Jim Simons and the Quants

Being centered on mathematicians, this book was not exciting, but it was interesting. James Harris “Jim” Simons (1938-2024) earned his doctorate at Berkeley, and worked for the NSA and the Institute for Defense Analysis, before teaching at Harvard and MIT. (Wikipedia: https://en.wikipedia.org/wiki/Jim_Simons). And that is in this story, of course. The focus, however, is on Renaissance Technologies and their hedge funds (Medallion and others), the most successful trading firm in history. Simons’s background in language recognition—pattern recognition; pattern prediction—allowed him the insight to expect that correlations must exist across markets, even if causal factors ultimately remain hidden. Therefore, it should be possible to profit from trading on trends that are unexpected and unperceived by everyone else. He was right.

The Man Who Solved the Market:
How Jim Simons Launched
the Quant Revolution 
by Gregory Zuckerman
(Penguin RandomHouse, 2019)

The method was easy to explain: mine the data. Look at all the numbers from all the markets and seek out trends and patterns and correlations. Some turned out to be causative. Regression to the mean predicts that after some market has a remarkably bad day, prices will rebound. The prediction applies to hugely profitable days: the market reverts toward its previous level. That much is easy to understand. The rest never gets explained. 

 

For one thing, no one associated with Renaissance Technologies was willing to talk to Gregory Zuckerman because they were bound by deep long-term non-disclosure agreements. Aside from that, the powerhouse of the company was driven by its staff of Ph.D. mathematicians. It would have to be understood at their level before it could be explained to the rest of us. 

 

What can be understood is that on average, employees who invested with the firm earned about $50 million each. “Since 1988, Renaissance's flagship Medallion hedge fund has generated average annual returns of 66 percent, racking up trading profits of more than $100 billion…” (Introduction). With that money came power, of course. Robert Mercer put his ideology to work when he found Steve Bannon for the Donald Trump presidential campaign in 2016. However, Jim Simons was a Democrat. And he was not alone in that. Many of the academics in the firm were liberals and they contributed to political campaigns, naturally, and also to special foundations (some of their own creation) supporting education, medical research, and other social initiatives.

 

Jim Simons’s methodology was a long time coming. Computers were rare and costly. Ten years later, they acquired the first desktop computers, which were woefully underppowered by today's standards. Although he launched the firm specifically to mine data so that profits could be harvested from trends, Renaissance Technologies also employed traditional traders. The two teams often collided, with Jim Simons himself significantly abandoning the algorithms for what would be too easily called “gut instinct.” Sometimes, we just know.  Also, with that mountain of cash, and with their frequent intra-day trades, they did not need to be often right. At the peak, in Jim Simons’s last decade, with the models and algorithms and supercomputers all generating money, Renaissance Technologies was right only 51% of the time.

 

One aspect of the story which I believe explains as much of their success as their mathematical models, is that Renaissance Technologies adhered to the ideal academic organizational culture. Workspaces were open. Visiting around the office was common. Sharing ideas was habitual. Discussion and disagreement were encouraged. (Pages 199-203). (See also "Team of Teams" on this blog.) It was not always easy and some people never forgave others for their complete lack of social grace. Neither time nor money heals all wounds.

But we all enjoy the profits. Zuckerman presents this as a zero-sum game. For Renaissance Technologies to have profited, many other brokerages, whose clients were stereotypically “dentists” (and other middle class professionals), had to lose. It is true that every trading position requires two people with opposite expectations. Ultimately, conservation of energy (charge; spin) means that everything must be accounted for with nothing magically lost or gained. And yet here we are: 10 billion people, 50% of us in cities of over 1 million; flying around 10 kilometers above the ground or cruising on the ground at 100 kph. We could not have hunted and gathered enough to make this possible. If not for Jim Simons and Renaissance Technologies, we would each of us be poorer by unperceived small fractions that did not become the comforts we enjoy.

PREVIOUSLY ON NECESSARY FACTS

Two Books About Fermat’s Last Theorem 

The Remarkable Story of Risk 

Happy Pi Day of the Century 

Coins Without Realms (Digital Currency) 

The Invention of Enterprise

The Invention Of Enterprise: Entrepreneurship 

from Ancient Mesopotamia To Modern Times. 

David S. Landes, Joel Mokyr, William J. Baumol,. 

eds. Princeton, N.J.: Princeton University Press, 

2010. 

THIS ANTHOLOGY DELIVERS 17 authoritative essays by accomplished scholars, surveying the sweep of history as seen from the vantage point of trade and commerce. The presentations on ten cultures from 20 different researchers are necessarily varied in perspective. Uniting them are their answers to the question, “What is entrepreneurship?” 

This review originally appeared in 

Libertarian Papers Vol. 3, Art. No. 15 (2011).

