Latest / Great Houses / 1. Long Term Iterative Aristocratic Games

Transcript

1. Long Term Iterative Aristocratic Games · Great Houses

• 0:00
  Alright everybody, thank you so much for joining me for the Great Houses Forum.
• 0:04
  This is episode one and I'm delighted to have you all here.
• 0:07
  Thank you so much for joining me on this fine afternoon.
• 0:11
  So.
• 0:12
  One of the things that, that I like to talk about, um, my, my name is Gregory Treat, and I'm, uh, an attorney, uh, based in Texas.
• 0:19
  And, uh, I, for the last couple years, I've had the pleasure of working with a number of families on succession planning, on long-term succession planning, and really on thinking about what does it mean to have a great house.
• 0:32
  And so, you know, in conjunction with, uh, exit and, uh, radical Personal Finance and the Classical Society, all of you, you know, there are people listening to this that are from all of you.
• 0:40
  Thank you so much for joining me today.
• 0:42
  Um, what we're gonna do today is I'm gonna talk for, uh, roundabout an hour and then we'll open it up for, for questions.
• 0:49
  The, the questions will not be released publicly.
• 0:51
  The, the initial talk will.
• 0:53
  So thank you so much for, uh, for being here, everybody.
• 0:55
  Alright, so we're gonna start with the steps to joining the covenantal economy.
• 1:00
  So, the covenantal economy is my word for the, the, the way that people that are doing legacy, they're doing great house thinking, organize their affairs and their economic relationships.
• 1:11
  So I'm gonna take you over the next several weeks, over a three step process.
• 1:15
  So first I'm gonna walk you through how to see the covenantal economy.
• 1:18
  We'll probably spend two weeks doing that.
• 1:20
  Then we're gonna talk about how to signal the covenantal economy.
• 1:23
  That's, that's how you interact with people that are, that these deeper older games.
• 1:28
  And then we'll spend a bit of time talking, I don't know how many weeks we'll spend talking about how to satisfy the covenantal economy.
• 1:34
  So.
• 1:35
  Alright, so the first question I'd ask is, what, what game are you playing?
• 1:39
  And I'll, I'll note that most people are looking for short-term solutions.
• 1:44
  Most people are looking for transactional wins, and most people are looking for cheap technologies, okay?
• 1:49
  And that is kind of the default game.
• 1:52
  And the default game in our culture gets you the, uh, the normal outcomes that our culture gets you.
• 1:57
  So if you want different outcomes, you need to make a change in, you need to stop looking for short-term solutions.
• 2:04
  You need to stop looking for transactional wins, and you need to stop looking for cheap technologies, not because there's necessarily bad things in there, though.
• 2:11
  Short-term solutions are pretty bad, but because that's not gonna get you what you want in the long term.
• 2:18
  So today we're gonna talk about long-term iterative aristocratic games.
• 2:24
  All right?
• 2:25
  So, like I said in the beginning, most people are looking for short-term solutions.
• 2:29
  So we start with daily solutions.
• 2:32
  That, that, that's, if you're solving problems on a daily basis, you're probably homeless or near homeless.
• 2:37
  Uh, then people at some point they'll level up and they'll, they'll start being able to think about weekly solutions.
• 2:42
  And, and if you're thinking about weekly solutions, you're probably poor.
• 2:45
  Uh, if you have monthly solutions or maybe, you know, paycheck to paycheck, you're, you're working class.
• 2:50
  This is, you know, this is better.
• 2:52
  It's better than being poor.
• 2:53
  And then finally, you know, a lot of people, they'll, they'll get to the point where they can do annual solutions.
• 2:58
  They've joined the middle class, that they're, they're really happy that they're there.
• 3:02
  Um, and, and that's the way that, that people think, well, this is the end, right?
• 3:07
  I've, I've, I've gotten to the point where I can pay my taxes on a regular basis.
• 3:11
  I'm not living paycheck to paycheck.
• 3:12
  I have some level of savings.
• 3:14
  This is kind of the p pushing people up to the middle class is what guys like Dave Ramsey are really excellent at.
• 3:20
  Um, but this is not the end of the journey.
• 3:23
  That this is not the end of the journey.
• 3:25
  So even when we think about long term, I'm gonna, I'm gonna start with what, what I think most people think of when they think of long term.
• 3:31
  And then I'm gonna, I'm gonna push on you a couple of times.
• 3:34
  I'm gonna push on you a little bit.
• 3:35
  So hopefully, hopefully that's okay.
• 3:37
  So we start with a five year business model, right?
• 3:40
  This is, this is like something, a product that a corporation is gonna launch.
• 3:43
  This is probably optimized for a business cycle.
• 3:46
  Business cycles tend to last seven years, give or take.
• 3:50
  And corporate executives think on this level, right?
• 3:52
  This is the, the five-year plan is what most people mean when they think about long-term planning.
• 3:58
  Okay?
• 4:00
  I wanna start, you know, pushing, push you to think of, of what does it, what does it mean when, when you start thinking about 10, 15 year projects or maybe even longer projects than that.
• 4:10
  If we're, if we, if we dare to think of such things.
• 4:13
  Uh, so the, the main 10 to 15 year projects people think about, there's real estate.
• 4:17
  And then there's kind of government projects and these, you know, real estate models tend to last for about 50 years.
• 4:23
  A lot of government projection type type things when you're doing like a dam or a bridge or a road.
