Sober, risk-averse, rational businessmen make great captains of industry—in established industries which someone else already built. But the new industries which drive progress come from wild half-mad ideologues. This lecture covers the psychology of the men behind the major breakthroughs, from the steam engine to the large language model.
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Transcript
The psychology of pioneers (00:00)
Hello, and welcome to The Students Talk series. I’m Ben Landau-Taylor, here to talk about new industries, where they come from, psychologically what’s going on with the people who put them together. So there’s an article from 1982 in the “Miami Herald”, a very cute local public interest story. The reporter’s going around interviewing the valedictorian of every high school in the county. Most of it’s like, “Gilbert Scott Fine, 17, first in a class of 270, will major in computer science at Drexel University. He said, ‘Basically, I’m very motivated. If someone else can get an A, I can get an A.’” Most of it goes on like that.
“Jeffrey Bezos, 18, first in a class of 680, will study electrical engineering and business administration at Princeton University. He wants to build space hotels, amusement parks, yachts, and colonies for two or three million people orbiting around the Earth. ‘The whole idea is to preserve the Earth,’ he said. His final objective is to get all people off the Earth and see it turned into a huge national park.” A little bit different.
So these people who end up doing things like founding Amazon tend to be somewhat odd in the things they care about, the ways they operate. This isn’t just Bezos in particular. I think if you’re looking around the big industrialists today and looking at who are the weird ones, Bezos would not be the first to come to mind. And in fact, this goes all the way back to the very beginning of the Industrial Revolution. With the steam engine, which was invented by James Watt and his business partner, Matthew Boulton.
Watt was on record saying... I’m going to butcher the quote, but it’s something like, “Nature has a weak point, and we can vanquish her if we can but find it out.” Boulton, who was sort of the Steve Jobs to Watt’s Wozniak, was this guy who, when he was in his 70s, he heard that there were some burglars who wanted to break into his factory and steal the payroll. And so he told the watchman who they were trying to bribe, “Okay, yeah, let them in, and then I’m just going to get a bunch of my friends and pass out guns and ambush them. It’s going to be a blast.”
And he was doing all sorts of wild antics like this. And if you look through the history of industry, a lot of these characters... Which is kind of odd, because we also have this idea of the captain of industry, this very responsible, very sober, very risk-averse person in charge of all these things. And there actually are a lot more of those people than there are these kind of wild and crazy guys. But they tend not to be the ones who invent the steam engine.
They tend not to be the ones to make these really big sort of breakthrough new industries. They tend to be people like Tim Cook. Did not create Apple computers. He’s very good at running Apple computers after somebody else built it. Leland Stanford.
He built the leg of the Transcontinental Railroad and operated it, ran it very well, made a lot of money. Became governor of California, left a huge fortune to create Stanford University. He’s a much more regular guy, what you would think of as an ambitious, responsible captain of industry type. He built the railroad. He did not invent the railroad.
Decision-making motivations (04:28)
And you need a lot, you need like probably several thousand Leland Stanfords if you want to run an industrial economy, but you also need these other guys. What’s going on here? So now we have to get into the psychology of what do people do for money, and what things are people going to only do for reasons other than money? So there’s the sort of common economic psychology idea is we sort of approximate people as rational economic agents who are making sensible choices about how to make money and then how to spend money in ways that will produce utility for them, fulfill their values, however you want to put it. And everyone will say, “Okay, this is kind of an approximation. It sort of describes things, but it’s not exactly what’s going on.”
Which is true, and if you take it as a sort of approximation, it’s a very useful theory. But especially at sort of the very extreme outlier cases, it breaks down. So let’s talk a little bit more about the actual psychology of how people deal with money and what motivates them. So there are basically, I think when I go around and you look at why do people make economic decisions, why do I make decisions about where I’m going to work, how much money I need, what I’m going to do with my money, what I’m going to buy. When I look around at the people I know, why are they doing what they’re doing?
It seems like there’s a bunch of different reasons people have for the things they’re doing. Most of the big decisions seem to fall into one of three rough categories. There’s kind of like impulse so there’s a lot. If you find yourself spending 20% of your income on DoorDash, you’re probably not sitting down with your green visor and being like, “This is the best way I can maximize my utility given my spending.” You’re probably much more impulsive about it.
