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The Very Strange Politics of Silicon Valley

2014 October 29
by Greg
Peter Thiel AMA

Peter Thiel, the “don” of the Paypal Mafia has a new book out called Zero to One, based on his Stanford Startup course.  It is an excellent book, both insightful and practical. Anyone who’s interested in creating a business should read it.

I recently wrote a post about the book in which I noted that Thiel’s philosophy is very much derived from the work of Karl Marx.  Many were surprised, some were angry and others confused.  How could one of our generation’s most successful entrepreneurs be a Marxist?

One reason is that Thiel is much more complex than he’s often given credit for.  Another is that Marx’s ideas are far more pervasive than most people realize.  Yet what’s really important—and why I felt the need to point out Thiel’s philosophical lineage—is that Marx’s idea failed miserably, so if we’re going to reincarnate Marx, we should be clear about it.

The Crux Of Marx’s Dangerous Idea

Marx has become a caricature.  Most of what people know about him can be summed up by the quote, from each according to his ability, to each according to his need.  Marx did indeed write that, but it was neither original nor particularly interesting.  It was much like “liberty and justice for all,” more of a tagline than a plan or a premise.

If that’s all there was, Marx would would have been quickly forgotten.  Marx’s true argument wasn’t that capitalism was unjust, but that it was self-contradictory.  His core economic idea (and Thiel considers the same point central to his own philosophy) was that capitalism and competition are incompatible, because a perfectly competitive market yields no profit.

Therefore, according to Marx, any good capitalist would seek not competition, but advantage. Moreover, in his view, accumulation of capital inevitably leads to rent seeking behavior, either through the accumulation of assets or through political influence.  This wasn’t a crazy idea.  As we can see from the lobbying of car dealers against Tesla, it is still happens today.

Yet that’s not all.  Marx’s broader ideology, dialectical materialism, held that conflict was necessary to achieve progress.  So not only would capitalism fail, it would die a violent death at the hands of the true creators of value, the proletarian laborers.  According to Marx, this was not only likely, but a scientific certainty.

Creative Destruction Saves The Day

You can see why Marx’s idea terrified industrialists.  Here was a rational, scientific argument that foretold their demise.  Even those who didn’t believe in it had to find it persuasive.  After all, it used the basic premise of the capitalist system—the law of supply and demand—to destroy capitalism itself.  If there was a flaw in Marx’s reasoning, nobody could find it.

That is, nobody until Joseph Schumpeter came along in the 1950’s with his concept of creative destruction.  He made the case that there was, in fact, no reason that capitalism would collapse, because entrepreneurs continue to innovate.  As long as new products and services create increased value, profits can continue to exist indefinitely.

Yet the tension remains.  Corporations continue to spend billions on lobbying every year and, as in the case of Tesla, much of this money goes to fending off innovators like Elon Musk. Still, this does not inevitably lead to the destruction of capitalism and markets, it merely highlights the need for effective institutions and governance.

The Makers And The Takers

Marxists and Silicon Valley Libertarians like Thiel are, strangely enough, mirror images of each other.  Marxists believe that economic rents are wholly negative, generating “surplus value” with which to oppress the underclass, while Libertarians see them as a positive force, creating incentives to innovate.

There is, of course, some truth to both notions, just as it is clear that “greedy” speculators seeking returns lower the cost of capital, leading to greater prosperity.  The problem comes when the creation of value becomes politicized into a class war between “makers and takers.” This can lead to some some extraordinary political beliefs in the tech community.

And when the Marxist/Libertarian ideal is followed to its logical conclusion, things can get ugly.  To see what I mean, take a look at this little gem posted by a budding tech entrepreneur:

 

You can preach compassion, equality, and be the biggest lover in the world, but there is an area of town for degenerates and an area of town for the working class. There is nothing positive gained from having them so close to us. It’s a burden and a liability having them so close to us. Believe me, if they added the smallest iota of value I’d consider thinking different …

 
To be fair, there was an immediate backlash and the entrepreneur in question was asked to leave the company he helped found—but there were also significant pockets of support. Some suggested that he was merely being scapegoated for stating out in the open what many others whispered behind closed doors.