• 4:28
  Those things, again, 50 years is usually what they're rated for, though a huge amount of the bridges and dams and roads in our country right now are, are rated for much less than that.
• 4:36
  And we're not, we're not solving that problem, so yay us.
• 4:41
  But basically you have no western institution that thinks beyond the credit cycle, that, that kind of 50 year, here's how money works, here's how we expect exchange rates to flow.
• 4:50
  What's the reserve currency, what is it backed by?
• 4:52
  Those sorts of things.
• 4:53
  We don't have anybody, we don't have any institutions that, that, that think about that stuff, um, in our, in our current system.
• 5:04
  So what, first, the first question there is, I'm, I'm implying a question, right?
• 5:09
  Which is what, what would it look like to think beyond the credit cycle?
• 5:11
  But before I get to that, I want to talk about.
• 5:14
  Games that are iterative and not transactional.
• 5:17
  Okay.
• 5:17
  So an iterative game is a game where the players may repeat and where the roles or power positions may switch.
• 5:24
  So one of the, and, and, and this, you know, can be, can be long-term games, but it can, it can even be just games where things, things switch in positions.
• 5:31
  So I I, the example that I use for this is when people have, uh, like, so like say you have a homeowner who wants to do a remodel.
• 5:39
  So you got the homeowner and you have the contractor, and the homeowner starts with the money.
• 5:43
  So he starts in our culture with the dominant hand, the whip hand.
• 5:46
  And then, um, he, the, the contractor doesn't have the money.
• 5:51
  So he starts in the, in the passive position.
• 5:53
  And so when, when you're, when you're starting out, you have a certain set of relationships where the homeowner, because of his dominant position, he wants to make the contractor feel safe and secure.
• 6:04
  And the contractor wants to make the, the homeowner feel honored and respected.
• 6:08
  This is also, you know, you, you that, that safe and secure language, honor and respect language, you may, you're probably familiar with it if you've heard it at all in the marriage context where that it's a, it's a good, it's a good frame in the marriage context, but it applies to much, much more than the marriage.
• 6:23
  It applies basically to all of the, um, the different relationships that, that, that people have.
• 6:29
  So.
• 6:30
  Because what happens at some point in, in a contractor relationship is money goes from the homeowner down to the contractor, right?
• 6:37
  To buy materials or whatever, to be the big advance.
• 6:39
  And at that moment, the power balance shifts.
• 6:42
  And so now the, the contractor's kind of in the whip hand.
• 6:45
  He's gotta make the homeowner feel safe and secure.
• 6:47
  And the, the homeowner is a little bit more vulnerable.
• 6:49
  He's gotta make the, the contractor feel honored and respected.
• 6:53
  And at the end of the transaction, it goes back, right?
• 6:56
  So you're switching power positions during the course of the transaction, and this is what's called counterparty risk.
• 7:04
  And, and or the contractual cycle.
• 7:05
  Some people call the contractual cycle.
• 7:07
  And this switch, this shift back and forth and back and forth, is how you make money at anything beyond being like a W2 employee, right?
• 7:15
  If you're a W2 employee, your employee's got the whip hand, you're kind of gotta do what they say and that, that, that doesn't normally change.
• 7:23
  Um, but when you, when you move out there and you're turning to actually do business and make money, then reputation becomes key.
• 7:30
  And, and the idea is your reputation, your ability to weather those shifts in the power dynamics in a relationship is actually more valuable than the gains of any particular transaction.
• 7:41
  Yeah.
• 7:42
  And this is, you know, the, the, the, the contrast to this would be the flea market, right?
• 7:46
  Or, you know, I think probably the best example that people have of the flea market, uh, is Pawn Star.
• 7:50
  Somebody walks in with something and they wanna sell it, and they, they might have a theory of how much it's worth, or maybe they don't know anything at all.
• 7:57
  Um, and you know, the, the, the guys at, at, at PA Stars will quote them a price or call in an expert.
• 8:03
  Um, though, you know, in, in, in traditional fee markets, it was just kind of, you put it all on the table, you evaluated everything is caveat mTOR, and then you, you make a deal, there's information imbalance.
• 8:15
  Pe the person that's buying doesn't know as much as the person that's selling a lot of times.
• 8:19
  Um, especially if you're trading goods, right?
• 8:22
  Maybe there's some cash here.
• 8:23
  Maybe we're doing a trade.
• 8:24
  So this plus that, um, you're, you're dealing with actual goods.
• 8:28
  So the point about that is transactions are weird because you can actually win a transaction, right?
• 8:36
  Um, and, and, and potentially if, if, if you think that this person who's walked in is gonna walk out and you're never gonna see them again, and you don't have a particular concern about your reputation, which actually, you know, Palm Stars actually has a fair bit of concern for the reputation.
• 8:50
  They'll, they'll, they'll say things like, if they come call in an expert and the expert says, well this has worked, you know, 10 times with the guy initially wanted for it.
• 8:57
  They, they, they will, they will work with him in the new environment that, that, that the expert has created.
• 9:03
  Um.
• 9:04
  But in a pure transactional environment, you don't care or you're not supposed to care about creating losers.
• 9:09
  And when, when that happens, risks beyond what what you're doing is you're saying risks beyond the timeframe.
• 9:16
  Right?
• 9:17
  I'm, I'm, I'm paying attention to this very short period of time in which I can win the transaction.
• 9:23
  And I don't, I, I, I don't care about long-term risks.