And for some people, that ends up being the main way that they end up making a lot of these decisions. If you’re just getting really mad at your boss one day and you quit. Another one, the one which for me ends up being how I make most of my decisions is custom. You get these sort of scripts from society of like, this is what a responsible person does. This is a good way to make a decision like this.
Oh, this should be the relationship between, you should have this much money to get a house like that. For someone in your social class, it makes sense for you to be taking vacations. But you shouldn’t be taking those types of vacations. That’s too expensive for where you are. Maybe you’ll read a book.
Maybe you’ll listen to a podcast that explains to you how you should invest your money. You should be putting it in this type of retirement account. And for the most part, I don’t derive all of this stuff from first principles with pure reason. I just listen to people who have been put in a social position where it seems like they know what they’re talking about. I check to make sure that it makes sense, and I follow that.
And sometimes people make decisions based on reason. There have been a few times in my life, I could probably count them on my hands, where I’ve made a big economic decision by thinking things through from first principles and coming up with a genuinely new idea and doing something different. I have ever done it, but I sure don’t do that a lot. And this is not 100% of all of it, but I think for most people, this is how most of their decisions get made. And for these sort of Tim Cook, Leland Stanford types, they’re making a lot of their decisions based on, in this sort of reason mode.
However.
Yeah, so reason ends up being very important and especially important in these positions because if you’re making decisions about big economic things based on reason, you’re going to make better decisions about how to run a railroad, how to run Apple computers than people who aren’t. And so there’s this filtering effect, in our society, not true of every society, where the people get sorted into these positions. And the history of Western society, when you started seeing more people, when you started seeing a lot of the big concentrations of the biggest wealth and capital go from the sort of knights and nobles and landlord classes, which was to the extent they were using reason, they were reasoning much more about power than about economic growth and financial returns. But then over time, the control of it shifted to the sort of city-based burgher class who was much more, “Oh, we should be using reason to try to maximize our returns.” And so this class ended up managing more and more of the wealth and reshaping society around that in some what eventually proved to be extremely important ways.
So right now, we live in a society where lots of the big piles of wealth and capital and Apple computers and all sorts of big infrastructure, the people who are good at using reason to think about things end up sorting themselves into that. So even though I think it’s a small fraction of the population when it comes to the management of these big economic forces, the sort of idea of, oh, we can approximate humans as the sort of homo economicus, reasonably okay approximation of a rational agent becomes a lot more true of these sort of captains of industry types than it is of a random selection of the population or all of the people who were at my high school or something like that.
Ideology vs. accumulation (10:32)
However, when you get to why do people want the money, this is another place where it sort of breaks down at the extreme. Because to a certain extent, you can get a bunch of nicer things if you have more money. But this does kind of break down after a certain point. If you are a psychologically healthy person who is doing a reasonably good job of fulfilling your psychological needs through the sort of normal channels and have fulfilling relationships, how much money can you spend on consumption? A fair amount over the course of your life, maybe $50 million, maybe $100 million, but probably not $10 billion.
And so if you’re looking at the people who end up amassing these big, big personal fortunes, it is not unusual for someone to get to this level of, you get a fortune or an offer of a fortune that you can just get everything that a sensible person needs for their life and someone offers to buy your company for $200 million and you’re like, “Great. I’m pretty much set. I’ll take that.” But for the people who keep not just having a job, but really pursuing and keeping going on these kind of soul-crushing, soul-grinding, continuing to try to build more and more and more long past that point, it’s going to be something other than like, “Oh, I just really want to be able to buy a bigger house for my kids,” or something like that. And so if you look at those motivations for a bunch of them, there’s this sort of very bourgeoisie sort of stewardship and running capital kind of as almost a ideology unto itself.
Of, oh, just the thing that you do, you’re just so inculcated into this idea of I just want to be managing bigger and bigger piles of money for its own sake, or bigger and bigger piles of capital. And among the Tim Cooks and the Leland Stanfords, this is often what gets them to...