In the Preface by William J. Baumol, three hypotheses are presented. First, entrepreneurs find practical application for new inventions. However, in addition to those obviously creative actions, corrosive enterprises enrich their operatives without apparent net benefit to others. That, too, is enterprise because (third) “the direction taken by entrepreneurial activity depends heavily, at any particular time and in any particular society, on the prevailing institutional arrangements and the relative payoffs they offer…” Of course, other definitions have been offered. Peter Schumpeter, Israel Kirzner, Frank Knight, and even John Keynes are referenced across the essays. But these three hypotheses frame those other views.

Little here will be challenging, except, perhaps by omission. The Babylonians are here, but their long distance trade with the Hittites is not. Michael Hudson (“Entrepreneurs: from the Near Eastern Takeoff to the Roman Collapse”) validates our belief that Plato and Aristotle, among other sources, show that merchants and craftsmen were held in lower esteem than farmers and soldiers. That does not explain the invention of coinage, nor the contemporary rise of the tyrants as self-made men, nor the vibrant commerce in goods such as wines and ceramics that were nominally available both at home and from abroad. It may be that our assumptions are defined only by the surviving works of a few writers whose opinions are too easily accepted by the would-be philosopher-kings of later academies and lyceums.

Similarly, Louis P. Cain (“Entrepreneurship in the Antebellum United States”) chronicles Robert Fulton and Robert Livingston without mentioning their competitor, Cornelius Vanderbilt. Senator Douglas Stevens and the Illinois Central are here, but James J. Hill and the Great Northern are absent from “Entrepreneurship in the United States, 1865–1920,” by Naomi R. Lamoreaux. The history of the computer revolution covered by Margaret B. W. Graham, feels the same as Cornella Wunsch’s telling of the Neo- Babylonians: as if the author researched it professionally, without actually living through it. If Steven Levy’s Hackers: Heroes of the Computer Revolution were condensed to a dozen pages, it would identify the salient moments and crucial decisions of the significant entrepreneurs, which this chapter did not.

The economic histories of the Islamic/Arabic matrix, China and India, are each covered in single chapters. They are like a view of the Earth from the International Space Station: admiring the geography is easier than finding the people. Nonetheless, from orbit, a telescopic lens on a commercial television camera reveals water wells in the desert, each no more than two meters across. And here, too, within the panoramic sweep are individuals.

In “The Scale of Entrepreneurship in Middle Eastern History: Inhibitive Roles of Islamic Institutions,” by Timur Kuran we meet Ismail Abu Taqiyya, a coffee merchant who was active 1580 to 1620. (His story is told fully in Making Big Money in 1600: The Life and Times of Isma’il Abu Taqiyya, Egyptian Merchant by Nelly Hanna, Syracuse University Press, 1998.) Like many innovators, Abu Taqiyya met social and religious resistance: coffee was considered an intoxicant; and so “black water” was opposed by clerics. Mobs attacked and burned coffeehouses. Finally, in a courtroom, it was demonstrated that people who drink coffee exhibit no signs of slurred speech, dull wit, or lethargy.

In fact, we know Abu Taqiyya only from court proceedings. Few merchants of the Middle East left any personal financial records. Certainly, as a class, they were literate. They must have kept track of their sales and expenses. However, unlike their counterparts in Florence and Flanders, they had no strong tradition of record-keeping.

That fact reflects the fundamental barrier everywhere outside Western Europe—and there as well, until modern times: the family and the partnership were the only available modes of collective action.

It was difficult to create an enterprise that outlived its founders. That was true not only for the Middle East, but also for India, and China. By contrast, both the Babylonians and the Neo-Babylonians, whose temples were economic actors, did leave evidence of contracts extending across years and lifetimes.

Yet those family partnerships enabled trust, which is essential for transactions across space and time. Louis P. Cain (“Entrepreneurship in the Antebellum United States”) outlines the extension and expansion of the post office and the telegraph, both of which empowered communication that carried business news. Cain explicitly cites the invention of specialized commercial newspapers transported by U.S. Mail at favorable tariffs. Unfortunately, he says nothing about the competitors to the federal postal service. He also leaves out the U.S. Mint which in this era adopted steam engines to produce millions of uniform objects to close tolerance on a tight budget. However, he does support his claim that entrepreneurs of the time brought fundamental innovations to three key infrastructures: law, transportation and communication, and finance.

It is easy to quibble with details and to criticize the book they did not write. Only when we take an “orbital view” of the history of enterprise do those large features stand out in patterns. The editors and authors of this anthology show that enterprise is a complex phenomenon. Entrepreneurs find uses for new inventions. They seek out inefficiencies and [they] profit by reducing or removing them. They create novelties that destroy the patterns of existing goods and services. And they seek and gain special favors from political authorities. Entrepreneurs profit from war; but they do so only when and to the extent that their culture denigrates the merchant. When, as in Rome, the richest men claim poverty while using slaves to run their affairs, what we call “rent seeking” becomes the highest expression of enterprise.