• 9:26
  Okay?
• 9:26
  Now this is the, the, the, what I wanna suggest to you is that in fact, there, there, there are very few contexts in which are purely transactional most of the time.
• 9:39
  In fact, as, as we keep playing these transactional games out, more and more and more of the time, people who play purely transactional games will eventually bump into stuff that they don't like.
• 9:51
  Um, they, they will, they will enjoy some level of reputational risk and they won't like the outcomes of that.
• 9:57
  Okay?
• 9:58
  So when we think of iterative games, we wanna talk about a, a strategy.
• 10:03
  What, what happens if you have a strategy that is optimized to win the current game, but increases your likelihood of losing the next game?
• 10:11
  That doesn't iterate, basically.
• 10:13
  Uh, so, so.
• 10:16
  One of the questions that, that a, that a good friend of mine who's on the call asks in in in his article, you know, does it iterate?
• 10:22
  We have to ask, does it iterate?
• 10:23
  Because if you can, you say, well, I'm gonna, uh, doing this strategy means I'm gonna for sure win the next game, and then I'm gonna have an 80% chance of winning the, the game after that, and a 60% chance of my, my chances are dropping.
• 10:34
  Well, at a certain point, my chances of winning have dropped all the way to zero, and then I'll just keep losing.
• 10:40
  So what we wanna do is win in a way that preserves our ability to keep winning.
• 10:46
  And the classic example of this, um, is if you have children, but something about the way you had children or raise your children, something about your child, childbearing and rearing strategy means they don't have children.
• 10:57
  Your strategy doesn't iterate.
• 10:58
  Okay?
• 10:59
  Um, but something really interesting happens when you say, okay, I, I, I, I actually do want to keep winning.
• 11:05
  I actually do want a strategy that iterates, um, how do I keep winning for, you know, a year, two years, 10 years?
• 11:12
  E especially, there's this interesting feature of psychology that I've noticed where if you iterate, if you're, if you're trying to win games on, on 10 year plus timescales, it gets really, really hard to distinguish the thought process from an honor code, basically the way that human brains are designed to think about those long-term reputational problems.
• 11:35
  How do we maintain our ability to keep winning it?
• 11:38
  It turns into an honor problem.
• 11:39
  Okay.
• 11:40
  And so the state of being, which is another way of saying this, the state of being a good deal partner over iterative games is the same thing as honor, right?
• 11:49
  So you're gonna, 'cause what are you gonna do?
• 11:50
  You're gonna keep your promises, you're gonna have a long-term focus.
• 11:53
  You're gonna recognize that threats to your deal partners are strategic threats to you.
• 11:57
  Yeah.
• 11:59
  And when you're doing that, when you're, when you're inspiring people to show loyalty over long periods of time, where there's gonna be shifts in, in the power balance, then your reputation, your honor, the, the trust that people have in your commitment to keep the promises that you've made and to keep on keeping, uh, keeping the promises that you have made is critical.
• 12:21
  That's, it's probably the most important thing to any long-term plan for success.
• 12:26
  So now, whenever I mention honor, um, we, we have a, we have a question that comes up and people will ask the question, well, what, what about scaling?
• 12:35
  Right?
• 12:35
  So that there's this objection that, that honor based systems, relationally based systems, that it doesn't scale or it doesn't scale quickly.
• 12:43
  Now, there's some really interesting things that have been done.
• 12:45
  Uh, there's a book called The Starfish and the Spider, uh, by Ori Broman, and then another book called Swarm Wise by Rick Fay.
• 12:52
  And those are highly relational, highly honor based systems.
• 12:56
  And they, they, they do scale fairly quickly.
• 12:59
  Now, you, you, you, those.
• 13:02
  Those institutions have to have fairly clearly defined goals at the outset.
• 13:07
  They're, they're big ships, they're hard to change, they're hard to turn.
• 13:10
  Um, but so number one, I, I would, I would question if it doesn't scale, or maybe if it just doesn't scale in the way that people are expecting.
• 13:19
  And, and another thing that I would note on the, on the objection about honor, doesn't scale is a lot of scaling is about solving inefficiencies created by transactional relationships.
• 13:28
  Okay, so if I'm winning, if I'm beating you in a transaction and now you're, you've lost, you're a loser, um, then the, the, the, the person that, that, that has lost, they, they may, maybe they don't like me, right?
• 13:44
  Maybe they don't wanna do business with me.
• 13:46
  Maybe they don't wanna have a long-term relationship.
• 13:48
  They have realized that the longer they stay in relationship with me, the worse it is for them.
• 13:53
  And so they're gonna cut off relationship with me.
• 13:56
  And, and if that's the reason why you're scaling, because repeated interactions with you, people have decided are not good, then number one, scaling is not really solving the problem, it's just kind of avoiding it.
• 14:07
  Um, and especially in our kind of globalized, low margin world, you know, a couple years ago now, Amazon bumped into this problem where they had, they had hired, I think every single person in their target demographic like to work in their warehouses.
• 14:20
  And all of those people had a, a, a pretty, a pretty negative experience, um, on that, on that front.
• 14:27
  So.
• 14:28
  They actually had to raise their prices because when they were going out and hiring, they couldn't find people that hadn't already worked for them, um, that, that, that, that, that were willing to work for them again at the, the original rate.
• 14:40
  And so they had to just do, do a big, a big bump in, uh, in how, what they paid people.