Tim Cook is a very rich man, but he keeps going. I’m not going to go too deep into that because there’s also this other type, the sort of Thomas Edison type, the Jeff Bezos type, who they’re using economic reason, but not because they want the money for this sort of normal consumption. Jeff Bezos cannot do what he wants with $50 million. Jeff Bezos wants to move all of humanity into space. That’s very expensive.
He’s been moving basically $1 billion a year into his rocket company because, like he’s been saying since high school, he wants to move humanity into space. The reason why he started Amazon in the first place was because he wanted to make a gazillion dollars so that he could fund the rockets, and he’s doing that. He wrote about it many times, starting when he was a kid. So he has this very strong goal, which requires a tremendous amount more money. There’s a few of these.
More common is the sort of more of the James Watt type, where he’s like, “If we can find out nature’s weak point and vanquish her.” He has this strong ideological drive to build the thing, to do what he’s doing. A bunch of his letters, he talks about how he’s just kind of obsessed with this machine. It’s not about the money for him. Before he went into that, he was making pretty good money as an engineer building canals, and came very close to bankruptcy.
It took him many, many years of tinkering to get the steam engine working. But he couldn’t leave it alone. He just had to advance it for its own sake. And this is something you see quite frequently.
I could go on. I could tell stories of the different industrialists, and all of the weird things they’re on about for... I could fill the entire talk with that, so I’ll try to keep that to a minimum. But I’m sure you guys can fill in a bunch of your own examples, especially of some of the people today. But one of the things I will talk about very briefly, because we are in San Francisco, and they will probably throw me out if I don’t mention it, is if you look at where the artificial intelligence has come from.
This is from people who want to... They’re not just like, “Oh, yes, this is a way that I can maximize shareholder value. This is not a way that I can make my company be more valuable so that I’ll have more money.” These are people who want to end the age of man and replace it with the machine. When you look at the people who are behind the most successful companies.
If you’re looking at what are the big, important companies pushing forward the state of the art in artificial intelligence, who’s leading them? The one who’s kind of the least insane in this way is Mark Zuckerberg, and I think it’s not a coincidence that they are not the head of the pack, while being a lot less ideological about trying to build the super intelligent machine than someone like Dario Amodei. So we see this all over the place.
To do this, when you’re trying to build a totally new industry, it requires not just risky financial bets. It does require risky financial bets in a way that the sort of managerial ideology doesn’t really like, even if the expected value may arguably be high. But it also requires teaching people new ways of doing things. It requires sort of reordering society to make space for the new thing that you’re doing. People have to learn, oh, if I need socks, then I’m used to going to the store to get socks, but there’s this other thing I can do.
And some of the younger audience members may not remember how weird it was when people started just being, I’m just going to give money to some stranger on the internet, and they’ll send me socks? This really threw a lot of people. And when you look at the introduction of basically any new technology, people have to sort of be taught how to use it. They have to be taught what it’s for, how to fit it into their lives. This is very hard to do, and is generally not the sort of smoothest way for a person to make money, even a lot of money.
Creative destruction (18:04)
Often more significant is that it provokes political opposition. Schumpeter, who was one of the great economists of the 20th century, talks about this process of creating very new products, very new industries, and thereby obsoleting the old ones. His term is creative destruction. People don’t like it when you destroy their stuff, and so they will usually oppose you. Schumpeter calls the history of industrial progress a history of revolutions.
Every revolution has two sides. And so when Uber was coming out in France, the taxi drivers got out of their taxis and they would go and they would smash up the car of every Uber driver. And the police were like, “Yeah, that’s legit. We’re going to let them do that.” This was a very dramatic example, but the amount of legal opposition and obstructionism, that you are going to face if you’re trying to do something new and obsolete some other guy’s business is going to be quite substantial.
And a lot of people don’t want to put up with that. One, it’s bad for your returns, but two, it’s just really psychologically taxing, and it makes the potential downside of what if it doesn’t work a lot worse than, oh, well, you could lose some money. So in order to plow through all of this, it tends to not be something that someone is going to do just for mere money. And so this is why when you look at where did the new industries come from, they tend to be done by someone who had something much more ideological going on or some other very strong psychological drive where it was kind of the only way.
