What René Girard Can Teach Us About Bubbles

If your interests are niche enough, it feels like the world’s population is, at most, a couple hundred people. Enough that you don’t personally know everyone, but not so many that you’re more than two degrees of separation away. This thought occurred to me a few months

If your interests are niche enough, it feels like the world’s population is, at most, a couple hundred people. Enough that you don’t personally know everyone, but not so many that you’re more than two degrees of separation away.

This thought occurred to me a few months ago, when, in the space of a few days:

  1. I read a compelling essay on bubbles as innovation accelerators,
  2. A friend sent me a link to the essay and suggested I reach out to the author, and
  3. Before I had a chance to do that, the author contacted me and suggested a collaboration.

As a result, we’ve spent the last few months writing about how to apply the ideas of the literary theorist, philosopher, and sociologist René Girard to financial bubbles.

Girard is a fascinating figure. I stumbled on his work about a decade ago, read Violence and the Sacred, and decided he was just an academic with an expansive but impractical theory. Yet another smart, hyper-verbal twentieth-century academic out to reinvent the human experience.

Girard’s viewpoint starts with the nature of desire. We’re used to thinking of desire as something that emerges organically: you want something, and you try to get it. Sometimes, it’s easy; sometimes, there’s competition.

To Girard, that’s all wrong: you want something because of competition. Success is just a story you tell yourself about your desire for your rivals to fail. This is an old, old story; the prelude to The Iliad is a wedding party in which Eris, goddess of discord, tosses a golden apple inscribed “To the fairest” at the feet of three other goddesses. This, indirectly, leads to the Trojan War, which is directly precipitated by Paris kidnapping Helen from the palace of her husband, Menelaus. The fight is not really over the prize (does a goddess really need a Trophy Apple? Couldn’t Paris meet some nice Trojan girl and settle down?); the prize is just a way to justify the conflict. Literature is full of this sort of conflict; A Midsummer Night’s Dream is, in Girard’s reading, entirely a story of borrowed desire, as is Don Quixote and much of Dostoevsky.

If the same plot is entertaining for three thousand years, in comedy and tragedy, in stories, poems, and novels, there might be something to it.

“There might be something to it,” I thought, and then I dropped the topic.

There are two reasons I picked up the Girard thread again:

  1. I had kids. Plural: once you have two kids, your home becomes a Mimetic Thunderdome. However many toys and books you own, there is always exactly one toy that’s most desirable to one of your kids, and it’s the one the other kid is playing with.
  2. Mimetic desire: Zero to One is full of Girardian themes. Tyler Cowen, Dan Wang, and Alex Danco all think Girard is a big deal. (I’m pretty certain Danco read Theater of Envy just before he wrote this.) Do I think Girard’s not a big deal, just a medium deal, because I’m right, or because I Just Don’t Get It?

So I went back and reread Violence and the Sacred, and read some more Girard, and some of the literary source material he uses. And I decided that he makes a good case. Girard is a kind of slippery figure. Sometimes, the text supports his preferred viewpoint. Sometimes, it’s neutral (this, he says, is irrelevant). Sometimes, the text seems to directly contradict the notion of mimetic desire (this, we are told, is a misdirection).

I like to imagine that Girard’s books are the result of a long process of evolution: he makes a claim in class; a bold undergrad parries, quoting verbatim from the source material — and the duel is on. (I have read nothing biographical about Girard that goes beyond the level of bullet points, but when I envision this he is definitely flagrantly violating anti-smoking ordinances. He just writes like the kind of guy who would light up in class, misdemeanors be damned.)

He’s the Miracle Berry of literary theorists. Read Don Quixote, then read Girard, then read Quixote again — a completely different flavor.

But what keeps coming to mind is that, while Shakespeare and Dickens and Dostoevsky and Cervantes are good illustrations of the power of runaway mimetic desire, some of the best examples are from economic bubbles. What was the dot-com bubble other than an attempt to recreate the magic of the original dot-coms? Was an ICO an attempt to cash in on Satoshi, or a vain attempt to be Satoshi?

Girard ties the theory of mimetic desire into the notion of scapegoats: our conflicting desires lead to chaos and violence, and we choose someone to blame for these problems, and make them the designated victim. Read post-bubble media coverage, and you’ll see it: we pin the blame for collective madness on a single person. Sometimes, they’re partially at fault; sometimes, they’re only tangentially to blame, but an easy target for other reasons. Bubbles are born as an abstract, de-personalized narrative — technology! Housing! Blockchain! — but when they die they turn into a story with a villain.

That’s an interesting pattern because it’s basically backwards: transformative economic innovations are, at first, driven by a tiny number of people with unusual ideas and a scary level of risk tolerance. Over time, the companies they found become more institutionalized, and the bubble they engender turns into a more abstract force. Eventually, there’s a crisis — usually a liquidity crisis, i.e. the most abstract and impersonal sort of economic crisis. A short squeeze in cash, the universal call option! And then, collapse.

Can we learn from inverting the perception of bubbles? I certainly learned a lot while working on this piece, including:

It’s been a fun effort, the result of countless email chains, Telegram messaging sessions, and Google Doc-editing round-trips.

We hope you enjoy it.

Click here to read the full paper.

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