• 14:45
  So, so when we think about honor and we think about scaling, right?
• 14:50
  'cause that's the, the big objection that people have to, to, to founding their business on, on principles of honor.
• 14:55
  Well, what, what, what happens when we need to scale?
• 14:58
  We need to use incentives.
• 15:00
  Um, I think incentives and honor align very well.
• 15:03
  Honor is just a way of your brain's way of keeping track of incentives.
• 15:07
  When we understand that there's gonna be iterative games, which potentially changes in the power balance.
• 15:12
  Okay?
• 15:12
  Now, what if your game wasn't just iterative?
• 15:16
  What if it was infinite?
• 15:18
  Okay, so, and si this is from Simon Sinek's book, um, an Infinite Game.
• 15:23
  Uh, well, this is my definition, this is my summary.
• 15:25
  This is not his definition from his book.
• 15:27
  I didn't, I didn't pull it.
• 15:27
  But my, my summation of it is an infinite game is a game which has no inherent limits on how many times it can iterate, and how many new players can join the game, or, you know, potentially how many players can leave the game so long as there's enough people to keep, to keep going, right?
• 15:43
  And, and, and we're coming back here to what about games that go longer than the credit cycle, right?
• 15:49
  What about games that go longer than 50 years?
• 15:51
  Right?
• 15:51
  Because Simon Sinek for, uh, uh, and he's, he's an incredible thinker.
• 15:55
  Most of his book is about how to keep playing basically for the course of a human life and maybe, maybe one succession.
• 16:03
  But, but what is, what is long term, right?
• 16:05
  This is, this is kind of what I've been talking about so far.
• 16:07
  What is long term?
• 16:08
  Is long term?
• 16:09
  10 years is long term.
• 16:11
  40 years is long term.
• 16:13
  A hundred years is long term.
• 16:14
  400 years is long term.
• 16:15
  A thousand years.
• 16:17
  What would an infinite game look like if, if we genuinely said, well, we wanna play this game for more than a thousand years.
• 16:24
  We want a thousand plus years later.
• 16:27
  Uh, we wanna still have our descendants be playing this game, or some variant of it.
• 16:33
  Okay.
• 16:35
  And, and you know, I think that's, uh, I'm just gonna take a moment and, and, and, and let you observe, let you think about that.
• 16:42
  'cause that's a very different way of contemplating life and business than what we're used to in the modern day.
• 16:49
  Okay?
• 16:53
  So when we start thinking about beyond the credit cycle, we run into, um, some really interesting things, right?
• 16:59
  On any timescale beyond, you know, 40 or 50 years.
• 17:02
  The guy providing services right now is not the same guy that will be providing services the next time we come around, right?
• 17:09
  So, so if we think about those, those, those, those problem solving metrics, right?
• 17:13
  We solve a problem for a, a week or, uh, a month or a year or whatever, those kinds of problem solving mechanisms, um, you're gonna have to keep, come back and solve the problem again.
• 17:24
  Well, if you solve a problem and then it doesn't have to be solved again for 10, 15, 20, 30, 40 years, 50 years, well then the, the guy, the highly paid, probably expert craftsman who solved the problem for you right now is not gonna be the same guy that solves it, um, in, in 150 years, right?
• 17:46
  And so there's two possibilities there, right?
• 17:48
  As, as, as somebody who's paying for services or somebody who's paying for, for something access to something, you could say, well, in 50 years I'm gonna go to the marketplace and I'm gonna just engage in a search, right?
• 17:59
  I'm gonna look for, I'm gonna search and sort whatever's available then.
• 18:02
  And, and that's, that's my plan.
• 18:05
  Um, and that's a plan with a lot of risk because you don't know people very well.
• 18:08
  There's, there's so many different things that make for a good deal partner or a bad deal partner.
• 18:15
  And so here's a free tip for you.
• 18:16
  If you can credibly promise someone that your descendants will be here in 40 to 50 years providing the same basic service at the same level of quality, you will enter a different kind of economy.
• 18:28
  Right.
• 18:29
  That that is, that is one of the things, one of the key pieces of the covenantal economy are these long-term plans where I am planning for my son to hire your son or rely on your son in, you know, various times.
• 18:44
  Okay.
• 18:45
  Various times in the future.
• 18:47
  And, and the reason for this is because search costs are hard.
• 18:49
  Right.
• 18:51
  One of the things about search costs is someone somewhere still has to be incentivized to produce the thing.
• 18:57
  And this is, you know, when, when, uh, several of the communities that I'm, that, that, that I'm involved in, natal is a, is a big and important thing there, right?
• 19:06
  And one of the realities of Natal is we're we're recognizing that we can't just rely on someone somewhere else to be incentivized magically by a process We don't know or understand to have children or to engage in family formation.
• 19:20
  If, if you don't have a particular place with particular people that have the, the resources and the ability to have kids, they're not gonna have kids.
• 19:30
  And, and the fewer people that have kids, and the, the more difficult the childhood becomes, then the less you get these high quality, high capacity people that our system needs to run.
• 19:39
  Okay.
• 19:41
  The opposite of this is, uh, there, there's, there's, uh, a thing called Spanish, or it's a Jerusalem tire tile, uh, which is, is not actually from Jerusalem, nor is it actually tile.
• 19:51
  It's a, it's a type of, of Spanish stone that's the, they, they come in these kind of big panels.
• 19:56
  They're, they're thin, like, uh, like tile, but they're actually quarried out.
