It's a mad, bad, wonderful world: A celebration of commercial diversity Transcript Date: Monday, 17 November 2008 - 12:00AM IT'S A MAD, BAD, WONDERFUL WORLD: A CELEBRATION OF COMMERCIAL DIVERSITY Professor Michael Mainelli [SLIDE: OUTLINE] Good evening Ladies and Gentlemen. Tonight is a multi-cultural celebration of some of the crazier aspects of commercial transactions, not least of which might be giving free lectures for over 400 years. As Gresham regulars know, it wouldn't be a Commerce lecture without a commercial so I'm pleased to announce that the next Commerce lecture will be "Regulating The Above Average: Luck Or Skill?" here at Barnard's Inn Hall at 18:00 on Monday, 15 December. An aside to Securities and Investment Institute, Association of Chartered Certified Accountants and other Continuing Professional Development attendees, please be sure to see Geoff or Dawn at the end of the lecture to record your CPD points or obtain a Certificate of Attendance from Gresham College. Well, as we say in Commerce - "To Business". The First Business Trip This lecture examines how people use odd commercial structures around the world and what we might learn from their strange ways. At points we shall touch on the history of money and coinage, though I particularly intend to look at how the social aspects of commerce interact with communications theory. One of my first business trips abroad, to Switzerland, partially inspired this lecture. I'd already experienced perplexing British commercial situations, such as having Post Office Telecommunications (later British Telecom) demand a significant deposit from an unknown new customer for a new telephone, but then realising that the best way to get the deposit back was to cancel the contract a few months later and re-apply as a known customer. At the age of 20 this trip to Switzerland was the first time I exchanged my own currency and made my own travel arrangements. I arrived in a country where overall, frankly (sic), things were fairly similar to the British Isles, yet I noted two strange things that stuck with me for nearly three decades. The first strange thing I noticed was that my bus ticket from the airport was valid for one hour. If my journey took longer than an hour I'd have to get off and buy a new one. I noticed too that this time limit was enforced by the various inspectors. What a wonderfully intelligent system. If you don't want extra charges and difficulties, then don't travel at peak times. When you realise that we congratulated ourselves on introducing a congestion charge in London in 2003, with great fanfare and impressive amounts of technology, this simple Swiss approach to congestion provides a simple counterpoint. Further, it really is a congestion charge. You will pay more if you go when traffic is moving slowly, whereas the London congestion charge is just a daily access tax. We'll uncover the second strange thing about currency later. The Silent Trade [SLIDE: SAHEL'S SILENT TRADE] I thought it would be fun to have a lecture where die-hard markets people suspend their belief that markets always work, and see what anomalies come out. Over the past six months I've asked for help from friends and acquaintances - what strange or unusual commercial practices have they observed. I was delighted when an old friend Keith Smith pointed out something with which I'd intended to start this lecture. When Keith taught African history, he explained the "Silent Trade". For many centuries, sub-Saharan Africa, particularly the western Sahel, was rich in gold and poor in salt. Salt from the desert was needed by the people of the Sahel to flavor and preserve their food. Gold was valued by Europeans. The British variously called areas southwest of Timbuktu on the Niger tributaries from Jenne to Ghana, "Guinea", from which the British gold coin takes its name. For well over a millennium, salt was worth its weight in Guinean gold along the transition from Sahara to Savanna, where sub-Saharan Africa starts to turn green. Herodotus records the Silent Trade on the west coast of Africa outside the Straits of Gibraltar around 440 BC. Let's listen to Herodotus 24 centuries later: "The Carthaginians say also this, namely that there is a place in Libya and men dwelling there, outside the Pillars of Heracles, to whom when they have come and have taken the merchandise forth from their ships, they set it in order along the beach and embark again in their ships, and after that they raise a smoke; and the natives of the country seeing the smoke come to the sea, and then they lay down gold as an equivalent for the merchandise and retire to a distance away from the merchandise. The Carthaginians upon that