In Defence of Extremism

So now I have your attention, let me clarify. I do not propose to defend extremism of the kind we hear about daily—the violent, law-breaking, society-upending kind. I am thinking more of “Aristotelian extremism”—not the so-called “revolutionary Aristotelianism” of a school of sophists who see in Aristotle a proto-Marxist, but the extremism present in Aristotle’s theory of the virtues. It can, I suspect, tell us something important about economics, the market, and even social change.

In his famous Nicomachean Ethics (Book 2, chapter 9) Aristotle claims that to hit upon virtuous behaviour, sometimes a person needs to “aim off”—to behave in a more extreme way than virtue demands. Aristotle holds that virtues lie on a mean between extremes of vice. The virtuous person habitually behaves according to the mean, and the vicious person habitually acts according to one of the extremes.

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Take two classic examples: courage and honesty. These are virtues, we all agree. But a person who is rash or foolhardy, taking unreasonable risks to life and limb, or who is cowardly because they shy away from even minor risks, is guilty of a vice. The mean, says Aristotle, is to be courageous, which requires acting in relation to risk in the right way, for the right reasons, and in the right circumstances. 

The same goes for honesty. An habitual liar sits at one extreme but some people are also excessive in their truth-telling: they are indiscreet, overly frank, even a gossip or a blabbermouth. They break confidences, are willing to tell someone how badly they’re dressed, or even how ugly they look. The honest person habitually speaks the truth in a reasonable way, as the occasion requires, all things considered. (Mind you, I’m with Immanuel Kant on this as I don’t think lying is ever permissible; but therein lies another story.)

Clearly, the heavy philosophical lifting is done by those magic words reasonable, in the right way, for the right reasons. For my purposes, we can put this to one side. The key point is that a person who has trouble with courage or honesty can benefit by practising a “controlled recalibration”: just as the archer takes account of the wind and aims off to hit the target, so we should sometimes aim away to hit the mean. 

In the case of courage, cowards should force themselves to take controlled risks they would shirk from, in order to move towards the mean. The foolhardy people should back off from parkour and extreme diving to reduce self-endangerment and channel their energies into more reasonable risk-taking. (Yes, some experts thrive on parkour and extreme diving; unpicking these philosophical knots is not my intention.)

Aristotle sees this ethical extremism as an intentional, deliberate affair. We need to “know ourselves”, as the inscription on the temple at Delphi admonished, and find ways of self-improvement. Yet we seem to see something similar, albeit not overtly intentional, at a societal level. I am thinking primarily of economics and the famous cycles of “boom” and “bust” that economists have analysed to death. The boom-bust cycle has had much bad press, whether from Marxists, Austrian School economists, or Keynesians. It has also had occasional praise. I am not an economist; I merely offer a philosopher’s general and distanced perspective on speculative bubbles—the “extraordinary popular delusions” of Charles Mackay’s celebrated account.

Housing, for one, has long been a prime target of speculation. I remember, during the long housing boom that went from the early 1990s to the crash of 2007, waking up to BBC Radio reports of people whose new career was “house-flipping”. The stories evaporated after the crash but were a symptom of popular investment madness. From 2007 on, housebuilding declined and, at least in the US, has only recently approached the historical average. Many people made money, many lost money and their homes. We know all that, but the fact is that millions of houses were built during the boom years that would have taken decades to complete had there been no speculative mania. And that means millions of people were able to house themselves earlier given the expanded supply. More importantly, the subsequent crash led to years of unfeasibly low interest rates that made the already low rates of the early 1990s look positively exorbitant. This allowed millions of people to lock themselves into extraordinary, bargain-basement, fixed-rate deals over anything from five years (typical for the UK) to decades (as is more common in the US). Only a good economist can tell whether, overall, housing booms and busts benefit people more than a steadier rate of construction. It doesn’t take an economist, however, to see that such extremism in investment does benefit many people—both individuals and families. It lays down huge amounts of infrastructure over a relatively short time, which eventually, despite near-term oversupply, will be consumed and enjoyed.

Starker examples are not hard to find. The Railway Mania of the 1840s in the UK saw the rapid construction of thousands of miles of track. During a few short years, over half of the current UK mileage of track was laid—6220 miles out of 11,000. The US saw several railway booms and busts, mainly in the 1850s, 1860s and 1870s. The crashes inevitably came, investors were crushed, and much money was lost, with track and train deployment settling to more financially manageable levels. Again, one can ask: how long would it have taken for such a huge amount of infrastructure to be built, with all its societal benefits, if there had been no get-rich-quick madness? By their very nature, speculative manias cause people to do a lot and do it very quickly, far more than if they were acting under more moderate impulses.