• 20:00
  And, uh, there's a bunch of these houses, uh, may, maybe places like, uh, Florida or uh, or California.
• 20:06
  And they, they shipped in these beautiful, gorgeous stones.
• 20:12
  And that quarry still exists.
• 20:15
  There's several of these quarries in Spain and they still exist and they still serve the high net worth families that have this stone in their houses, first of all, in, in, in Spain and certain parts of Europe.
• 20:23
  But they all, they have records of all of the houses that their stone is in and specifically where the stone was quarried from, so that they can go back and get matching stone 40, 60, 80 years later if, if a piece of it breaks or if, if, uh, you know, there's, there's some event that, that causes the, the existing stone.
• 20:41
  'cause it'll last a really long time.
• 20:43
  Uh, if there's some event that makes the existing stone not work as well.
• 20:46
  Okay.
• 20:48
  And this is, this is a, a genuine long-term business model, right?
• 20:53
  I, I don't know what their numbers are, but, but when, uh, I had a client that reached out to them and, and they responded.
• 21:01
  They're like, oh, yes, here's the stone.
• 21:02
  We can get it there, you know, this and that and the other thing.
• 21:04
  Um, and then they, they had a, a price, which was astounding, but they knew exactly which house we were talking about, and they had more of that stone.
• 21:13
  They had preserved the ability to get matching stone from that spot in the quarry, which is kind of amazing.
• 21:21
  So this is a different way of thinking about stuff.
• 21:23
  So you have, this is, this is a reproductive and developmental way.
• 21:27
  It's not search and sort, right?
• 21:29
  So another way of saying this is, is this is you, you sire someone and then you raise them up.
• 21:34
  You save them and you disciple them.
• 21:36
  And this can be physical bloodlines, which is father and son.
• 21:39
  It can be spiritual bloodlines, master and apprentice teacher and student.
• 21:42
  Uh, you know, famously for, for those of you who followed the Christian story, the word for son and disciple, right?
• 21:48
  The word for son and the word for disciple were the same word in Aramaic, which is probably the language that, uh, that Jesus spoke.
• 21:55
  So, so when we're thinking about this stuff, we start with the understanding of when you're looking to encounter the covenantal economy, when you're looking to, to participate in, in a great house.
• 22:07
  And we're here, I hope, uh, because we want to think about what it, what it means to have a great house.
• 22:12
  That's, that's why I called this, uh, the Great Houses Forum.
• 22:16
  Um.
• 22:17
  And as we're thinking about what it means to have a great house, we want to interact with existing long-term thinkers, existing great houses, existing households in our world.
• 22:26
  And so the first thing you gotta do is you gotta think long-term and you gotta look for people who are thinking long-term.
• 22:32
  And then you have to start noticing, you know, the when, especially when I'm thinking long term.
• 22:37
  What does it mean to iterate?
• 22:38
  What does it mean to plan for, maybe I don't win every transaction and maybe that's okay.
• 22:44
  Right?
• 22:44
  Maybe that's okay.
• 22:46
  So, so those are the first two ideas that I, that I wanted to give you.
• 22:50
  And then we'll move on, uh, to the third idea.
• 22:53
  So.
• 22:55
  When we think about technology, um, you know, I think there's this, there's this assumption that the goal of technology is kind of this, this, this cheap, uh, globally available widget, right?
• 23:06
  So, so the height of globalism is we get one factory that's capable of producing enough, uh, widgets for the entire world, the entire population of the globe, and we'd churn out, you know, 10 billion, uh, versions of this wheel enough for everyone on earth, or 10 version, 10, 10 billion phones, or 10 billion cars or whatever it is.
• 23:24
  And then we ship them around the world logistically and we deliver them.
• 23:28
  But there's, there's a, there's an incredible centralization because we assume that the best way to make things is very cheaply in one central location.
• 23:36
  And that the, the cost of of transporting it are less, and, and, and the cost of optimizing it for a particular customer are gonna be less than the, than the savings because we have one super, you know, high capacity, um, you know, production facility.
• 23:54
  And, and I wanna start by saying, I mean, obviously that that is kind of the genius of the industrial age, and, and there is a lot of spaces in a lot of places where that really does work.
• 24:04
  But.
• 24:05
  I don't think that it's every space.
• 24:07
  I don't think that it's every space.
• 24:08
  So I wanna, I wanna give you this framework for thinking about technology.
• 24:11
  So there's, there's democratic technologies and there are aristocratic technologies.
• 24:15
  So a democratic technology, I define as a technology on which generally educated people can be effectively trained to a professional standard in less than two years, right?
• 24:26
  So now as we've, as we've grown, uh, you know, in in, in our our world, we've started having our general education get longer and longer.
• 24:36
  'cause we're trying to make more and more technologies fit within this definition for, for social reasons, right?
• 24:42
  Uh, that, that reality, and this will, when we, I start getting into the examples, you'll, you'll see why that reality is the basis not just of our economic system, but actually of our, of our political system.
• 24:53
  We have a political bias that says the, the dominant technologies that we use must be or ought to be democratic technologies.
• 25:02
  Technologies that we can, you know, produce and we can retool and we can upskill and we can upskill facilities and we can upskill people and learn to code.
• 25:10
  And, you know, there's just this assumption that you can just churn through different iterations of, of the economy.
• 25:17
  And that it's better to, it's better to do that, right?