If you’re trying to create the machine which will succeed man, if you are trying to move humanity into space, all of the ways of doing that that actually might work involve doing a bunch of these very hard things, and it’s sort of the only route that you have to do that. So to illustrate some of the difference between these two types, one historical case I want to talk about is the history of General Electric, which of course came out of the Edison Electric Company. And if you look at the life of Thomas Edison, he’s absolutely one of these wild, crazy guys who doesn’t really fit into the system and doesn’t play well with others. So, and when he was a young guy, he was a telegraph tinkerer. He’d work at different telegraph companies, buy a bunch of parts on credit, try to invent stuff, and then skip town when his debts from all of the experiments got too big.
Eventually, over the course of time, he got two big inventions that were advances in making better telegraphs, basically, which he sold these for a big pile of money. And a less ambitious person would’ve then just been like, “Great, I’ve got a big pile of money. I’m going to retire and maybe buy a farm.” A more ambitious person might’ve been like, “Great, I’ve got a bunch of money. I’m really good at this telegraph stuff. I’m going to make a new telegraph company.”
Edison, of course, didn’t do that. He started his Menlo Park laboratory, where he was just going to work on totally different things. He ended up inventing the light bulb and the power plant to power the light bulb and became stinking rich off of that, started running power companies as a business. And if he had then been like, “I’m going to be the electrical power magnate,” he would still be an incredibly famous guy and an incredibly rich guy. We would still be reading about him today.
But he was incapable of stopping, and so he went on, he invented the phonograph and the motion picture and got very involved in those businesses. Those did quite well. He didn’t stop there either. He kept trying to invent new things, some more successfully than others. In his old age, perhaps he was getting senile.
He ended up losing most of his money on a... He had some idea about what he thought was going to be a better way of making cement, poured a fortune into it, and it just totally didn’t work. So he kept doubling down, kept doubling down, kept inventing stuff, just never ever stopped for a moment. As part of that, he ended up handing off the operational control of the Edison Electric Company, which eventually got rolled together with some of the other competitors into the General Electric Company. So a few decades after this, the manager of the General Electric Company, was eventually Owen Young, who was born as a poor farm boy, became a successful lawyer, sort of rose through the ranks internally, was making deals, a skilled manager, eventually, was put in charge of the company.
He was a very ambitious man, but unlike Edison, who was very much his own man, Young was someone who would generally get his ambition from society. My colleague Wolf has an article, “Don’t Get Your Values from Society.” Owen Young did not agree with that. He was being persuaded. He was a very important progressive activist.
He sort of got onto that path when he was... There was this, I think it was a Unitarian minister who was sort of traveling through and persuaded him to go to this college and get on that track. He was a disciple of Herbert Hoover and all of those guys. When he became this big business magnate, who was running GE, he was very involved between the World Wars. They got a bunch of the American businessmen to renegotiate the financial, all of the war debts that had been taken on and the reparations that Germany was supposed to pay to the victorious nations.
He was—so the first of those, the most famous, was the Dawes Plan, and the second was the Young Plan because he was sort of leading that one. And then later on, the Navy asked him to basically buy out the British Marconi Company, which ran all the radio infrastructure, because the British were using that to spy on everybody, and they didn’t want... Like today, you don’t really want your telecommunications infrastructure run by other countries that might spy on you. So because these nice men from the United States military asked him to, he bought out the Marconi Company and organized it into the Radio Corporation of America, which manufactured a lot of the important radio equipment for many decades. So he was very good at what he did and was very much a man of the system.
And a very different type going after very different things. You definitely need a lot of these guys. It’s very good for where humanity is today that he ran GE and that he put together RCA and did such a good job with it. But this is not the man who is going to invent the radio. So this ends up being important for how you run a society, because these kind of insane people running around, breaking everything around them, sort of reordering how their society works so that their gonzo ideological vision can be achieved.
