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 The Interactive Investor


 Principles and Meaning



The poet, William Blake (1757-1827) depicted Sir Issac Newton in a famous watercolor, showing him surrounded by the glories of nature, but intently focusing on reducing the complexity of the universe to mathematics, leaning forward with his compass.


It started, as did many things, with the ancient Greeks. In “The Republic (~b.c. 375),” 1 Plato described the rational and intelligible world of ideal forms. Its modern descendents are objectivity (applicable to both friend and foe) 2, principle, and the administrative state 3. In contrast to this world, Plato described the actual world, men shackled to their circumstances and only able to see the shadows of ideal, projected onto the walls of their cave, dealing only with appearances in a world of social change. 4




From these beginnings, rose the unique Western concepts of certain knowledge and principle. The search for certain and verifiable knowledge began with Plato and continued with the mathematical and scientific writings of Rene Descartes (locating an object in space with cartesian coordinates) who wrote, “The first rule was never to accept anything as true unless I recognized it to be <certainly and> evidently such…” 5 and who then began with the principle, “I think, therefore I am.” 6


Why these concepts and principles? In the words of MIT theoretical physicist and cosmologist Alan Lightman:


“Certainty, like permanence and immortality, is one of those conditions we long for despite a great deal of evidence to the contrary. Certainty often confers control. And we badly want control in this strange cosmos we find ourselves in….Certainty offers us safety, stability, reliability, predictability, rules for behavior….And then there’s the practical. Certainty, whether real or imagined, permits us to predict the future, at least in the physical world. And successful prognostication confers survival advantage….If a preference for certainty has been wired onto our genes over the millennia as a tool for survival, it follows that uncertainty should cause stress and discomfort.” 7 (Adam Smith had a very effective solution to this problem, which we will discuss later. But to proceed with some contemporary science; we do so also out of a simple curiosity.)




Contemporary science grew out of the uncertain cultural milieu of Weimar Germany after W.W. I. From this uncertainty arose horrible politics. However, the probability science that also resulted now resides harmoniously with the classical camera optics of your smartphone.


There are three major types of physics:


               1) The relativity physics of the very large universe. (Einstein)

               2) The classical physics of the ordinary world. (Newton)

               3) The quantum physics of the very small. (Rutherford, Born)


A simple experiment 8 will illustrate at the atomic levels, the universe is at least probable. And in part that probability sums up to the level of ordinary experience and classical certainty. Uncertainty, however, will always exist because of the unknown.


Electrons have a property called “spin.” After one measurement, the experimental apparatus records a spin along the z axis of +1. “If the spin is not disturbed and the apparatus keeps the same orientation, all subsequent observations will give the same result.” 8a




Now prepare the electron with the previously measured spin and rotate the experimental apparatus 90 degrees so the up-arrow point along the x axis. Instead of giving an x component of zero, as it would in the classic state, the apparatus will record either a series of spins of +1 or -1, which will statistically average to zero. The unchanging classic state is an average of discretely different quantum states.


At the more complex level of human experience, people seek certainty, and therefore meaning, in principled systems that are beyond doubt: religion, science, democracy, value investing 9 and so on. Science is one of these systems. Lightman describes the Central Doctrine of Science. “All properties and events in the physical universe are governed by laws, and these laws hold true at every time and place in the universe.” 10 To bring this to the practical world; the laws of aerodynamics can’t work on some plane flights but not on others. But complex systems also require stabilizers: the experimental method, voluntary organizations, procedures to effect political equality, central banks, financial fundamentals, and so on.


The Problems of Markets


Problems occur when matters of principle go wrong or disappear. In “The Communist Manifesto,” Karl Marx complained about the social solvent of the market system, “Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois (commercial) epoch from all earlier ones. All fixed…frozen relations…are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned…” 11 To make a long story short, the results of capitalist market modernization upon the baroque European society of orders were the French and Fascist revolutions. Except in England.


What Went Right


One factor was that the English invented modernization and the industrial revolution. But there was more. Instead of Descartes’ “I think, therefore I am.” Physicist Alan Lightman wrote, “I feel, therefore I am.” 12 That was the secret that the English had discovered.


Commenting upon Adam Smith’s “The Wealth of Nations (1776),” economist Robert Heilbroner wrote, “…the mechanism of competition would bring about a state of economic provisioning as dependable as provided by state command, and a great deal more flexible and dynamic.” 13 In a famous passage, Smith extolled the role of capitalist self-interest. “It is not for the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from the regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” 14


Such untrammeled self-interest might be found within capitalism; but Smith was also a conservative, concerned with the stability of his society. Thus, in “The Theory of Moral Sentiments (1759),” of which he was equally proud, he sought to create a workable system of social and moral order. According to Heilbroner, “(This)…is a book about the socialization of men and women who had emerged from the straitjacket of a traditional, often dogmatic social order, and must create a workable system of morality and social order in a new condition of ‘perfect’ liberty.” 15


In “The Theory” he wrote about the Sympathy Principle. “As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation….That this is the source of our fellow-feeling for the misery of others, that it is by changing places in fancy with the sufferer, that we come either to conceive or to be affected by what he feels.…When we see a stroke aimed and just ready to fall upon the leg or arm of another person, we naturally shrink and draw back our own leg or our own arm; and when it does fall, we feel it in some measure, and are hurt by it as well as the sufferer.” 16


To bring this to the contemporary world, there are two ways to look at immigrants. First as faceless hordes that are storming the borders of the United States. Second as people, with their own stories, who may have walked a thousand miles to get to a better life. (The United States, by the way, needs additional immigration to alleviate its labor shortages.) Washington, D.C. has to reach a negotiated consensus on appropriate immigration policy. That also applies to realities of climate change, changes in social structure and appropriate deglobalization – all this for the sake of effective government whose main task is keep Americans safe now and in the future.