• 25:20
  That that's the optimal way of, of organizing things.
• 25:23
  But what if, what if there was a different type of technology?
• 25:26
  What if there was an aristocratic technology?
• 25:28
  And, and I define an aristocratic technology as something that takes relatively long training times 10 to 20 years in which there is a strong benefit to starting early in life, probably before puberty, and in which there is a substantial capital investment required in the person themselves.
• 25:44
  Okay?
• 25:45
  Now, if, if you have an aristocratic technology, this means that unusually successful members of the prior generation must make deliberate choices to select recipients or maybe beneficiaries.
• 25:56
  We'll, we'll come back to, to that word beneficiaries next week.
• 25:59
  To set them apart for this particular purpose with an investment that they, you know, by definition have not earned.
• 26:07
  Right?
• 26:07
  You're dealing with, with young people, you're dealing with, you know, children, you're dealing with at best with teenagers where, where you have to select before they have gotten a, a bachelor's degree, you have to select them and say, well, here is the, here are the people, um, that, that I'm going to confer this benefit on and I'm gonna invest in them really before they've demonstrated too much.
• 26:30
  Okay?
• 26:30
  So now what I'll say is, if a democratic technology can reach 50% of the effectiveness of an aristocratic technology, by and large, the democratic technology will win because it's so much easier if you can just take, uh, a generally educated person, train them for two years, and then they're, they're, they're getting you.
• 26:48
  It's, it's easy to have twice as many people like that.
• 26:51
  Than it does to have aristocratic trainees that have been in a, in a particular path for most of their lives.
• 26:57
  Okay.
• 26:58
  So the classic example is guns versus Bose, right?
• 27:02
  So training someone to pull an English law.
• 27:03
  So, so a lot of people don't understand this when firearms were first invented and even when they were first becoming dominance, um, training an English long mow in particular.
• 27:14
  But, but Bose generally were, had better range, better accuracy, more stopping power.
• 27:19
  Um, they were, they were a better product, um, than, than than guns.
• 27:25
  Okay?
• 27:25
  Especially the early firearms.
• 27:26
  They, the early firearms were not very accurate.
• 27:28
  They, they had difficulty in producing them.
• 27:31
  They had difficulty in maintaining them, especially in wet environments.
• 27:35
  Um, but the gun, the firearm quickly got integrated at, at scale in, in military environments.
• 27:42
  And the reason for that is it, it training a long moment.
• 27:46
  Training somebody to pull a war bow is a 20 year process, you know, and if you don't start before 10 years of age, you're probably never gonna be quite as good, right?
• 27:55
  So they, they, they had understandings in, in, in the medieval period about you need to be able to pull a long bow, a war bow for the course of a battle, which might be an hour or two.
• 28:04
  And pulling a war bow 20, 30, 40, 50 times over the course of an hour, uh, was really, really difficult.
• 28:11
  Really, really tough on the body.
• 28:13
  You know, one of the interesting things is when, when we dig up, uh, we can, uh, medieval people.
• 28:18
  We can tell who the long bowmen are because, uh, their skeletons are actually different.
• 28:24
  Um, another thing was that you had to feed them very differently.
• 28:27
  You had to feed them about 10 times as much protein as the average peasant, um, eight in, in Europe at the time.
• 28:34
  So that, again, that meant that there had to be this substantial investment.
• 28:38
  'cause their parents could not afford to do that for them.
• 28:41
  They couldn't opt in and say, well, I'm gonna, I'm gonna be a, uh, I'm gonna, I'm gonna raise my kid, you know, put them on the, on the meat diet so that they can, they can pull a long bow.
• 28:50
  Uh, now maybe they could, if they were poachers, right, maybe they could, if they had, they had, they had some access to meat.
• 28:55
  But in terms of broad societal norms and what people had access to, um, you didn't have, um, someone with money, someone with aristocratic power and wealth had to pick you.
• 29:09
  That's the point that I'm, I'm driving at.
• 29:11
  Whereas training and infantry meant to shoot a gun is a six week to six month process, especially for the early firearms, which were basically like primitive shotguns, right?
• 29:19
  There's a, there's this period of time I think in, in, in French and German combat where they didn't actually do ready, aim, fire, it was level fire, right?
• 29:27
  Because you're just kind of pointing it in the general direction of the enemy and you're pulling the trigger and you know, you kind of pray and seeing, seeing what happens.
• 29:34
  But there, there, there's no meaningful ability to aim these firearms and they're still being adopted as the military technology, as the dominant military technology.
• 29:42
  And that's because it was so much quicker, so much easier to train than it was to train.
• 29:48
  And because you don't really train a long bowman, you, you develop them, you raise them, they're, they're on a very different path, um, from, from the people around them.
• 30:00
  Okay.
• 30:01
  So I have some other examples for you of, of, of aristocratic technologies.
• 30:06
  You think about Olympic athletes, right?
• 30:07
  Most people, uh, that are in the Olympics.
• 30:09
  In fact, every example of someone that I'm, that I'm in the, that is, that makes it as an Olympic athlete, either, um, they have rich parents or their, their parent.
• 30:18
  They, they have a, their parents have a rich friend.
• 30:20
  Um, and, and the exceptions very quickly acquire a patron due to showing off their, their athletic ability early.
• 30:27
  But there's a huge amount of kind of choice there because you can have incredible athletic ability.