Now consider the “dot-com” boom of the 1990s that came crashing down around March 2000. To be more accurate, it wasn’t only an internet boom but a connectivity boom. I lived in central Reading during the 1990s and vividly recall the footpath outside my house being ripped up many times by cable companies so they could lay coaxial and fibre optic cables to get us all signed up to the latest subscription service. The footpath was dug up so many times over that decade that they might as well have installed a zip. Indeed, it became clear that good old-fashioned concrete and bitumen needed to be replaced by more modular, easily removable slabs of road and path that would enable quicker, less noisy and destructive roadworks. Between 1990 and 2000 there was a massive rollout of submarine cables, overground connections, servers, internet service providers, and all of the infrastructure that makes possible the internet we enjoy (or are plagued by) today. The growth has not stalled since the 2000 crash, given the insatiable demand for data, but there is no doubt of the pivotal role played by the 1990s speculative bubble.

Billions were thrown at the internet sector, fortunes were made and lost, and for years afterward, there was a large amount of overcapacity. Still, how long might all this construction have taken if it had been done at a more stately, “business as usual” pace? The frenzy to be first to market, to capture the sector, to get investors on board the next “big thing” enables so much to be achieved in such a short time. For those of us who never fluttered a penny during the dot-com bubble, the network is there to be used and enjoyed. Obscure economic calculations aside, it hardly cost most of us anything.

I do not suggest that every speculative bubble is worthwhile or that the good ones always have dramatic legacies. The infamous South Sea Bubble of 1720, in which speculators poured fortunes into something, they knew not what, that had to do with trade—not least slaves—and the Spanish colonies, left nothing behind of any value and facilitated a lot of suffering. It was more akin to a Ponzi scheme, in which some people get rich quick early, the rest are ruined, and the object of investment was always a phantom. By contrast, the equally notorious Tulip Mania had a very tangible object—the pretty flowers we all know and love. At its height, a single rare bulb was valued at thirty thousand pounds in current money. Utter madness, and you would have needed a seventeenth-century psychiatrist had you thrown your hard-earned cash into that frenzy. Yet the Netherlands now, and for a long time, has led the world in tulip production, growing and exporting over half the world’s bulb supply. It is the world’s largest grower and exporter of cut flowers, with an export value of over seven billion euros in 2021, almost one per cent of Dutch GDP, and all because of a tulip craze in the 1630s.

I have made a plausible case for the thought that speculative bubbles are not altogether a bad thing economically. They should not necessarily be frowned on, tut-tutted at, or lamented as alien forces taking over an otherwise stable economic path. Dare I say it, maybe they should be nurtured, even encouraged. Perhaps that’s a bit strong; it takes us potentially into the dark arts of economic manipulation, which would likely yield ten Ponzi schemes for every real bubble. Speculative manias must be handled with care.

First, don’t play with fire. Any individual or group—including the government—who would try to foment a bubble to reap longer-term benefits will not be able to control its course. By their nature, manias are out of control. Trying to start one is likely to waste a lot of energy best spent on enterprises that are known to be productive.

Second, adapting the famous Napoleonic quote, “Never interrupt your enemy while he is making a mistake”: never interrupt an investor when he is pouring money into a bubble. If an investor’s “animal spirits” make him determined to get rich quick from speculation, let him try.

Third, a little chivvying is not necessarily a bad thing. One can enjoy the mania, get caught up in the frenzy, and not even spend any money—nudging it along. The government can too. Perhaps this is what happened when the UK government raised an eye-watering twenty-two billion pounds from auctioning air (sorry, the 3G mobile spectrum) to rapidly growing phone companies. This happened right at the end of the dot-com boom, but not too late. Good timing by the government hastened an immense build-out of telecommunications infrastructure. So governments can play along with this dangerous game, though it requires characteristics lacking in most governments these days—wisdom and foresight as to what will genuinely benefit society, and the steadfastness to refrain from involvement in anything harmful. The last thing any of us want to see is a government nudging along a speculative mania in something like, say, cannabis … oh, wait …

The important feature of a true investment bubble, as opposed to a Ponzi scheme, a fad, a craze, or a fashion, is that there is a usable legacy in its wake. Once the madness subsides, the riches have been counted, the wounds nursed, and business has returned to some kind of normal, we want to see lasting societal benefit, something tangible like infrastructure as opposed to something intangible such as a way of working or behaving. A craze for designer trainers, fitness classes, or intermittent fasting may be good or bad, and may permanently alter the way many people behave, but it is arguably a stretch to call such crazes or trends “bubbles”, except perhaps by analogy. A behavioural legacy is, for all its touchy-feeliness, a kind of legacy.

