The searches we make, the news we read, the dates we go on, the advertisements we see, the products we buy and the music we listen to. The stock market. The surveillance society. The police state, and the drones. All guided by a force we never see and few understand.
A series of calculation procedures that come together to constitute capitalism’s secret ingredient — the all holy algorithm, that which binds and optimizes. Those strange numerical gods who decide whether or not you’re a terrorist and what kids’ toy is going to set the market on fire this Christmas. But what are they, where did they come from and how did they get so powerful?
Algorithms are not new. You can trace their origin all the way back to a 9th century Persian mathematician by the name of Muhammad ibn Musa al–Khwarizmi (Algoritmi in Latin) from whom the word derives its name. Then there was Abu Yusaf Ya’qub ibn Ishaq al–Kindi, a contemporary of al–Khwarizmi’s at Baghdad’s House of Wisdom. He discovered and developed the science of frequency analysis, or code–breaking, providing a basis for code breaker Alan Turing to develop his Turing Machine, the theoretical prototype for the 9 billion devices currently sending and receiving signals through the Internet.
When we talk about algorithms, when they come up in conversation, often tied to latent and emerging fears, we’re not talking about the mathematical models behind them, we’re talking about the models that the models were modeled on. Most people have never heard of a polytope, Boolean Logic or the Hirsch Conjecture. But everyone has a credit score, whether they like it or not.
If we want to interrogate the true nature of these numbers, the wizard behind the ghost in the machine, we need to look no further than Adam Smith, that dour Scot who lived with his mum and accidentally created the modern world.
Smith was neither a modernist nor a cosmopolitan. He was an absent’minded hermit who never married, had few friends, suffered from alternating fits of depression and hypochondria, travelled outside Britain on just one occasion and demanded that all his personal writing be burned upon his death. He was the supreme king of unintended consequences, a humble and misunderstood moral philosopher who became the patron saint of greed.
Most famously, and most tragically, Smith was an ambitious writer who got a bit flowery with his language on occasion, and, as a result, his entire legacy was reduced to two words: invisible and hand. As in, the Invisible Hand — that mysterious market force that secretly and surreptitiously guides all our actions and decisions. Or so we’ve been told.
In The Wealth of Nations, the blueprint for what became known as capitalism, Smith drops the phrase but once. It’s situated in a rather dry discussion on trade policy and is used as a metaphor in a straightforward critique of mercantilism’s excessive restrictions.
And that’s it. Just a cursory metaphor used for poetic flourish in an otherwise obscure and forgettable passage. And for the 150 years that followed the book’s publication, that’s exactly what it was — obscure and forgotten. Smith didn’t mention it, his contemporaries didn’t mention it, nor did his critics. Nary a soul on Earth repeated those two words or paid them any heed.
That is, until 1948, when everything changes.
If you look at a Google NGRAM chart of “invisible hand,” you’ll see that there was little to no interest in the phrase up until the 1930s and ’40s, at which point it begins to bubble up a bit, gaining traction in a few peripheral spheres here and there. Then in ’48, Chicago School economist Paul Samuelson writes a book called Economics: An Introductory Analysis, which would go on to become the best–selling economics book of all time.
In his book, Samuelson grabs hold of Smith’s wordplay and freebases meaning from it until a mere metaphor mutates into the economic doctrine that would define the shape and form of global finance for the remainder of the century, and beyond.
“Every individual, in pursuing only his own selfish good, was led, as if by an invisible hand, to achieve the best good for all, so that any interference with free competition by government was almost certain to be injurious,” writes Samuelson. And with that, not only is it justifiable to be callous in the pursuit of wealth, your callousness will somehow, vis–à–vis the invisible hand, uplift those you trample on your way to the top.
Picture Gordon Gekko, hair trickling with high–end product, walking with the gait of limitless sprezzatura, saying, “Greed is right, greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.”
Samuelson would later go on to regret the liberties he took with Smith’s words, but the meme had already been injected into the passive hive mind of economics. What followed was a long and tangled game of economic telephone wherein Smith’s fatalistic conceit gradually took on mythical qualities. From turn of phrase to doctrine, from doctrine to dogma, from dogma to metaphysical law. The invisible hand became the celestial justification of the free market and the economic rationalist’s negation of anything that stood in its way.
Austrian economist Friedrich Hayek even went so far as to develop an entire theory of human interaction based on the myth. It was called Catallactics, and proposed that we did not live within an economy, but rather, a Catallaxy — a complex and self–organizing system in which every individual sent out a constant stream of complex signals that mixed to create overall market behavior.
Knowledge, Hayek argued, was distributed on an individual level, each person containing their own fraction of the whole.
The vast repository of human knowledge was inherently decentralized. Because of this, no central body or government agency could ever hope to contain enough of it to know what was really going on. But if allowed to move freely without meddling, these messages would come together to create order and equilibrium in the market.