Within that big picture, this anthology provides a wealth of facts, often as contrasts. Although Islamic law did not generally allow the existence of a non-corporeal entity, the waqf was adapted to that need. Originally intended to allow social service based on real estate—a well, for example—the waqf was extended to the caravansarai and eventually to pure cash holdings. Despite the anti-capitalist ethics that dominated Germany and France, non-state enterprises succeeded there, as well. Across the essays, the authors provide specific narratives of common themes such as the the varieties of business organizations, including partnerships, joint-stock corporations, and cartels, the use (and abuse) of patents, innovations in accounting, the nature of debt, and the contradictory impacts of religions.

Societies that hold merchants in high esteem enjoy material benefits. Evidence for that in this book comes from “The Golden Age of the Dutch Republic,” by Oscar Gelderblom, as well as the chapters covering England, and the United States. The status of the merchant in ancient India and China and in modern Japan validates that assumption. The best the merchant could hope for was benign neglect. Japan eclipsed India and China when merchants were elevated in the culture, granted not merely political power (though therewas that), but status and respect.

Allowing for some problematic distractions, this book can serve as an excellent primary text for a university class in economic history or as a supplemental assignment for a business school survey course in entrepreneurship. Aside from the content itself, each of these articles suggests topics for further study. Anyone who has already invested serious research in the development of trade and commerce will have questions— perhaps challenges—of their own to illuminate the work here. Thus, this anthology provides a reliable foundation for understanding how modern entrepreneurship came to be; and it also delivers a provocative engagement for new research and further discoveries.

Readers of this journal may not immediately recall the content of Ayn Rand’s essay, “The Intellectual Bankruptcy of Our Age” but they will not be surprised that Rand wrote a tract with that title. In The True Believer, Eric Hoffer warned that followers of mass movements often feel that they have access to special, even arcane, knowledge unavailable to, or unrecognized by, the mainstream culture. With that caveat as an anchor, it remains that several of the otherwise fine works here are tarnished by a kind of academic decadence, “death by citation.”

In the chapter “Entrepreneurship in France,” Michel Hau writes: “The persecutions of Protestants by Louis XIV (Lüthy 1955–1961) and then the troubles under the Revolution (Perrot 1982; Bonin 1985; Crouzet 1989; Aerts and Crouzet 1990) had more or less weakened entrepreneurship in many parts of France.” The facts are known to all; and Hau speaks to the expected, not the unusual. Moreover, Hau’s sentence contains modifiers (weasel words) “more or less” and “in many parts.” Of course, each chapter has its own bibliography, lest we suspect these professors of invention. Michel Hau provides 178 references for his 26 pages, including Weber’s Protestant Ethic in the original German.

In the chapter “Entrepreneurship in the United States, 1865–1920,” Naomi R. Lamoreaux conjurs five citations to bolster this claim: “There was no higher goal for a young American male to pursue during this period than to be a ‘self-made man’—to make a great deal of money through dint of his own hard work and ‘pluck.’” Anyone who wishes to tout the Gilded Age as an Era of Altruism will need to see her five and raise her one.

PREVIOUSLY ON NECESSARY FACTS

The Genius of Design

Venture Capital: a Zeitgeist Film

A Man's Home is His Market 

The Heller Coins of Medieval Hall in Swabia 

Money as Living History 

Numismatics: the Standard of Proof in Economics 
Numismatics Informs Economics

Long ago Miletus was great.

In five generations from 650 BCE  to 500 BCE --a span from your grandparents to your grandchildren--civilization was transformed by the confluential inventions of democracy, mercantilism, coinage, and philosophy. Thales of Miletos exemplified the times, He is credited with predicting an eclipse, taking out futures contracts on olive presses and leasing them when the harvest came in, and developing the first formal proof in geometry. What we call the Socratic Method was the Milesian Way brought to Athens by Aspasia of Miletos.

Traditionally, cities had been ruled by kings. That story is in The Iliad and The Odyssey. Something changed. It probably happened in one lifetime. Tyrants replaced kings. We do not like tyrants and the word has a negative connotation but tyrants of the archaic world were self-made men on the rise who took over the affairs of their towns. And they could be overthrown, exiled or killed. That took planning and the conspirators became an oligarchy. Widen the ruling junto and you have a democracy. 

At this time, philosophy, argument by reason and evidence, was replacing religion as the informative narrative in the culture.

