Commerce Is a People's Revolution

By: Douglas_French

The big-box book business has begun to crumble with the bankruptcy filing of book-selling behemoth Borders. The Chapter 11 filing indicates the company is looking to restructure its debts and continue on. But as in the case of bankrupt Blockbuster, there may not be anything to restructure, with both of these old-technology companies destined for liquidation and futures of little more than Wikipedia entries chronicling each company's past glories.

Old ideas are continually destroyed by life-changing entrepreneurs who take new ideas and make all of society the better for it. Joseph Schumpeter is smiling while the equity holders of Borders stock are crying.

Once upon a time Borders increased my standard of living; now it's Amazon, shipping books to my front door. No more wasting gas and time while a girl with purple hair and a nose ring swipes my card and bags my books. For others, convenience is loading their ebooks electronically.

In the big picture, the Borders BK is a beautiful thing. As opposed to General Motors and AIG, there will be no government rescue. The fertile minds and energies of the creative class are always busy making our lives better knowing they won't be protected like government's sacred cows.

Andy Kessler has met and knows many of the creators who have shaped our lives for the better. Their successes were not guaranteed by government contracts or sweetheart deals, Kessler explains. "The cool thing about all of these folks is that no one did them any favors," Kessler writes in his new book Eat People: Unapologetic Rules for Game-Changing Entrepreneurs.

Kessler has produced a few New York Times bestsellers: Wall Street Meat, Running Money, and The End of Medicine. Kessler self-published Wall Street Meat when he was told publishing a book takes a year by the traditional publishing houses. He published his novel Grumby last year, first for theKindle and then in hardcover.

Kessler writes in an engaging and conversational style, thinks outside the box, and draws inspiration from such divergent places as the leftist Rules for Radicals, a dopey 99% conference for creative thinkers, but most of all from the wisdom of the entrepreneurial geniuses he's met from his time in Silicon Valley and on Wall Street: like Mark Zuckerberg and Mark Cuban.

What Kessler recognizes is that, while Zuckerberg has made himself extraordinarily wealthy, at the same time the Facebook founder has made us all better off. The author would like each of us to create new products and services that raise everyone's standard of living — not by exploiting some governmental privilege, but by creating something from nothing.

Those who embrace the book Rules for Radicals, like Michelle Obama, believe that wealth is a fixed pie to be carved up by political means. Kessler sees a wealth pie of infinite size, making our lives better and better, and lays out a baker's dozen of rules for entrepreneurs to keep growing that pie. The entrepreneurs who embrace the message Kessler refers to as Free Radicals.

Noticing that things that get cheaper year after year are huge successes, Kessler cautions that "if it doesn't scale, it will get stale." To make his point the author takes us back to 1968, when Intel introduced a 64-bit memory chip for $40 — or about a buck a bit, as he writes. Now his iPhone has 16 gigabytes, or 128 gigabits for about $500: "a billion-fold decline over 40 years." Forget businesses that ebb and flow with the economy; look to make products that go down in price, leading a million or billion more people to want it as the price falls.

Once you figure out what's scalable, you "waste what's abundant to make up for what's scarce." Prices dictate this. Ultimately, Kessler's drinking buddy George Gilder tells him, "The scarce resource is time, which always becomes scarce as other things become more abundant, and the human genius that can transcend the scarcity of time."

Kessler advises that vertical business structures are doomed and that entrepreneurs should "get horizontal." Horizontal works better because "it harnesses separate layers of innovation," Kessler writes, "something the vertical model makes almost impossible." Kessler also grasps the point made by Austrians that actual market prices are needed to provide the proper profit signals. Internal, phony pricing only provides false indicators.

Concerning Murray Rothbard's extension of Ludwig von Mises's work concerning capital-goods pricing, entrepreneurship expert Peter Klein writes in The Capitalist & The Entrepreneur,

The Rothbard analysis also suggests a line of research in business strategy: all else equal, firms able to use market-based transfer prices should outperform, in the long run, firms using administered or negotiated transfer prices.

Intelligence is at the edge of the network, writes Kessler, and creators must harness this power like Tom Sawyer who talked his friends into painting the fence for him. Behind on studying for an art history course final, Mark Zuckerberg famously created a new website downloading all of the images from the course website and sending a link to his class mates for comment. "So within an hour or two, a bunch of people in the class went and filled out all the information about the photos," Zuckerberg told Kessler. Indeed the entire class did better on the exam.

After championing lower prices early in Eat People, Kessler unfortunately gets caught in the trap of believing that an expanding economy needs an expanding supply of money. He frets about deflation and worries that only gold miners will do well with a gold standard. He is all for the Federal Reserve "as long as they [create] just enough of it [money] to match real wealth based on both population growth and productivity." The entire rest of the book advocates the free market and innovation, yet Kessler believes it should be in the hands of government to decide how much money is created and what money should be, and that the FDIC should be in place to stop any bank runs that might occur.

Kessler provides a good short explanation of fractional-reserve banking and its genesis with the goldsmiths. And this would have been a perfect opportunity to explore the possibilities of technology replacing fractionalized banking and the expensive regulatory apparatus that keeps it in place. Technology has broken down physical borders and started revolutions; why can't it be used to direct savings from lenders in one part of the world to borrowers somewhere else? Why do the local bank's deposits need to be loaned out while the depositor believes the funds to be held safe and sound at the bank. Instead of the combined deposit and loan banking system we have now, technology can separate the two as they should be — but it won't happen as long as the current apparatus is held in place by government.

Free Radicals should adopt technology for humans instead of the other way around, and while he refers to Charlton Heston's classic movie, Soylent Green, where people are eaten, it's worthless jobs that need to be devoured. Creators are at the top of the food chain and the author divides the world into makers and takers. Creators generate true wealth. Servers are next in the line of makers. Sponges use government privilege to decrease their supply and raise prices. Thieves are the worst of the takers, seeking high-level government privilege: think banks and the like. Technology eats jobs and that's all to the good; these people should be doing other jobs, says Kessler.

Sounding very much like F.A. Hayek, Kessler says that markets make better decisions than managers. And at the same time we should be embracing those with exceptional talents and skills. f anyone wonders why employers still use college degrees as a screening device for hiring, Kessler gives us a sobering story about Duke Power being sued under Title VII (and losing) for using an aptitude test as a part of their job application process. "Corporations have no legal way of testing just how smart you are, so they rely on colleges and universities to do their screening for them." Colleges and universities can get away with using SAT scores to determine who gets in; businesses aren't allowed the same luxury.

Political entrepreneurs are either born into it "or are sleazy enough to pay someone off to become one," and Kessler understands the digital world and the zero-margin cost of copying. "Like it or not, the Web is and will remain the Wild West." However, Kessler stops short of denouncing intellectual-property laws despite these laws being the height of government privilege that he rails against in other parts of the book.

At the end, Kessler sees the world as a struggle between hackers and slackers. Hackers are creators and developers in the Internet-code-writing world, while slackers are those that feel entitled: willing to live off the toil of others.

While the pace of technology is breathtaking, government remains behind the curve, regulating, hampering, and in some cases eradicating human progress. It's a fight for civilization. Andy Kessler's book provides valuable advice to the good guys — the creators who want only to make our lives better.

Eat People: Unapologetic Rules for Entrepreneurial Success • By Andy Kessler • Penguin, 2011 • 256 pages

Douglas French is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply. He received his masters degree in economics from the University of Nevada, Las Vegas, under Murray Rothbard with Professor Hans-Hermann Hoppe serving on his thesis committee. See his tribute to Murray Rothbard. Send him mail. See Doug French's article archives. Comment on the blog.

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