Bryan Johnson, the entrepreneur well known for his endless self-experimentation in the name of longevity science, has generated a mini-craze in which disciples try versions—generally time- and money-consuming—of his “Blueprint Protocol”. This is not something many, myself included, would want to play around with, but it may yield results regarding the benefits of certain lifestyles, supplements, diets and so on. We can stand by and watch the fun, benefiting from any positive outcomes as they arise. In this way, we are “free riders” on the efforts of others—their investment of time and resources. But that’s fine, since free riding keeps society’s wheels moving, as long as we give back as well as take.

If we want to play the game of extending the extremist idea by analogy, we might even venture into social movements. Perhaps “consciousness raising” is similar to investment bubbles. Some might say it took the unintentionally suicidal behaviour of Emily Davison to cement the women’s suffrage movement in people’s minds. Or that the spectacular raids to release intensively reared animals from inhumane conditions are needed to raise awareness of the horrors of factory farming. This would be mistaken, however, if the “social investment bubble”, as we might tendentiously call it, involved immoral behaviour—since we could not stand by and watch it with wry amusement as we would a mania for investing in tulips. We are faced with the question of what is moral in the face of an unjust law. Trespass? Property damage? I will skirt around that, arguing only that if the idea of a social investment bubble is to have any value, we should err on the side of caution; we should be confident that the bubble is one that involves the investment of time, energy—and money—in a socially legitimate objective employing equally legitimate means to that end.

In that spirit, I commend the Chartist movement as an example of a social investment bubble meeting that criterion. What the Chartists called for was socially legitimate if not outright necessary, such as secret ballots, equal constituencies, anti-corruption measures and improved working conditions. The means were noisy protests, petitions, agitation, education, mutual support and a refusal to back down. In the short term, the movement is deemed by most historians a failure—a social investment crash, so to speak. Yet most of what the Chartists demanded was eventually implemented. They left a legacy, both institutional and behavioural, for others to enjoy.

Chartism was not a social bubble that the governing classes were wont to chivvy along. That’s fine since we should think of bubbles, whether financial or social, as largely matters of private enthusiasm, not governmental. We should want governments to take a back seat, watching with interest but not trying to “pick winners”. Let the bubbles inflate. Only a fool would try to stop them. They will all pop eventually. Some will leave behind nothing but a few drops of water. Others will bequeath something more substantial.

This leads to the question, “Is cryptocurrency an investment bubble and, if so, is it a good one?” So far, it has been more a series of mini-bubbles, with Bitcoin shooting up and plunging in value, though the profile is about right—the creation of assets, in fact too many cryptocurrencies, with a new one coming along every minute, along with pure speculation on their movement. But it also has some marks of a giant Ponzi scheme, since the creators of each crypto asset have first snouts in their own trough, siphoning off huge amounts of nominal wealth before the downstream suckers get a look-in. If cryptocurrencies are assets, they are highly ethereal, very unpredictable, hard to convert into anything real and usable—including regular state-backed money—and pretty complex to understand or use.

What about their legacy? It’s too soon to tell, but the hope is that the crypto bubble will leave behind a blockchain infrastructure that radically improves the verifiability, reliability, predictability, security, privacy or transparency (as need be) of many regular assets and transactions, such as private contracts, real estate, and personal data. The other hoped-for legacy among the many anarcho-capitalists who have colonised the crypto world is final freedom from the “fiat” currency of the state and banks; perhaps this latter is less about infrastructure and more about behaviour. By contrast, and more darkly, governments and central banks, licking their lips at the thought of total control over citizens’ receipt and use of money, see CBDCs as the socially worthwhile (that is, freedom-destroying) product of the blockchain legacy. All we can say now is that various legacies, good and bad, look to be in the offing, but it is impossible to know.

We can be more confident that Aristotle probably would have cast a quizzical eye over the use of his virtue theory as a springboard for socio-economic exploration of the kind I have outlined. We should, as good Aristotelians, never encourage extremes of behaviour. We should never applaud avarice, selfishness or manic speculation. What we should aim at is our own and the common good. This requires care and deliberation, with sound judgment tempered by the wisdom of experience. Manic behaviour sits ill with this.

And yet … people do go off the rails. Whole societies go off the rails. Maybe Adam Smith was right that it is the celebrated invisible hand of the market that brings people back to their senses. Or maybe it is just human nature, as Aristotle would have said. We go crazy, vices break loose, we stare at the precipice … and we breathe deeply and take a step back, hoping that we have learned or achieved something worthwhile in the process.

David S. Oderberg is a Professor of Philosophy at the University of Reading: d.s.oderberg@reading.ac.uk, www.davidsoderberg.co.uk