Finance

Last century, since the end of the Cold War, economic criteria have come to rule our day-to-day lives, and humanity, ruled by these criteria, has reached great heights. Now we have ended wars and poverty, and we have restored our planet’s ecology. The Earth has truly become a paradise. This has led us to put ever more trust in the efficiency of the economic principle. It has become paramount, permeating our very DNA. In every aspect and element, human society has become an economic society. Nothing that yields less than what is invested in it will ever even be considered. Developing the Moon makes no economic sense, and large-scale manned exploration of space would be considered an economic crime. And as for interstellar flight, that would be seen as outright psychotic. Now humanity knows only investment, production and reaping the fruits!

– Liu Cixin, Sun of China

The macro-history of Silicon Valley is that it used to be run by the military, then by hackers (nerds), then briefly by MBAs (or nerds who had read books by MBAs). And now it’s run not quite by financiers, but by these weird hybrid Finance Techies who both write code and read Matt Levine on weekends, then go into their day jobs as angel investors and crypto founders.

It’s easier to explain the shift through a Chapman-esque chart:

	Hackers	Econ	Finance
How do you explain the relationship between R&D and long-run outcomes?	Amortization	Fixed Cost / Variable Cost	CAPEX / OPEX
How do companies make money?	New technology	Better unit economics at scale	Kingmaking, burining VC money until competitors die
But really, how do you actually make money?	Cutting out intermediaries	Bundling and unbundling	Serve as the intermediary
What does your company really do?	Every startup is a search engine	Every startup is an API for cheap human labor	Every startup is really a fintech startup, and every fintech startup is really a bank (2)

It’s easy to feel repulsed by this shift, but more important to understand it as a reflection of broader trends.[1] As Byrne Hobart’s one sentence horror story once put it: “your life is more financialized than you think”.

Financialization refers to a bunch of related, but essentially different phenomena:

1. A broad multi-century shift towards wealth as an indicator of success and driver of happiness, rather than God, or virtue or other forgotten values.

2. The sense of longing caused by the elimination of the gold standard, resulting simultaneously in A) Yearning for grounding, truth and reason (it’s not a coincidence that “post-modernism” really only took off after 1970) and B) The sense of limitless opportunity unhampered by physical reality.

3. Your weird cousin buying peak GME.

4. The many decade old American and now Chinese norm of coupling your choice of shelter to the largest financial decision you’ll ever make. (Byrne Hobart once wrote "Most consumers don’t think to themselves ‘I expect rates vol to rise in the future, so I’d better be long gamma right now.’ " He was right at the time, but he won’t be in 20 years.)

5. Growing inequality resulting in A) Wealth feeling more fake (“What does $200 billion even mean?”), B) Many Americans increasingly forced to think about money as a matter of survival, and C) The disconnect between the two mediated somewhat successfully by leftist politics, but still resulting in angst vacillating between “the economy is made up so it doesn’t matter” and “the economy is made up, so maybe I can meme myself into wealth” and subsequent rise of “scam culture” (see f.e.x. calling out Belle Delphine for selling bathwater while also celebrating her for securing the bag)

6. Crypto gains occurring nearly overnight, alienating the nouveau riche from their own wealth, while simultaneously generating FOMO of unprecedented scale.

7. All of this happening on the backdrop of several non-financial crises (climate change, covid, poverty) forcing A) The question of why financial growth feels decoupled from important measures of progress and wellbeing, B) Why we can’t just print our way out of these crises if money is fake anyway, and C) The perverse dynamic in which the perceived illegitimacy of finance-as-practice serves to draw more attention to finance-as-concept, bolstering it’s memetic strength (i.e. in an ironic twist, shouting “money is only real because everyone believes it’s real” feels less like the Wizard of Oz ending where the curtain is drawn back, and more like the end of Elf where Will Ferell explains that we need to believe in Santa’s magic in order to bootstrap the self-fulfilling prophecy of making him magic.)

It’s easy to feel repulsed by all of this. Meanwhile, the scant havens of non-financialized life are now seen as the glorious low hanging fruit of the “last unoptimized asset class”, with an increasingly fine line between democratizing something and financializing it (see Lambda School for education, Substack for writing, NFTs for art). [2]

But the optimistic version is that the financialization has been there for centuries, it just hasn’t been evident. And if so, “financialization” refers not to the actual encroachment of finance onto everyday lives, but only to our growing awareness of it. Is that good?

In other domains, Alvaro laments publicizing the replication crisis, and Eigenrobot claims “popular knowledge of quantitative argumentation was a mistake.”

But I say screw it: let the masses know what’s happening to them. Let them see the inner machinations of this strange and beautiful world. And if they choose to abuse their newfound knowledge then that’s fine too. We are no worse nor less powerful than Gods.

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[1] If anything, tech has resisted financialization due to the nature of the industry:

• There are no calls or puts, no leverage, no complex financial instruments: all you can do is invest or not invest, you’re either in or out.
• Portfolio returns come almost entirely from one or two assets, diversification is an absurd anachronism.
• Outcomes are highly binary, it’s useless to talk about a particular year’s growth rate.
• There’s basically no debt, which some see as the foundation or at least origin of all trade.

[2] Ultimately, none of this is coincidental. It’s that democracy and finance really are intimately linked. Although it’s sometimes important to distinguish between the three meanings of “democratization” (1. Everyone has governance abilities over X, 2. Everyone can produce X, 3. Everyone can consume X) we have to recognize that in this case it doesn’t really matter. As mediated by markets, the ability to consume is identical to both governance and production. “You vote with your dollar”, and so too do you build.