Societal tolerance for chaos (25:35)
Most societies don’t like that. Most societies try to stamp that out. If you try to do that today in Germany or Spain, it won’t work. They won’t let you. And that’s the norm.
The places that will actually let you do this are historically quite unusual. Right now, America is basically the only place, certainly the only place in the West, where you can get away with this. It wasn’t always. It used to be that Germany and England were also quite good for this. So the Marconi Corporation, which Young bought out, was started, of course, by Marconi, who...
That was a British company, but Marconi is obviously not a British name. So Marconi was Italian, couldn’t get any support for what he was doing in Italy with his radios. So he went to where you could actually do new technology, so he went to England. He didn’t even get off the boat before the customs agent was looking through his luggage and is like, “The heck is this weird future-looking apparatus?” Immediately called Scotland Yard, sort of their intelligence agency, who just immediately swooped in and basically gave him venture backing, before he even got into the country.
And this was absolutely creative destruction, obsolete. This was just a couple of decades after largely British money had laid the transcontinental telegraph cables. This was incredibly expensive at the time. Basically got obsoleted by having good radios, but they didn’t care. And I don’t think that’s what Britain would be like today, unfortunately.
But unlike France, where you might smash up the Uber cars and they’ll just be like, “Yeah, that seems cool.” America still has this idea that we expect our industrialists to be a little crazy. We expect them to break things, and we’re going to let them get away with that to at least some extent. So I feel kind of proud of myself going this long talking about this without yet mentioning Elon Musk. But one of the notable things with him, he certainly provoked his share of opposition.
But earlier on, before he had provoked quite so much opposition, one of the things he did was... He gets very angry at people who are short-selling his stocks, and he lied on Twitter about some of his plans and pricing around that, in order to try to mess with them. And the Securities Exchange Commission is like, “Well, that’s incredibly illegal.” And if Elon Musk had been in Germany at the time, they would just would’ve been like, “Okay, we’re going to destroy you now for securities fraud.” But instead, that’s not what happened here.
What they ended up doing was they reached a settlement in two days. I don’t know of any other lawsuit that has been settled in two days, where they ended up fining him and Tesla a combined $40 million and was like, “Don’t do it again.” So it’s like, okay, yes, we’re definitely going to fine you, but we’re not going to destroy you. We’re going to leave you in charge. They could have just stripped him, been like, “You’re going to get fired. We’re going to put someone else in charge.”
But they’re like, “No, don’t do that again,” but it’s having a rambunctious, trouble-causing guy in charge of driving industry forward like, yeah, that fits. We shouldn’t take this excuse to destroy that. And this ends up being probably the single biggest reason why... If you look at where, since the end of the Second World War, where all of the breakthrough technologies, there’s lots of incremental technologies that have come out of other places. In recent decades, especially China, where we’ll be like, “Okay, we’ve figured out how to build the quadcopter drone.”
They’ll be like, “We have built better, cheaper ones that go further.” But all of the big, important breakthrough technologies have first been done in the US. Not true of science, but it is true of technology. And a big reason for this is that it’s the only place that will let you. And the Marconis have to come here.
There isn’t really anywhere else they can go. One of the big questions I have about the coming decades is whether China is going to be able to figure this out. Because they do actually have, if you look at the people who are in charge of a lot of their big companies, a lot of them are these kind of crazy ideological types, whether it be some vision of the science fiction technology they’re going to build and make real and instantiate in the world, or whether it be the national greatness of China, or whether it be some weird idiosyncratic thing that you’re going to have to read 700 pages to kind of, but not really understand. They do have a bunch of those guys leading the companies, but they can’t get away with quite as much as they can in America. And in particular, my sense is that if you are doing something that has been first proven in America, then they are happy for you to do that.
But I don’t know if they like you doing things that have never, ever been done before. I don’t really get it, but it seems like something kind of like this is happening. And it could be that they have definitely been more permissive of this than they were 20 years ago. And so are they going to be able to do not just the scaling things up, but the actual invention? I think that depends a lot on whether their society figures out a way to make space for these people who keep kicking over everyone else’s sandcastles.
And I guess we’ll have to see how that goes. So thank you.