The citizens voted to go to wars in which they were the soldiers. That was not the traditional way. Rather than expendable masses of untrained farmboys, Greek mercenary armies were made up of bronze-clad hoplites. Your shield protected the man on your left whose right arm was raised with his spear. Social cohesian was critical to success. In return for victory, these armies were paid with the first coins. 

With armies outside their walls, sometimes citizens under the cover of darkness took their money and fled in their ships to found new towns. Thus, the coins of Abdera in Thrace mimicked the coins of their hometown, Teos in Ionia. Small silvers worth a day's wages from the anonymous towns of the Cheronesos peninsula in Thrace c 350 BCE copied the archaic designs of Miletos.

Miletos c. 550 BCE electrum sixth stater 2.37 grams (ex: Singer).

Recumbent lion / incuse punches.

SNG Von Aulock 1796

About 25 years ago, Dr. Gordon Andreas ("Andy") Singer 

was set up at the MSNS Thanksgiving show. 

His table displayed medieval coins.

I gave them some attention and started to walk past 

and he asked me what I was looking for and I said, "Archaic silver." 

And he replied, "Gold can be as cheap as silver." 

I read the tag and told him that 

the coin was misattributed to Phocaea when it was clearly Miletos. 

He said that it wasn't his specialty 

and the coin was mine at that price if I wanted it.

The failure of the Ionian Revolt was a lesson for the American revolutionaries of 1776. The Ionian Revolt started in 499 BCE in Miletos. The 12 cities were Miletus, Myus, Priene, Ephesus, Colophon, Lebedos, Teos, Clazomenae, Phocaea, Erythrae, Samos and Chios. As much as they shared in common culture, and even though they declared a central temple to Poseidon in Priene they never formed a political league and were re-conquered one at a time, in a string of defeats. It was over by 493. 

Unity did not come easily to the Americans. Proposed by Congress on 15 November 1777, the Articles of Confederation were not ratified until 1 March 1781. Contrast that with the fact that the Marine Corps was created on 10 November 1775 after the Battle of Bunker Hill 17 June 1775 and the Battle of Lexington and Concord 19 April 1775. 

I learned in high school that the "American revolution" was not the War for Independence. The revolution happened in the minds of the colonial leaders following the French-Indian War 1757-1763 when they realized that they were mostly on their own and their opportunities for full rights under English law--such as the Bill of Rights of 1689--were weak. The Albany Plan of Union (10 July 1754) was one of several compacts between and among the American colonies. Some attempts at unity were forceful, as when Massachusetts occupied New Hampshire (which it had to give back) and Maine (which it kept). Wars between New York and New Hampshire and Pennsylvania and Delaware were brief. 

Miletos electrum stater from the Rosen collection.

Golden ages come and go. Greek civilization was a complex. Common language and a plethora of independent city-states allowed the exchange of ideas. People interested in ideas gathered in Athens, then were induced to Alexandria. Syracuse was always available, as was Rhodes. And when Alexandria could no longer afford her librarians, the philosophers found homes in other cities, spreading the knowledge rather than hoarding it, though the great library did continue.  

When the first coins were struck, wealth was land and cows. Land was inherited. Coinage changed the form of wealth. More importantly, it allowed the creation of wealth by new means. Aristotle was not alone in opposing it. While livestock breeds naturally, to make money from money is unnatural. Many people today still believe that. 

British North America had no native gold or silver. Spain went bankrupt by looting the native Aztecs and Incas of their gold and silver. However, the British colonies created paper money and from that came roads, canals, railroads, airlines, telegraphs, telephones, and computers. 

Just as tyrants have a bad name today, so, too, do we denigrate sophistry. The ancient sophists were mercenary scholars who charged money for their lesssons. Plato did not like them, though he gave a fair hearing to Protagoras in one of the books of The Republic. 

Diogenes of Sinope was traveling when his ship was stopped and all aboard were taken to a slave market and sold. In those days, once apart from your city, you had no protection.

Obverse and reverse of a drachmon of
Sinope that could have been struck under
the authority of Diogenes who was later
accused of adulterating the coinage.

The ancient Greeks had a word for the person with no interest in politics: idiot. Concerned only with himself, he did not take part in civic life or at least did not come to the Assembly to argue and vote and take the responsibility of holding annual offices. When they attended the assembly, they paid themselves the same wages as a soldier in the field or a rower on a ship: one drachmon per day. The Spartans thought that this was evidence of the corruption of democracy, that the citizens voted themselves payments from the public treasury. In America, we do acknowledge civic engagement. However, our contribution to civilization is honoring the individual who minds their own business.

"Mind Your Business" Continental currency 1776 and Fugio cent 1787.

PREVIOUSLY ON NECESSARY FACTS

Bringing Philosophy to Athens: Aspasia of Miletos 

Hypatia of Alexandria 

Is Philosophy a Science? 