disembark and examine it, and if the gold is in their opinion sufficient for the value of the merchandise, they take it up and go their way; but if not, they embark again in their ships and sit there; and the others approach and straightway add more gold to the former, until they satisfy them: and they say that neither party wrongs the other; for neither do the Carthaginians lay hands on the gold until it is made equal to the value of their merchandise, nor do the others lay hands on the merchandise until the Carthaginians have taken the gold." [Herodotus (480 BC? - 420 BC?, ca 440 BC), Volume I, Book IV, Section 196; Translation by MACAULAY, George Campbell (1852-1915) - Source: http://www.gutenberg.org/etext/2707] More on messages across time later. Bernstein writes of the Silent Trade, "What must those poor diggers have thought of the funny people from the north country who swapped inestimable salt for stuff whose only role on earth was to give men pride and pleasure by letting them see its lustre?" [Bernstein 2000, page 73] The Silent Trade, also known as "dumb barter" or "depot trade", was a feature across the Sahel. In east African Azania, Cosmas Indicopleustes, the voyaging 6th century Greek merchant-monk, describes bartering gold for beef. Portugal's Prince Henry the Navigator recorded dumb barter centuries later when he occupied Ceuta in 1415, though by now the conventions for signalling included drums or gongs. The local board (or dust) games in much of the Sahel have two parallel lines of depressions and winning involves placing counters in your depressions opposite your opponents, the Mancala family of games, of which Oware is an example. Keith wonders whether the Silent Trade might be the basis of Mancala games. I did some inconclusive digging. Mancala games seem to be about 1,300 years old and probably originated in East Africa, near modern Ethiopia, so it is a possibility. Information & Communication Theory [SLIDE: SHANNON (ON THE RIGHT)] Many commentators remark that dumb barter is a method by which people with no common language could barter goods. Less remarked upon is that even if people spoke a common language, dumb barter is a way to avoid physical confrontation or overpowering. You have time to run away. Dumb barter is about trust. We touched on a similar problem in last December's lectures on Fads and Fashions [http://www.gresham.ac.uk/event.asp?PageId=45&EventId=642] when I shared a little puzzle about trust, deterrence and rationality. "Imagine that someone promises to leave a bag of oranges by a tree in the woods every day in return for £5 from you. ... the deal can never get started with rational people. Trust breaks this jam. Trust, whatever it is, will get people to leave the money and leave the oranges. But how can rational people trust?" The reason I wanted to start this lecture with the Silent Trade is that it provides an ideal opportunity to introduce some of you to the principles of communication theory, but first I want to introduce you to one of the not-so-silent characters of the 20th century who proposed the first major theory of communication. Claude Shannon (1916-2001) was a remarkable American electronic engineer and mathematician who, as a telecommunications engineer at Bell Telephone laboratories, was at the heart of the information revolution of the past century. This 1950 photograph of him shows his electro- mechanical mouse, Theseus, in a maze used for one of the first experiments in artificial intelligence. Even his 1937 master's thesis at MIT was remarkable. "A Symbolic Analysis of Relay and Switching Circuits" was published in the 1938 issue of the Transactions of the American Institute of Electrical Engineers. Shannon demonstrated that Boolean algebra could resolve numerical relationships, thus crediting him with setting out digital computer and circuit design theory as early as 1937. The combined engineering societies of America bestowed the Alfred Noble Prize (sic, not the Nobel) in 1940 on him for his thesis, and he hadn't really even started his career at age 24. Harvard University's Howard Gardner said Shannon's thesis was "possibly the most important, and also the most famous, master's thesis of the century." [SLIDE: THE ULTIMATE MACHINE] Shannon was a bit of a character too. He loved unicycles and juggling. He wrote the first chess software paper on minimax procedures. He co- invented the first portable computer and made a fortune with his friend Edward Thorpe using it to beat the Las Vegas casinos at roulette and blackjack. I can't resist one further digression about him. Based on an idea by Marvin Minsky, he kept an extremely plain box on his desk called the "Ultimate Machine".