactive might be so likely to cause more harm than good through unintended consequences from those actions, it might be better not to intervene at all. Yet this kind of fatalistic thought sits uneasily with me and probably with most people who are interested in Long Finance. To milk the environmental analogy, fatalism in the face of these problems resembles the inaction of a polar bear, sitting on a shrinking ice cap, hoping for circumstances to change before the cold, briney stuff forces the polar bear to budge.
Still, whether we can sensibly intervene to solve the problems or not, we still should think about what we mean by our financial system “working”. A quality systems approach would be something along the lines of “fit for purpose”. If we see finance as a “tool”, then this means that finance serves society’s ends. While the performance of tools is normally measurable, the changing nature of society’s ends surely makes measuring the financial system’s performance problematic. Avoiding starvation, satisfying consumerism and minimising the adverse effects of climate change are all “things that the financial system ought to be able to help sort out”, but the importance society places on such goals changes and varies; money spans these goals over time and space.
Further, if “money is to people as water is to fish”, then we might be looking at money as part of the ecosystem in a way we might look at parasites or bacteria. We can’t eliminate them, but we can live better with them. In a similar vein, we should be thinking of improving the system piecemeal and avoiding epidemics.
If we are agreed that roughly 100 years is a reasonable timeframe, then a working financial system would suffer major crises or large-scale shifts no more frequently than each few hundred years. We could (and indeed should) debate our definition of major crises or large-scale shifts, but my own perception of our financial system is that it is currently suffering these several times in a century. It is also my view that the frequency and severity of crises is, if anything, increasing. If we are able to intervene in some way at least to reduce that severity and frequency, even without wholly solving the problems, that would be “a good thing”, or several good things. We might need a fairly tame definition of “working” in order to measure progress over mere years and decades.
It is often said of wicked problems that you don’t understand the problems until you have developed solutions. This thought is perhaps at variance with the idea of gathering of questions, Hilbert style. Perhaps this explains why I struggle to progress the questions we have gathered into a road map. The list of questions is surely incomplete; how do we complete it? Is there a framework which would provide a boundary for the questions, and also highlight blank areas where we should be seeking more detailed questions? Should we have more questions or should we be grouping the questions to distill fewer but key questions or themes – and if so, how do we group the questions? Is the goal of creating a canonical list of questions and thus a road map an appropriate goal at all?
One of my favourite quotations from Dilbert (also a great thinker, albeit in a different sphere from that of Hilbert) is the following: When confronted by a difficult problem, you can solve it more easily by reducing it to the question, “How would the Lone Ranger handle this?” The Lone Ranger approach is tempting; just ride in at high speed and solve those pesky matters. The Lone Ranger doesn’t agonise or add to lists of problems and questions, he is purely in the business of solutions.
To a large extent Long Finance has been dealing in solutions, not just questions. The work we have been doing on Confidence Accounting, Index Linked Carbon Bonds and Cyber Insurance demonstrates our solution-oriented approach to problems. Although our approach is perhaps not quite aligned with Lone Ranger methods.
We should consider whether we could construct a definitive list of solutions, to replace, supplement or help control our list of questions.
I have long been fascinated by Isaiah Berlin’s essay, The Hedgehog and The Fox. Berlin takes a single line from the Greek poet Archilochus, “the fox knows many things, but the hedgehog knows one big thing”, from which Berlin classifies many great writers and thinkers. Hedgehogs have a single defining idea, seeing the world through such a lens, whereas foxes draw on variety which cannot be expressed through a single idea. The essay pays particular attention to Tolstoy, who seems difficult to classify until Berlin realises that Tolstoy is in fact a fox who wishes he were a hedgehog. Perhaps Long Finance’s search for a single set of questions and/or road map is a similarly delusional classification. Long Finance is a fox initiative with an erroneous desire to be a hedgehog initiative.
Using the same hedgehog and fox fable, Stephen Jay Gould’s posthumous book, The Hedgehog, the Fox, and the Magister’s Pox explores the relationship between the sciences and the humanities. Gould revives and explores the idea of consilience, the unity of knowledge across many disciplines, an idea which is at the heart of my and Michael Mainelli’s book The Price of Fish. Gould’s thesis suggests that, historically, religious scholarship inadvertently accentuated the divisions between the sciences and the humanities. I don’t wish to explore that “Magister’s Pox” as a take on history, in any case Long Finance looks to the future and Gould suggests that scholarship emerged from such divides more than 50 years ago. However, I love the title, so with a nod to Gould and to Berlin, I suggest that our classification includes the passive polar bear approach and the active owl (pedagogue) approach. The Long Finance owl might not know all the questions or all the answers, but this pedagogical owl at least tries to understand, research and communicate the possible problems and solutions through education and leadership.