Numismatics: History as Market 

Numismatics: The Standard of Proof in Economics 

The Audacity of Entrepreneurship

"What comes out of a team or a committee is the most daring idea that the least daring man can accept." John Arnold. "Space, Time and Education," Astounding Science Fiction, May 1953, pp. 9–25. Introductory remarks by John W. Campbell, Jr., editor, pp. 9–10.

Earlier this month, I (virtually) attended a conference of the American Astronomical Society. I participate in the History of Astronomy Division. One of the presentations was about Voyager. One of the presenters sighed that the government cancelled several follow-ups to include messages on deep space probes. I asked if they had any contact with Elon Musk. The expert replied that maybe some entrepreneur in the future might launch a mini-satellite with a solar sail, but no private firm can send a one-ton probe out of the solar system. After the conference, I sent him a link about Elon Musk's Tesla two-ton automobile orbiting the Sun. That is exactly the audacity of entrepreneurship. It radiates a fundamental optimism about what is possible in human achievement. 

PREVIOUSLY ON NECESSARY FACTS

Entrepreneurship

Bob Swanson and Genentech 

The Public Good Be Damned

Politics and the Inverse Square Law 

Disruptive Diagnostics and the Business of Science 

Amateur Astronomy for Pay 

 

My Numismatic Bibliography (Partial List)

Much can be learned from examinating, comparing, contrasting. sorting, and arranging. It is said that Mendeleev established the periodic table of elements by playing solitaire with cards displaying the empirical data of the elements. (See the Library of the University of California at San Diego here and also Nature here.) So, you have start with the material evidence. From that, putting the facts into the right order reveals many new truths.

The Numismatist

“A New Look at the Origins of Coinage,” The Numismatist, Vol 108, No. 8, (August 1995) (George Heath Literary Award, First Place, 1996).

“A Penny Earned: the Wages of Work,” The Numismatist, Vol. 109, no 11 (November 1996), p. 1320-1321, ill.

“In Praise of Walking Liberty,” The Numismatist, Vol 109, no 1, (January 1997)

“The Buffalo Nickel: America's Handsomest Coin,” The Numismatist, Vol. 110, no. 5 (May 1997), p.502-504; 539, ill.

“The Affordable Yet Beautiful Peace Dollar,” The Numismatist, Vol. 111, no. 6 (June 1998)

“Lost Opportunity: the Double Dime,” The Numismatist, Volume 111, no. 9 (September 1999), p. 1024-1029; 1069, ill.

“A Passion for Bust Halves, “ The Numismatist, Vol. 113, no. 12 (December 2000), p. 1407-1411; 1489, ill. 

“The Bicentennial Coinage of 1976,” The Numismatist, Vol 114, no. 5 (May 2001), p. 501-503;541-542, ill.

“Sir Isaac Newton: Warden and Master of the Mint,” The Numismatist, Vol. 114, no. 11 (November 2001), p. 1302-1308, 1363 : ill., port. (George Heath Literary Award, Second Place, 2002)

“How to Assemble a Dime Type Set,” The Numismatist, Vol. 115 no 5 (May 2002), p. 495-501, ill.

“Short Snorters: Keeping the Memories Alive,” The Numismatist, Vol 115, no 11 (November 2002), p.1302-1305, ill.

“Mr. Longacre's Indian Head cent,” The Numismatist, Vol. 116, no. 10 (October 2003), p. 33-36 : ill.
“The Many Faces of Coronet Cents,”  The Numismatist, Vol 117, no 4 (April 2004)

“Proof Double Eagles: Rarity and Perfection,” The Numismatist, Vol 118, no 8 (August 2005), p.36-40, ill.

“The Riddle of Riddell (From Texas to the Moon with John Leonard Riddell),” The Numismatist, Vol. 127, No. 4 (April 2014)

“Pursuing Paper Artifacts: A Checklist for Syngraphists,” The Numismatist, Vol. 128 No. 4 (April 2015)
“Internet Connections” Monthly feature column, The Numismatist, January 2004 to December 2010.

The Celator 

“Champagne: The Athens of the Middle Ages, The Celator, Vol. 25. No. 11, November 2009.

“Harlan Berk’s 100 Greatest Ancient Coins: A Glimpse Behind the Book,” The Celator, Vol 22. no. 11, (November 2008), p. 28-29;37.

“Copper Owls : The Emergency Coinage of Athens 406 BC,” The Celator, Vol. 19, no. 10 (October 2005), p. 6-16: ill., map. 

“Electrum,” The Celator, Vol. 17, no. 8 (August 2003), p. 25-31: ill.