This, he argued, is why the government should never meddle in the market. And why order could never be “planned,” and was instead “brought about by the mutual adjustment of many individual economies in a market.” As long as the signals, our private info–snowflakes, could float freely, the market would reach equilibrium.
Through Hayek, dogma became revelation — the invisible hand was not merely a magical presence promising equilibrium, it was also pointing us toward a not–too–distant utopia. And if we didn’t follow the hand? Oppression and despair would follow mankind into a dark hole of tyranny.
Hayek’s ideas spread swiftly through a series of think tanks connected to his economic clique, The Mont Pelerin Society, which counted Karl Popper, Ludwig von Mises and, of course, who else but Milton Friedman among its members. Together they successfully launched what we now call “neoliberalism” into the political consciousness.
Neoliberalism found its champions in Margaret Thatcher and Ronald Reagan. Thatcher regularly corresponded with Hayek and used the slogan There Is No Alternative (TINA) to explain her affection for its concepts. Reagan hired Friedman to be his economic advisor. And together they carried out an economic revolution that smashed trade unions and deregulated and privatized anything and everything that could be guillotined. From this axis of Anglos, it spread to other parts of the Commonwealth, then to Europe, Asia, South America and beyond.
But no matter how much they stripped away government meddling, somehow the “abstract signals” still weren’t getting through. The hand remained clenched and crises endemic. Asia, Argentina, the Eurozone, the 2008 meltdown, the flash crash. The market continually failing to magically self–correct and achieve equilibrium.
The faithful kept their faith and stuck to the program. The crisis, both economic and existential, were met with a recommitment to the faith in the form of austerity and technology and the dream persisted.
The problem was obvious to anyone outside the neoliberal thought–bubble: the invisible hand wasn’t real and it didn’t exist. It never had existed. It wasn’t just invisible, but immaterial, made from the twisted fantasies of economists obsessed with achieving an impossible “equilibrium.” You couldn’t touch it, and it couldn’t touch you.
In 2010, when the Dow Jones Industrial dropped 1000 points in under a minute, the biggest one–day point decline in history, it received far less attention then it deserved, because everything returned to normal a few seconds later. Now, miniature flash crashes occur constantly throughout the day. But this crash was a turning point, demonstrating that something had changed. That something was that the neoliberals had achieved what communists, socialists and Christians never could: they made their god real, and in doing so, achieved their utopia. They just didn’t let the rest of us in on it.
The critical flaw in Hayek’s vision of the hand was that a “central body” could never gather enough information. We know this to be untrue, and with big data and the analysis and manipulation of that data through algorithmic equation, the missing link between money and the machine was discovered.
The searches we make, the news we read, the dates we go on, the advertisements we see, the products we buy and the music we listen to. The stock market … All informed by this marriage between mathematics and capital, all working together in perfect harmony to achieve a singular goal — equilibrium. But it’s a curious sort of equilibrium. Less to do with the relationship between supply and demand, and more about the man and the market.
All these algorithms we encounter throughout the day, they’re working toward a greater goal: solving problems and learning how to think. Like the advent and rise of high–frequency trading, they’re part of an optimization trend that leads to a strange brand of perfection: automated profit.
And their current day use, no matter how impressive the specs, is still rooted in 7th century code–breaking. Only now it’s about breaking our individual codes. Throughout the day we send out thousands of our own individual abstract signals and the algorithms figure out how best to streamline our existence into the market’s needs. We’re all just cyphers waiting to get cracked.
This is not the stuff of Orwell and Huxley, but Amazon and the NSA.
There is an overwhelming feeling of inevitability surrounding all of this. With computational capacity still threatening to double every two years, the algorithmic estate will continue to expand and become more sophisticated. All of this development, testing and research is leading to a predictable outcome. Given that they are leading investment and research in the sector, Wall Street financiers will develop the world’s first fully functioning Artificial Intelligence.
If any of this feels inevitable, it’s because it was designed to make us feel that way. If the algorithms that organize the world of money were turned on their head and used to analyze the defects in their guiding philosophy, they would shred it all on one razor sharp fact: the world beyond the market is still a real one. And no matter how sophisticated the math, how brilliant the AI, we will always be living in it.
Outside of The Wealth of Nations, Smith employed the Invisible Hand concept on only two other occasions. Once in his Theory of Moral Sentiments, where he slags off the rich, and the other in the History of Astronomy, where he says:
For it may be observed, that in all Polytheistic religions, among savages, as well as in the early ages of Heathen antiquity, it is the irregular events of nature only that are ascribed to the agency and power of their gods. Fire burns, and water refreshes; heavy bodies descend, and lighter substances fly upwards, by the necessity of their own nature; the invisible hand of Jupiter was never apprehended to be employed in those matters.
These days, the “savages” kick back, polish their yachts and let the machines do their thinking for them. Their god is a primitive and cruel one. Worse yet, it lacks imagination. The future it sees is just an optimized version of the present. Everything that falls within its gaze is predictable, because mathematical sequences are predictable. What remains to be seen is whether or not human beings are as predictable as the machines think we are.
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