Most generally, the overarching principle of social trust -like minds- and adaptability are necessary to maintain nations and other social organizations over the long-run. To maintain a nation, there has to be a sense of a common destiny and the ability to negotiate differences.


What Went Wrong


There isn’t much social trust in totalitarian societies, which are inevitably born of chaotic conditions. In the case of Nazi Germany, the chaos was caused by military defeat, great economic hardship and inflation. In the case of Revolutionary France, the chaos was caused by free markets chipping away at the society of orders and the consequent inability of the central government to effect financial reform. In the possible case of the U.S., the chaos of existing economic and social polarization was exacerbated by a chaotic “I am your retribution,” Trump -who among other things- denied the legitimacy of the 2020 election and mismanaged the COVID crisis, resulting in the second highest per capita death toll in the world. 16a


In 19th century Europe and particularly Russia, existing social conditions were called anomie, a lack of standards; and alienation, a failure to seek true interests. Existing classes having been pulverized by larger economic forces or by political action, people were simply reduced to, “the masses,” susceptible to manipulation and exploitation by a self-appointed elite who claimed to effect the “popular will,” while subordinating all manifestations of normal society to that illusion.


In 1968, Hannah Arendt wrote “The Origins of Totalitarianism,” a definitive work on its nature. “The forms of totalitarian organization, as distinguished from their ideological content and propaganda slogans are completely new. They are designed to translate the propaganda lies of the movement woven around a central fiction – (In the Trump case, a stolen 2020 election) – into a functioning reality, to build up, even under nontotalitarian circumstances, a society whose members act and react according to the rules of a fictitious world.” 17  For totalitarian societies, reality and facts are not even the point as they are in empirical, democratic societies.


Totalitarian organizations are built like an onion. At the outer rings, the party membership is highly ideological. “While the membership does not believe statements made for public consumption, it believes all the most fervently the standard cliches of ideological explanation….In contrast to the movements’ tactical lies which change literally from day to day, the ideological lies are supposed to be believed like sacred untouchable truths.” 18 To proceed to the inner rings is to proceed along, “graduated cynicism.”


“The (innermost) layer in the organization of totalitarian movements is the intimate circle around the Leader, which can be a formal institution, like the Bolshevik Politburo, or a changing clique of men who do not necessarily hold office, like the entourage of Hitler. To them ideological cliches are mere devices to organize the masses, and they feel no compunction about changing them according to the needs of circumstances…” 19


Finally at the center there is pure will of the chaotic leader and his circle, for whom, in Arendt’s famous phrases, “everything is permitted…everything is possible.” 20 (Sound familiar?) Then there is a secret police to execute his whim and to keep society atomized, “…‘the best organized and the most efficient’ of all government departments, in the power apparatus of the totalitarian regime….the secret police agents are the only openly ruling class in totalitarian countries, and their standards and scale of values permeate the entire texture of totalitarian society.” 21


These components (except for the secret police) are already present in the person and likely government of Donald Trump. It is in the nature of democratic politics for people to seek compromise, to reflect different views. Donald Trump doesn’t compromise, and in 2016 simply ran over the professionals in the Republican party with his ideologically committed base. To repeat, for totalitarian societies, reality and facts are not even the point as they are in empirical, democratic societies. The only point is power, to effect the unstable chaotic will of the leader.



The Importance of Tradition


Totalitarian governments are born out of chaos. Commenting upon the looming bloodshed of the French Revolution, Edmund Burke (1789) wrote about, “…the preference for a despotic democracy to a government of reciprocal control,” 22 which we wrote about in the previous essay. “Reciprocal Control” requires bargaining; bargaining requires social trust; trust requires a commonality. The American Revolution and Constitution grew out of the Enlightenment, and was also therefore ideological; but it was successful because it was built upon the traditions of the past, the “common rights” that the English had struggled for and evolved.


However, U.S. experiences in Vietnam and the Mideast show that a wholesale transplant of alien institutions does not end well for anyone, without a beginning point of social trust and sympathy (but not capitulation) to the opposing point of view.



Principles and Meaning


Eduardo Paolozzi cast in bronze the above statue for the plaza of the British Library. He was inspired by both Newton and Blake together, “...embodying the library as a place serving man’s endless search for truth, both in the sciences and the humanities.”


Meaning derives from the inheritance or selection of principles. What is now the goal of Western thought? We think it is an agreement between principles (laws) and the complex world, where much remains unknown but of which people are now a part. One political principle might be to try to make things a bit better than the way they were. The principle of value investing is, "Never pay retail,” in a world where the appreciation of five stocks comprise nearly all the year to date return of the S&P 500. We think principles should be few in number 22a, but surely not absent, with details primarily left to the concerns of people in their specific societies.


Agreement, or harmony with the perceived facts, is probably the meaning of thought in most societies. But now consider a difference between the British and American conservatives. The 5/26/23 FT writes, “…(a) flagship conference in London featuring US speakers…(noted) how radical (ideological) the US Republican party had become on social issues, and how comparatively moderate Britain’s Conservatives are. From immigration and racial discrimination to whether to defend tradition or embrace change…” 23



One could very seriously ask which political party, Democrat or Republican as presently constituted, is better for the nation in the long-run. Principles have real meaning for the future.