“Book Review - Sargent, Thomas J. and Françoise R. Velde. The Big Problem of Small Change. Princeton, Princeton University Press, 2002.” The Celator 17.3 (March 2003), pp. 34.

“Authenticators Offer Range of Services,” The Celator, Vol. 16, no. 12 (December 2002), p. 37. 

“Portraits and Representations of Alexander the Great,” (co-author Ann M. Zakelj), The Celator, Vol 16., no. 7, (July 2002), p. 6-20 ill.

“Foiled by Fourrees?: Are these Plated Coins Official Issues or are all Plated Coins False? The Celator, Vol. 15, no. 12 (December 2001), p. 20-27.

“The Crime of Diogenes,” The Celator, Vol. 13, no. 5, May 1999

“Ancient Coins Show They Knew It Was Round,” The Celator. Vol. 12, no. 2, (February, 1998), p. 18-20 : ill

“The Origin of Coinage: Evolution of a Theory,” The Celator Vol. 11, No. 10, (October, 1997), p. 32-34.

“Kolophon: A Quiet Place to Raise a Family,” The Celator, Vol 11, no 8, (August 1997).

“Dyrrachium: Rome's Gateway to Greece,” The Celator, Vol 11 no 4, (April 1997).

“The Voice of Classical Greek,” The Celator, Vol. 10, no 1, (January 1996).

“Lycian League Issued Interesting Series of Coinage,” The Celator, Vol. 9, no 11, (November 1995).

“Book Review - Before Writing: A Catalog of Near Eastern Tokens,” The Celator, Vol. 9, no 1, (January 1995).

“Computer Software for the Collector,” The Celator, Vol 8, no. 8, (August 1994).

“The Purse of Eratosthenes: the Coinage and Commerce of Cyrene,” The Celator, Vol. 8, no 1, (January 1994), p 18-20., ill

PREVIOUSLY ON NECESSARY FACTS

Aaron Feldman: Buy the Book Before You Buy the Coin

Not Conned by Sehgal's "Coined"

Gresham's Conjecture

Electrum Sixths and the Treaty of Mytilene

The Future of Money

In the future, we will recognize money created by individuals, rather than by organizations. Individuals such as Taylor Swift, Bill Gates, Warren Buffet, and Oprah Winfrey are certainly in positions of visibility and trust to enable that. 

(This is based on “The Future of Money,” delivered for the Maynard Sundman/Littleton Coin Lecture Series, at the American Numismatic Association “World’s Fair of Money” in Chicago, on August 14, 2019.)  

Third-party trust services such as Paypal could enable everyone to issue their own personal money. We have had reporting mechanism such as Moody’s and Barron’s for over 100 years. And of course, we now have Equifax, TransUnion, Experian. But they are only the inheritors of the Bank Note Reporters of the early to mid 19^thcentury.

Money markets could be radically restructured by some new reporting mechanism. In a session on the future of law at the Armadillocon-41 science fiction convention in Austin last week, it was suggested that the blockchain mechanism could allow evolving contracts. So, too, would a blockchain identity manager allow you to always show the spendability of the money you issue.

The New Approach to Freedom by E.C. Riegel
and Flight from Inflation by E. C. Riegel

 The idea of personal money was explained in two books from the 1930s. A New Approach to Freedom and The Flight from Inflation by E. C. Riegel. They would have remained even more obscure than they are had they not been touted to the libertarian community by Harry Browne, the author of How to Profit from a Monetary Crisis and other books consumed by gold bugs. For that he was the Libertarian Party presidential candidate in 1996 and 2000.

Economists define money as being a medium of exchange, a store of value, and a unit of account. Those are already decoupled. The dollar is not a good store of value, but it is a unit of account for multinational corporations, even those headquartered outside the United States. In the future, and actually right now today, money will be defined by something you have, something you know, or something you are. 

I assert as my own theory that alone on an island, Robinson Crusoe would need money, just as he needed language and for the same purposes. We will see that money and language are tightly bound. Robinson Crusoe would need to know whether it was more efficient and effective to catch fish, gather cocoanuts, plant wheat, or hunt pigs. She would need a way to track his efforts and successes in order that he could survive and thrive. He needs mechanisms for accounting for his work and for storing his effort. Having an abundance of dried fish, the realities of supply and demand and of diminishing returns might induce her to seek wild fruits or edible tubers, both of which might become cultivated crops. But without money – even intuitively -she has no way to know. You might think that Robinson Crusoe has no need for exchange, but whether he eats a fish now, dries it for later, or buries it to condition the soil are exchanges.  

