Follow the Leader

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An interesting news item appeared on Newsmax yesterday with the headline, Billionaires Dumping Stocks, Economist Knows Why. In brief the article states that Warren Buffett and other billionaires have no faith in the future of “dyed-in-the-wool” American companies because of recent “disappointing performance.” The rest of the article is an advertisement for an economist who is predicting a large market correction. Such predictions, of course, are the flies of a summer. How can anyone pretend to predict the future?

The political economist Max Weber was, perhaps, best known for writing The Protestant Ethic and the Spirit of Capitalism in which he argued that Puritan ethics influenced the development of market society. Weber wanted to be scientific about economics and the way people deal with uncertainty. To this end Weber wrote Economy and Society, in which he divided social action into four types: (1) instrumentally rational; (2) value-rational; (3) affectual; and (4) traditional or “ingrained habituation.” Of these four kinds of action, we might presume that market prediction falls under “instrumentally-rational action” or “value-rational action.”

Science, for Weber and many other scientists, is about prediction. If you want to understand human economic action you need some kind of comprehensive typology for grasping the factors at work. In economics you cannot explain everything that happens in terms of the individual rationally seeking pecuniary advantage. A great deal depends on irrational factors that are rarely discussed. Such factors are hopelessly intertwined with each other – as in the case of the action produced by Puritanism on the market economy of previous centuries.

Weber was particularly interested in the role that religion played in economic activity. And if Weber were alive today, he would be fascinated to see that irrational beliefs of a non-religious kind are having a profound effect on the economy today. In fact, so strongly held are these irrational beliefs, that we cannot even discuss them without entering into controversy. One must either believe, or be an enemy of belief. No rational discussion can be allowed in such cases. For the true believers are, after all, true believers; and everywhere these believers exist and assert their influence. They tyrannize our thinking and bring about profound economic and social changes in society.

Perhaps the most fascinating aspect of Weber’s Economy and Society is Chapter XIV, “Charisma and Its Transformation.” We must not underestimate this most irrational and mysterious factor in economic and political history. For it is during a great crisis that charismatic leadership typically comes into play. Weber explains it like this: “All extraordinary needs … which transcend the sphere of everyday economic routines, have always been satisfied … on a charismatic basis. The further we go back into history, the more strongly does this statement hold.” In other words, the true charismatic leader appears in times of distress, not in times of peace and prosperity. He appears at the beginning and end of things. He may be described as Christ describes himself in the Book of Revelation, “I am the Alpha and Omega, the beginning and the ending … which is, and which was, and which is to come, the Almighty.”

The “natural” leader, the charismatic leader, appears as if Providence had summoned him. He speaks as if he has authority from a higher source. Such leaders, wrote Weber, “[are] neither appointed officeholders nor ‘professionals’ in the present-day sense, but rather the bearers of specific gifts of body and mind that were considered ‘supernatural.’” The charismatic leader seems to be channeling something that comes from a “higher” source. When the charismatic leader speaks, people are mesmerized or fascinated by his inspired fervor. They might even feel they are hearing the Word of God.

We must not be constricted, says Weber, with a strictly religious notion of charisma. In an increasingly secular world, where politics has replaced religion, the “charismatic” leader might be a magnetic speaker who hypnotizes the masses while seeming to drift in and out of a religious kind of ecstasy. Setting aside frauds and circus acts, Weber suggests that such leadership is real and has a profound impact wherever it appears. In the complex society of today there might be charismatic leaders in many walks of life, even in corporations. Consider the almost divinely inspired genius of Thomas Edison or Nikola Tesla. Both these figures engaged in work that transformed the world economy. We might ask ourselves: Where did they receive their extraordinary inspiration from?

It is interesting to note that the word “genius” comes from the Latin word genii, which refers to the tutelary deities of a person, family or place. Does anyone seriously think that creative inspiration is rational? Or is it mystical? And is not the economy, in large part, driven by creative inspiration? In fact we do not know what invention, what scientific discovery, may next overturn all our economic expectations (whether optimistic or pessimistic). Consider the economic consequences of the computer or smartphone on which you are reading this article. Thirty years ago these products (in current form) didn’t exist. What will exist thirty years from now? Perhaps there will be massive undreamt of prosperity. On the other hand, there may be nothing but rubble and destitution. At this juncture, we simply cannot picture the future with any certainty; for many possibilities lie open to us. Given the creative and charismatic forces unleashed by the global economy, there is no set future, no longer a discernible pattern, and no past with which to compare the present day.

Charisma, says Weber, is a revolutionary force in both society and economy. This is because the charismatic leader creates a new dispensation by laying down a new law, or by instigating a new mode of life “for the sake of glorifying a genuine prophetic and heroic ethos.” People are therefore inspired by the story of Nikola Tesla or Edison, or even by billionaires who have made their money through a process of thought that simply eludes routine number-crunching and common sense. And yes, even billionaires can be charismatic leaders.

Perhaps the uninspired majority need to follow someone. The problem for investors, as with most followers, is a problem of discernment. Which financial prophet has the gift of grace? Which has genuine charisma, genuine inspiration? And are we correct to think that extraordinary people possess an extraordinary understanding which explains their achievements? And if charisma is real, as Weber asserts, is it a permanent possession or something temporary? Certainly we cannot deny that Joan of Arc was an example of charismatic leadership, although her “voices” abandoned her prior to being burned as a witch. So even if we could recognize a genuinely inspired financial leader, how can we be sure he hasn’t suddenly lost his grace in the manner of Joan of Arc?

The wellspring of human creativity is from the soul, and the soul must remain a mystery. It is perhaps true that science is no better at predicting human action than shamanism. And so we are left to follow our own analysis of the economy or someone else’s. But who, in truth, follows their own analysis? Even our inspirations may ultimately come from outside ourselves (that is, if our inspirations are “genuine”).

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About JR Nyquist