• 30:32
  But if a rich person doesn't notice you and like you and decide that they want to invest in you and keep investing in you over the next 10, 15 years while you make a Olympic run, it's gonna be really, really difficult for you to get out there and compete and have the, have the, the practical ability to have success in that domain.
• 30:52
  So another concept, uh, that, that, that is, is the idea of artisan patents.
• 30:57
  So artisan patents is a word, uh, that people use for, there's, there's a number of of things.
• 31:04
  Uh, there's a number of inventions that that work but cannot seem to scale.
• 31:08
  What I mean by that, so think about battery technologies.
• 31:11
  There's been a number of things that have been patented over the, and, and certain medical, medical machines as well.
• 31:16
  Um, where you, you, you have a, a PhD in his lab, right?
• 31:21
  This PhD has been working on this problem for 20, 30 years, and he's got his, his custom trained post grad lab equipment, you know, lab, uh, assistance, and they can make the battery, they can do these edge borderline chemical processes and make you this super high density battery.
• 31:37
  Um, but when you try to put that in a factory context, it doesn't work when e or even sometimes when you move away from the original guy, like maybe he's got an 80% success rate, right?
• 31:46
  Well, you move it to some new person and you train them.
• 31:49
  And this, these, these processes are so sensitive and so delicate and so hard that maybe you drop to 30%.
• 31:57
  You know, a success rate on, on creating, getting the right chemical reactions.
• 32:00
  And when that happens, well, I mean, you've proven that this is possible, right?
• 32:05
  But it's not, it's not replicatable enough.
• 32:08
  You can't, you can't do mass manufacturing that way.
• 32:10
  Um, another, another example, this is probably a a, an unvirtuous example, uh, is, is, uh, regulatory bureaucratic barriers.
• 32:18
  So if you've got, um, if you've got a, a relationship with a bureaucrat, um, there, there's a lot of, when you study, when you study, uh, billionaires and you study, many of our, of our, uh, elites and, and, and, uh, successful tech entrepreneurs, many of them started a business that had government contracts, right?
• 32:38
  Substantial government contracts.
• 32:39
  And those contracts tend to resolve, there's gonna be one or two bureaucrats that you have built a relationship with that are approving those contracts.
• 32:48
  Or if it's a highly regulated, regulated, their if compliance is very difficult or very, very technical.
• 32:54
  Again, if you're the, an early mover and you have built a relationship with a bureaucrat regardless.
• 33:00
  And, and what's what's important about that is that's moving away from the technology side.
• 33:04
  That actually doesn't have anything to do with the technology, right?
• 33:07
  Which is very interesting.
• 33:08
  'cause you might have a business model, you have the technology over here, and the technology might be as democratic as the day is long.
• 33:14
  But the business model, if the business model flows through a bureaucrat, then you have recreated an aristocratic or at least a non-democratic business model.
• 33:24
  Okay?
• 33:25
  Now.
• 33:26
  I won't go too far into this 'cause I don't wanna, I don't wanna totally, uh, uh, derail the, the, the thinking here.
• 33:32
  We, we can get more into this on, in the, in the q and a afterwards, but, but I, I just want you all to be thinking fiat currency and nuclear power is, is are fiat currency and nuclear power are those democratic technologies, right?
• 33:47
  How, how, how many degrees of separation do you have from the people that are doing nuclear power?
• 33:53
  The people that are issuing new currency?
• 33:55
  You probably have a fair bit of separation.
• 33:57
  We, we, and, and in fact probably we, we want there to be fair bit, uh, separation.
• 34:00
  We don't really want everyone, at least this is the current theory, we don't want everybody to be able to, to, uh, you know, inflate the currency.
• 34:09
  We don't want everybody to be in charge of running nuclear power.
• 34:11
  I mean that, I mean, a lot of people don't even want that in their area, so it's so dangerous and scary to them.
• 34:17
  Yeah.
• 34:18
  But, um, but yeah, I think, I think hopefully you can see that neither of those technologies, which, which are arguably the dominant technologies of the modern era, you know, the post World War II era, um, those are not, those are not democratic technologies.
• 34:35
  Yeah.
• 34:37
  So it's even more interesting you think about like bespoke rans, uh, uh, I'm gonna.
• 34:41
  I'm gonna, if people can raise their hands, how many of you know what SAVI Row is?
• 34:45
  Who knows what, what Savile Row is?
• 34:46
  Savile Row is, um, a, a road in, in London.
• 34:51
  I believe that, that it's, it's a place where you can get bespoke suits.
• 34:55
  There's a bunch of suit, uh, manufacturers there, and they, um, they, they, you can come in.
• 35:03
  One, one of the interesting things about Sa Rowe is that a suit ha uh, there has cost about the same amount in gold for like the last 150 years.
• 35:11
  So, you know, the prices of suits have gone up.
• 35:13
  The prices of gold has gone up and, and over, you know, kind of a six month average.
• 35:18
  Uh, the, the, the price of an ounce and a half of gold, I think it's an ounce and a half, uh, gets you a suit, is basically what it, what it amounts to.
• 35:24
  Um, we'll see, we'll see if that holds true as we, as we enter a brave new world of gold and silver prices.
• 35:30
  Um, but that, that bespoke suit, you have a craftsman who ha, you know, hand stitches or, or at least does a lot more, uh, measuring and, and, and, and there is an individual person who is involved in making your suit.
• 35:43
  Now, the question I wanna put to you is, is making textiles, generally speaking an aristocratic or a democratic process?