During the great fairs of the Middle Ages, bankers met to clear their books of assets and liabilities and they reconciled their accounts without ever touching a coin. We speak today of virtual currencies but the system of pounds-shillings-pence was invented by medieval bankers to come to grips with a huge array a plethora of local coinages whose weights and finenesses changed over time. This was facilitated by a new form of enumeration, so-called Arabic numbers conceptually different from Roman numerals. That system, incidentally, was at first declared unlawful by the very Italian cities whose successes depended on it.

Every civilization has had merchants. The Sumerians had a commercial colony among the Hittites. What made capitalism possible was the invention of the mathematics of risk. Chance became measurable. Predictable outcomes could be monetized and sold in the first stock exchanges. Modern banking and the insurance industry both began in the coffee houses of London. 

Something you are. Mattie Kuhn called herself Ma Kiley for 40 years. She was a boomer, telegrapher who moved from job to job. Much like computer programmers today, and especically considering those times, a large percentage of telegraphers were women who moved from job to job. 

Ma Kiley was a member of two unions, one for railroad telegraphers, the other for telegraphers at banks, hotels, and other businesses. The unions were not recognized by management and owners, of course. But the union members recognized each other, and maintained their solidarity. If a boomer could not afford a railroad ticket, a sympathetic railroad conductor might acknowledge the membership pin worn by union members and find seating for them.

In our time we have other media to carry the same workload of transferring values among people. It can begin with ritual gift exchange, especially for those times when cash would be so awkward.

When thinking about the future, I recommend the works of people who have been proven right over time. It so happens that the free market economists of the Austrian school shared many of the same misconceptions about money presented by Karl Marx. 

Instead, I recommend urbanist Jane Jacobs. She said that the first cities did not evolve from farming villages created when pastoralists settled down. She said that the first cities grew out of camps where hunter gathers met to exchange their surpluses. From those cities, farming expanded outward. The simple fact is that tractors are not manufactured on farms. When crops fail, farmers go hungry but the city just imports food from farther away. She made those and other predictions that were supported by later excavations of Çatal Hüyük in Turkey and other sites. She also said that contrary to Peter Schumpeter’s theory of “creative destruction” very little is actually destroyed by innovation.

Jacobs pointed out that when steam machinery began to supplant literal horsepower, the craftsmen who had been making brass fittings for horse tack put their lathes and hammers to work turning out fittings for industrial machinery. This was supported 40 years later by George Selgin’s book Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775–1821. So, I assert confidently that as much as the future will bring unpredictable novelties, many of the structures and functions that we have in our social institutions today -especially money- will continue to evolve. 

We will always have coins, notes, and cards. A hundred years from now, people will not be spending uranium coins on the streets of Chicago. But do not be surprised if an asteroid colony begins to issue advertising trinkets made from rhenium, osmium, iridium or whatever it is that they have a lot of and want to sell. Money may take different forms and formats. But we will always have an affinity for tangibles. We already have coins shaped like guitars and baseball gloves. This will only continue. 

Nothing teaches arithmetic like money. Would you rather have two shillings or 25 pence? And if I gave you a shilling five for a box of sweets at a farthing each could I get five dozen or maybe six? In the future, people will do blockchain calculations in their heads, perhaps with the aid of silicon, maybe with enhanced RNA. 

PREVIOUSLY ON NECESSARY FACTS

Ma Kiley: Railroad Telegrapher 

Objectivism and the Gold Standard 

Mere Gold is Not Enough 

Gresham’s Conjecture 

Supplies and Demands 

Spanish Coins on American Notes

Until 1857, silver and gold coins from Mexico, Spain, France, Brazil, and other nations were legal tender in the United States. We know commonly that that US dollar was modeled directly on the "Spanish milled dollar" or "pieces of eight." However, the influence of international trade on the new republic was very deep and broad.

http://scoan.oldnote.org/

The website linked at left is replete with examples of private banks from the 1830s, 1840s, and 1850s that issued paper money promising American federal dollars (most often, fractions, actually) but showing Mexican or Spanish coins as graphic images. 

We still sometimes call a 25-cent quarter dollar coin "two bits."  Two hundred years ago, one bit was was one Spanish real. Eight reales made a Spanish dollar. When I was in high school in the 1960s, it was a known cheer: "Two bits, four bits, six bits a dollar. All for [our side] stand up and holler." Spanish Mexican culture continued in the West, of course. You can find The Texas Rangers: Wearing the Cinco Peso by Mike Cox (Tom Doherty Associates, 2009). The 5-peso dollar-sized coin of the United Mexican States of 1947 was a much later version of the Spanish dollar and the Republic of Mexico "Cap and Rays" silver 8-reales (1825-1897).