Once you start seeing things in Manichean terms, anyone can be a victim and anything is permissible.  Marx saw the proletariat as the makers and the bourgeoisie as takers.  The investor class see themselves as makers and ordinary wage earners (or “the 47%”) as takers. Silicon Valley libertarians see innovators as makers and pretty much everyone else as takers.

One could argue that each is simply arguing for their own interest and that’s how the system is supposed to work, but that’s not what’s really going on.  The truth is that each is lobbying for an official sanction of their interests at the expense of the rest of us.  And we all know where that leads to—the Gulag.

“The fundamental problem of politics” Henry Kissinger wrote, “is not the control of wickedness but the limitation of righteousness.”

Beware Of Simple Solutions To Complex Problems

The problem with Marxist theories and their derivatives is that they confuse reductionism with science.  In other words, they achieve elegant simplicity by ignoring inconvenient facts. The world is a messy place and doesn’t yield softly to mathematical formulas or pure logic. Selecting facts to suit an argument may make it more persuasive, but doesn’t make it true.

So, while I don’t think it’s fair or accurate to tar Peter Thiel with all of the ugly sentiments that I noted above, his ideology is problematic.  When he writes that he doesn’t “believe that freedom and democracy are compatible,” we should know where it’s coming from.  Thiel regards innovators like himself as outsize contributors who are entitled to special rights.

Yet not everybody wants or needs to be an innovator.  Some give care and comfort to the sick and needy.  Others educate our children and contribute to our communities.  Still others simply do a hard day’s work for a hard day’s pay, raise their families and support their friends.  These are not “takers,” they are the very fabric of our society.

We can respect Peter Thiel for his business acumen and his good works—of which there are many—but when it comes to considering what society we want to live in, I would suggest a simple Rawlsian bargain, (which Thiel clearly hates).  Think of how you would want your society to function if you had no idea where you would end up in it.

– Greg

 

4 Responses leave one →
  1. Jeremy V permalink
    October 29, 2014

    And if I recall correctly, while a devout prophet of capitalism, Schumpeter also admitted in one of his Harvard lectures that, if given the option, society would eventually drift away from capitalism toward socialism because it provided the greatest certainty of a happy life for the most people. A version of the Rawlsian Bargain, I guess.

    Last bit: I had a business school professor who used to refer to Marx as Adam Smith’s greatest student, who simply took capitalism to its logical end. Marx was certainly wrong about a lot, namely that capitalism would eventually eat itself (although ironically American bankers certainly seem to be trying to make Marx correct). But as you imply at the beginning, many of his ideas — free public education, protected public lands, child labor protection laws, etc — were decades (if not a century) ahead of their time.

    While his name is mud, many of Marx’s ideas about social welfare have become woven deeply into not just the American fabric, but into free societies around the world.

    [Reply]

    Greg Reply:

    I think it’s important to make the distinction between Marxism and socialism. There were plenty of brands of socialism in the 19th century and many of them advocated social programs like the ones you described.

    I don’t think Marx was Smith’s greatest student (he didn’t really help further anything, like Ricardo or Hume), but he was an astute critic. Marx was more a student of Hegel, with his “dialectical materialism” a direct reply to Hegel’s “dialectical idealism.”

    In any case, he does get much more blame than he should. He was very critical of the movement that bore his name, saying that if that was Marxism, than he wasn’t one. Nevertheless, he is responsible for what he wrote, much of it troubling enough.

    I think in the final analysis, he should have just been another long forgotten intellectual who wrote a few books. But alas…

    – Greg

    [Reply]

  2. jean-louis permalink
    October 30, 2014

    Hi Greg,
    from individuals to country politics we all seem to have encrypted in our fossil brain that human beings come from gregarious tribes originally.

    having an identified ennemy gives sense to an otherwise meaningless life, and/or justifies measures that step on human rights?

    easy access to communication does not mean one is qualified on every subject, as proven by my post.

    best

    what about Henry Ford’s salary policy?

    [Reply]

    Greg Reply:

    jean-louis,

    I’m not quite sure what you’re trying to say. Could you decrypt?

    – Greg

    [Reply]

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