• 35:50
  What's, I mean, it's a democratic process.
• 35:52
  Textiles was, was the, one of the foundational industries of the industrial revolution.
• 35:56
  It was one of the first things that we figured out how to industrialize.
• 36:00
  So textiles are, you know, they're incredible.
• 36:03
  Um, they're, they're, they're, you know, when people think about what is, what is an industrial technology, what is a democratic technology?
• 36:11
  Definitionally textile has to be a democratic technology.
• 36:14
  But on Sav Row, where you have these luxury bespoke brands, their business model, regardless of what, what could be done, right in their industry, their business model is an aristocratic business model.
• 36:27
  They maintain relationships.
• 36:28
  A lot of the guys, you know, if you, if you frequent those, if you're, if you're a a consistent customer, a lot of those guys, they'll, they'll remember you.
• 36:34
  They'll, they will pride themselves on being able to memorize people's measurements and, and, and evaluate people and, and see, you know, uh, allowing for the fact that that human bodies, uh, you know, especially as you age or, or, or don't eat it as well, tend to change in shape and size.
• 36:49
  Um, but they have a business model that is aristocratic, even though the underlying technology is, is democratic.
• 37:00
  And this is really important when you're looking, 'cause again, the, the purpose of this talk is to think about how do we see.
• 37:08
  Aspects of the covenantal economy.
• 37:09
  How do we see that?
• 37:10
  Where do we, where do we go from there?
• 37:12
  Um, how do you find people that are doing that?
• 37:15
  Well, when you see someone who has an aristocratic business model, they figured out a way to make their business model more aristocratic, more long-term, requiring lots of training requiring capital intensive training.
• 37:27
  Um, you know, ideally this is, I don't know if this is so much true for, for Savio Road guys, but there are, there are places and times, uh, where, you know, you gotta, you gotta start really early.
• 37:37
  You gotta start with young kids.
• 37:39
  And there's a, there's an incredible benefit to starting there.
• 37:41
  Um, when you have that, that, um, that allows you to, to have a different way of, of interacting with business.
• 37:53
  Because now your business model, now your income stream is forcing your family into this longer rhythm, right?
• 38:00
  It's forcing your family, or at least incentivizing your family to, to be good at a long-term game, at a long-term iterative game.
• 38:09
  Okay?
• 38:09
  And so, for many families, one of the, one of the steps, and, and, and this is something that, that maybe some of you will, will begin to do for your, your own families, is, is to look at your business and say, how could we make this business more aristocratic?
• 38:23
  Right?
• 38:23
  And, and beyond just the, well, let's get regulatory, you know, bureaucratic barriers and do kind of the, the, we're gonna put roadblocks in front of, of, of our opponents thing.
• 38:32
  Um.
• 38:34
  Again, that's there.
• 38:35
  The, there's, there's a lot of ethical challenges to that.
• 38:37
  What Roe has done is not unethical, right?
• 38:39
  That the, in fact, most people that go there, we view it as, as a more ethical system.
• 38:45
  A more righteous, a more just way.
• 38:48
  If, you know, to the extent that they think of it that way, uh, of, of doing business than your standard, you know, suit off the rack, they, they would think of this as something that's, that's more attuned to human flourishing.
• 39:00
  Okay?
• 39:01
  So as we're, as you're thinking about, well, how do, how do I become a great house?
• 39:06
  What does it, what does it mean to, to see a great house operating?
• 39:10
  You wanna find people that, that they're thinking long term, which means you gotta start thinking long term yourself.
• 39:15
  You wanna find people that are playing iterative games, okay?
• 39:19
  And you wanna find people that, that, that have an aristocratic business model, which is, which is that definition that I gave you.
• 39:25
  It's, it's something that it, it takes a long time to train.
• 39:28
  It's best to start early, and it requires some level of capital intensive process, which, you know, again, means the older generation or a prior generation has to be involved in the training.
• 39:40
  Okay?
• 39:41
  But, but this is what creates long-term relationships.
• 39:43
  'cause, 'cause this is what creates stability.
• 39:45
  One of the, one of the hard things about democratic processes and the way that people interact with this stuff is it's really easy for you to lose, um, to lose faith, right?
• 39:58
  If you feel replaceable.
• 40:00
  If you think, well, my boss or even my family can go out and get another one of me, they can replace me at any time.
• 40:08
  Um, then, then that's really difficult.
• 40:09
  It, it, it puts a lot of pressure on people and they, and, and people under pressure kind of make bad decisions on a fairly regular basis, unfortunately.
• 40:18
  But when you know, Hey, it took 20 years to train me, right?
• 40:23
  They, they, they, they can't find someone like me.
• 40:25
  Now, will they get rid of me if I behave badly?
• 40:28
  Yes.
• 40:28
  If there are moral issues, then I've kind of shown that the training didn't take as it were.
• 40:33
  Um, and that's a real problem.
• 40:35
  But if, if I'm thinking about myself and I know, hey, my family invested heavily in me.
• 40:42
  And, and usually when, when you're doing aristocratic training, there's kind of one-on-one relationships.
• 40:46
  The training was personal.
• 40:47
  It was intimate.
• 40:48
  It was, it was in many ways a moral education alongside the, the actual technical education.
• 40:54
  That is what you want to do.
• 40:56
  That is what you want to have.
• 40:57
  And that is, so that is a, a feature basically, so far as I can tell, of all, um, all successful legacy families.