Thames Bank of Laurel, Indiana, 1856, promises Two Dollars
and shows two Mexican 8-reales

The website Spanish Coins on American Notes lists two dozen examples from twelve states. Most of them were "wildcat" banks from the era of unregulated banking. State regulation was no more successful than the constraints of market competition. Even numismatists look askance at that period of rampant laissez faire. A more objective appraisal would put banking in with other businesses. In the frontier era, economies were shaky at best. People enjoyed a lot of opportunity, but few guarantees. We think of "ghost towns" as a consequence of mining in the West, but Michigan has many from the lumber industry, as well from copper mining.

It is also true that along the eastern seaboard, where trade with the United Kingdom dominated, merchants often kept their books in pounds/shllings/pence into the 1830s. The florin and crown coins of the UK were their attempt to bring their currency into some accord with the dollar. Meanwhile the 4-dollar "Stella" gold coin of the United States was our attempt to align with the 20-franc gold coins of France and other nations.

PREVIOUSLY ON NECESSARY FACTS

The Art of Finance

A Man's Home is His Market

City Air Makes You Free

Thank-You Notes

Confiscation: Gold as Contraband

Confiscation: Gold as Contraband 1933-1974 by Kenneth R. Ferguson was a pleasure to read. Ferguson writes well. I met Ken Ferguson in person at a coin show here in Austin. He speaks as intelligently as he writes. Our time together was enlightening. 

Few people ever get past citing Executive Order 6102. Even when they do point to that document, they most often stop short of fully citing and discussing it. This book delivers the facts. Ferguson tells the whole story, going past 6102 to the subsequent orders and laws. He lays out carefully and logically the many relevant details that highlight this singular event. He also examines the public response. I was impressed with his explanations of how and why Britain, France, and Switzerland returned to striking gold coins after World War II, using dies from previous years. 

This book carefully explains the intentions and consequences of the rolling orders and laws that redefined the monetary policy of the American government in the 1930s. On the first level, obviously, the goal was to get gold into the U.S. Treasury in order to meet foreign obligations. Moreover, the revaluation of the dollar did more than expand the money supply, though it did that. When the official price of gold moved from $20.67 per ounce to $35 per ounce, all of the paper profits went to the Treasury. Citizens who turned gold in were paid at the face value of the coins (or the equivalent for bullion), $20 for a $20 double eagle, not $33.86. 

As for whether surrendering gold was necessary, Ferguson demonstrates from several perspectives why it was not. Other nations made similar changes – demonetizing gold, going off the gold standard – without confiscating the private property of their citizens. That is a theme that Ferguson returns to often as he dissects the events and laws. If gold is money, then Congress (not the President) is authorized to define how much goes into what coins. That happened in 1834, for example. If gold is private property, then its uses as money are irrelevant in that context. Moreover, and most insightful (and damning) Ferguson shows that (1) Treasury stocks were not greatly improved by this law (though the Treasury did profit directly), and (2) the reason why is that half the gold in private holdings in the United States remained with its owners. People just ignored the law, as they had Prohibition earlier.

In 180 pages, this book provides a close and yet conversational examination of Franklin D. Roosevelt’s executive orders and the related Congressional acts that became laws. Ferguson identifies and explains the half dozen presidential orders and parallel banking acts, the criminalization of gold ownership, and the exclusions left open to numismatists. Turning to the international theater, the presentation builds on the official purposes of the Bretton Woods accords to illuminate the history of the 1950s and 1960s.  It was that context which provided the impetus for President Gerald Ford to lift all of those restrictions in 1974. 

From there, Ferguson considers the modern world, whether and to what extent gold is money, whether and to what extent it is an investment, and the prospects for a repeat of the draconian laws of the 1930s. That last is too often a springboard for ideologues who sell gold coins to harry the public into buying them. As a professional dealer in numismatic rarities, Ferguson shows more aplomb. 

Ferguson earned his master’s degree from the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. Since then, he was worked as a coin dealer. Those two facts explain why this book rests on careful research. His bibliography of 35 sources includes works by both John Kenneth Galbraith and Milton Friedman as well as authorities such as Q. David Bowers, John Craig, and Hans Schlumberger who are recognized within the numismatic community.

The weekend before, I attended a three-day seminar for authors on self-publishing. It was well worth the money. This book was published by the author and Ferguson did it right. The book is set in 11-point Garamond, which the user experience designers here in Austin assure me is the new standard in Roman (serif) fonts.  Of course, it is perfect bound. Ferguson told me that he turned for help to a professional editor. From the seminar I attended the weekend before, I learned how much he paid for the ISBN. It makes a difference in the professional presentation of any work that claims authority. Confiscation: Gold as Contraband 1933-1974 by Kenneth R. Ferguson adheres to that standard.

PREVIOUSLY ON NECESSARY FACTS

Objectivism and the Gold Standard 

Gresham’s Conjecture 

Electrum Sixths and the Treaty of Mytilene 

Numismatics: the Standard of Proof in Economics